U.S. Cellular reports second quarter 2014 results

Provides 2014 financial guidance

As previously announced, U.S. Cellular will hold a teleconference Aug. 1, 2014 at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

Aug 01, 2014, 07:56 ET from United States Cellular Corporation

CHICAGO, Aug. 1, 2014 /PRNewswire/ -- United States Cellular Corporation (NYSE: USM) reported total operating revenues of $957.8 million for the second quarter of 2014, versus $995.1 million for the same period one year ago. Net income (loss) attributable to U.S. Cellular shareholders and related diluted earnings (loss) per share were $(18.8) million and $(0.22) respectively, for the second quarter of 2014, compared to $143.4 million and $1.69, respectively, in the comparable period one year ago.  Year-over-year comparisons are affected by the divestiture transaction in 2013.

"We have continued to generate strong gross additions and reduce churn, which led to net postpaid customer growth for the month of June, and that has continued into July," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We are building momentum from strategic actions we've taken to attract more new customers and increase loyalty.

"More wireless consumers are responding to our strong value proposition that offers the speed and quality of our award-winning network, together with a wide range of devices and data services, and competitive pricing. Now that the billing system is stabilized, our associates are again delivering outstanding service to customers in our service centers and stores which has led to a significant reduction in postpaid customer churn.

"With smartphone penetration at 55 percent among postpaid customers, data use continues to grow, driving up our postpaid average revenue per user. Our equipment installment plans, introduced in April, have been well received and represented 14 percent of equipment transactions in the quarter.

"Growing our customer base is our highest priority in 2014, and our recent performance gives me confidence that we're on the right track to achieve this goal, with our competitive devices, plans, and pricing, our fast and reliable network, and our highly engaged associates."  

2014 Estimated Results

U.S. Cellular's estimates of full-year 2014 results are shown below.  Such estimates represent U.S. Cellular's view as of August 1, 2014.  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.

2014 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,000

N/A

Adjusted income before income taxes (1)

$350-$450

N/A

Capital expenditures

$640

Unchanged

(1)

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. From time to time, 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 items that are excluded are non-recurring, infrequent or unusual; such items 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 before income taxes to adjusted income before income taxes for 2014 estimated results, six months ended June 30, 2014 actual results, and year ended December 31, 2013 actual results:

 

Actual Results

2014 Estimated Results

Six Months Ended

June 30, 2014

Year Ended

December 31, 2013

(Dollars in millions)

Income (loss) before income taxes

($189)-($89)

$1

$258

Depreciation, amortization and accretion expense

$630

$316

$804

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

($50)

($17)

($247)

(Gain) loss on license sales and exchanges

($91)

($91)

($255)

(Gain) loss on investments

 ― 

 ― 

($19)

Interest expense

$50

$29

$44

Adjusted income before income taxes

$350-$450

$238

$585

 

Conference Call Information U.S. Cellular will hold a conference call on Aug. 1, 2014 at 9:30 a.m. CDT.

  • Access the live call on the Events & Presentation page of investors.uscellular.com or at www.videonewswire.com/event.asp?id=100144.
  • Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

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 4.7 million customers in 23 states. The Chicago-based company had 6,400 full- and part-time associates as of June 30, 2014. At the end of the second quarter of 2014, 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 wireless 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.   

 

United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

Retail Customers

Postpaid

Total at end of period

4,148,000

4,174,000

4,267,000

4,343,000

4,412,000

Gross additions

190,000

197,000

176,000

165,000

165,000

Net additions (losses)

(26,000)

(93,000)

(71,000)

(60,000)

(120,000)

ARPU (1)

$

56.82

$

57.59

$

53.53

$

54.64

$

54.18

Churn rate (2)

1.7%

2.3%

1.9%

1.7%

2.0%

Smartphone penetration (3)

55.3%

53.1%

50.8%

47.1%

45.5%

Prepaid

Total at end of period

352,000

356,000

343,000

370,000

381,000

Gross additions

65,000

85,000

63,000

65,000

77,000

Net additions (losses)

(4,000)

13,000

(26,000)

(11,000)

(7,000)

ARPU (1)

$

34.02

$

32.22

$

31.66

$

28.72

$

31.69

Churn rate (2)

6.5%

6.9%

8.3%

6.8%

6.8%

Total customers at end of period

4,653,000

4,684,000

4,774,000

4,875,000

4,968,000

Billed ARPU (1)

$

53.36

$

53.93

$

50.25

$

50.92

$

50.60

Service revenue ARPU (1)

$

60.32

$

60.19

$

57.05

$

58.36

$

57.45

Smartphones sold as a percent of total

  devices sold

72.6%

73.0%

79.6%

65.2%

66.0%

Total population

Consolidated markets (4)

54,817,000

54,817,000

58,013,000

84,025,000

84,025,000

Consolidated operating markets (4)

31,729,000

31,729,000

31,759,000

31,822,000

31,822,000

Market penetration at end of period

Consolidated markets (5)

8.5%

8.5%

8.2%

5.8%

5.9%

Consolidated operating markets (5)

14.7%

14.8%

15.0%

15.3%

15.6%

Capital expenditures (000s)

$

143,927

$

89,581

$

208,135

$

242,459

$

168,497

Total cell sites in service

6,183

6,165

6,975

7,687

7,748

Owned towers

4,457

4,448

4,448

4,422

4,411

*     

Represents U.S. Cellular's consolidated markets. These results include markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and are not adjusted in prior periods for subsequent divestitures or deconsolidations.

Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

 

United States Cellular Corporation

Core* Markets Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

Retail Customers

Postpaid

Total at end of period

4,148,000

4,174,000

4,267,000

4,343,000

4,412,000

Gross additions

190,000

197,000

176,000

165,000

165,000

Net additions (losses)

(26,000)

(93,000)

(71,000)

(60,000)

(53,000)

ARPU (1)

$

56.82

$

57.59

$

53.53

$

54.64

$

54.44

Churn rate (2)

1.7%

2.3%

1.9%

1.7%

1.6%

Smartphone penetration (3)

55.3%

53.1%

50.8%

47.1%

45.5%

Prepaid

Total at end of period

352,000

356,000

343,000

370,000

381,000

Gross additions

65,000

85,000

63,000

65,000

76,000

Net additions (losses)

(4,000)

13,000

(26,000)

(11,000)

8,000

ARPU (1)

$

34.02

$

32.22

$

31.66

$

28.72

$

31.65

Churn rate (2)

6.5%

6.9%

8.3%

6.8%

6.0%

Total customers at end of period

4,653,000

4,684,000

4,774,000

4,875,000

4,968,000

Billed ARPU (1)

$

53.36

$

53.93

$

50.25

$

50.92

$

50.98

Service revenue ARPU (1)

$

60.32

$

60.19

$

57.05

$

58.36

$

57.88

Smartphones sold as a percent of total

  devices sold

72.6%

73.0%

79.6%

65.2%

66.1%

Total population

Consolidated markets (4)

54,817,000

54,817,000

58,013,000

84,025,000

84,025,000

Consolidated operating markets (4)

31,729,000

31,729,000

31,759,000

31,822,000

31,822,000

Market penetration at end of period

Consolidated markets (5)

8.5%

8.5%

8.2%

5.8%

5.9%

Consolidated operating markets (5)

14.7%

14.8%

15.0%

15.3%

15.6%

Capital expenditures (000s)

$

143,927

$

89,581

$

211,247

$

239,332

$

171,166

Total cell sites in service

6,183

6,165

6,161

6,127

6,113

Owned towers

3,892

3,883

3,883

3,857

3,846

*

U.S. Cellular's Core Markets excludes the results of the Divestiture Markets and NY1 and NY2 Partnerships for the periods presented.

Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

(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 retail service or "billed" revenues (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 disconnect 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. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(4)

The decrease in the population of Consolidated markets is due primarily to the divestiture of the Mississippi Valley non-operating license in October 2013 and the majority of the St. Louis area non-operating market license in March 2014. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (5) below.

(5)

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.  The increase in penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (4) above.

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended June 30,

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

      Change

2014

2013

Amount

Percent

Operating revenues

Service

$

843,473

$

910,966

$

(67,493)

(7%)

Equipment sales

114,300

84,164

30,136

36%

Total operating revenues

957,773

995,130

(37,357)

(4%)

Operating expenses

System operations (excluding Depreciation, amortization and accretion

  reported below)

187,131

192,267

(5,136)

(3%)

Cost of equipment sold

271,978

217,070

54,908

25%

Selling, general and administrative

404,252

404,127

125

Depreciation, amortization and accretion

148,337

202,580

(54,243)

(27%)

(Gain) loss on asset disposals, net

6,893

9,018

(2,125)

(24%)

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

(10,511)

(249,024)

238,513

96%

Total operating expenses

1,008,080

776,038

232,042

30%

Operating income (loss)

(50,307)

219,092

(269,399)

>(100%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

33,120

35,602

(2,482)

(7%)

Interest and dividend income

1,573

969

604

62%

Gain (loss) on investments

18,527

(18,527)

N/M

Interest expense

(14,336)

(10,154)

(4,182)

(41%)

Other, net

100

321

(221)

(69%)

Total investment and other income

20,457

45,265

(24,808)

(55%)

Income (loss) before income taxes

(29,850)

264,357

(294,207)

>(100%)

Income tax expense (benefit)

(10,399)

120,682

(131,081)

>(100%)

Net income (loss)

(19,451)

143,675

(163,126)

>(100%)

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

(662)

284

(946)

>(100%)

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

$

(18,789)

$

143,391

$

(162,180)

>(100%)

Basic weighted average shares outstanding

84,341

83,845

496

1%

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

$

(0.22)

$

1.71

$

(1.93)

>(100%)

Diluted weighted average shares outstanding

84,341

84,661

(320)

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

$

(0.22)

$

1.69

$

(1.91)

>(100%)

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Six Months Ended June 30,

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

      Change

2014

2013

Amount

Percent

Operating revenues

Service

$

1,697,086

$

1,907,315

$

(210,229)

(11%)

Equipment sales

186,498

169,561

16,937

10%

Total operating revenues

1,883,584

2,076,876

(193,292)

(9%)

Operating expenses

System operations (excluding Depreciation, amortization and accretion

  reported below)

367,738

408,566

(40,828)

(10%)

Cost of equipment sold

542,452

458,761

83,691

18%

Selling, general and administrative

799,816

824,207

(24,391)

(3%)

Depreciation, amortization and accretion

316,090

392,425

(76,335)

(19%)

(Gain) loss on asset disposals, net

8,827

14,452

(5,625)

(39%)

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

(17,411)

(242,093)

224,682

93%

(Gain) loss on license sales and exchanges

(91,446)

(91,446)

N/M

Total operating expenses

1,926,066

1,856,318

69,748

4%

Operating income (loss)

(42,482)

220,558

(263,040)

>(100%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

70,195

62,437

7,758

12%

Interest and dividend income

2,457

1,872

585

31%

Gain (loss) on investments

18,527

(18,527)

N/M

Interest expense

(29,198)

(21,064)

(8,134)

(39%)

Other, net

186

106

80

75%

Total investment and other income

43,640

61,878

(18,238)

(29%)

Income before income taxes

1,158

282,436

(281,278)

(100%)

Income tax expense

2,205

128,051

(125,846)

(98%)

Net income (loss)

(1,047)

154,385

(155,432)

>(100%)

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

(1,740)

6,080

(7,820)

>(100%)

Net income attributable to U.S. Cellular shareholders

$

693

$

148,305

$

(147,612)

(100%)

Basic weighted average shares outstanding

84,277

83,842

435

1%

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

$

0.01

$

1.77

$

(1.76)

(99%)

Diluted weighted average shares outstanding

85,041

84,655

386

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

$

0.01

$

1.75

$

(1.74)

(99%)

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

June 30,

December 31,

2014

2013

Current assets

Cash and cash equivalents

$

404,058

$

342,065

Short-term investments

40,035

50,104

Accounts receivable from customers and others

480,488

586,595

Inventory, net

199,859

238,188

Prepaid expenses

63,836

65,596

Net deferred income tax asset

99,105

99,105

Other current assets

20,908

19,538

1,308,289

1,401,191

Assets held for sale

16,027

Investments

Licenses

1,437,831

1,401,126

Goodwill

387,524

387,524

Investments in unconsolidated entities

270,215

265,585

2,095,570

2,054,235

Property, plant and equipment

In service and under construction

7,670,466

7,717,512

Less: Accumulated depreciation

4,909,062

4,860,992

2,761,404

2,856,520

Other assets and deferred charges

133,704

117,735

Total assets

$

6,298,967

$

6,445,708

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

June 30,

December 31,

2014

2013

Current liabilities

Current portion of long-term debt

$

46

$

166

Accounts payable

Affiliated

9,937

11,243

Trade

348,223

405,583

Customer deposits and deferred revenues

267,533

256,740

Accrued taxes

51,249

73,820

Accrued compensation

54,993

66,566

Other current liabilities

139,229

192,055

871,210

1,006,173

Deferred liabilities and credits

Net deferred income tax liability

822,205

836,297

Other deferred liabilities and credits

318,793

315,073

Long-term debt

876,715

878,032

Noncontrolling interests with redemption features

911

536

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

1,434,045

1,424,729

Treasury shares

(161,137)

(164,692)

Retained earnings

2,032,355

2,043,095

Total U.S. Cellular shareholders' equity

3,393,337

3,391,206

Noncontrolling interests

15,796

18,391

Total equity

3,409,133

3,409,597

Total liabilities and equity

$

6,298,967

$

6,445,708

 

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, 2014 and December 31, 2013.

June 30,

December 31,

2014

2013

Cash and cash equivalents

$

404,058

$

342,065

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

U.S. Treasury Notes

40,035

50,104

Total cash and cash equivalents and investments

$

444,093

$

392,169

(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

Six Months Ended June 30,

(Unaudited, dollars in thousands)

2014

2013

Cash flows from operating activities

Net income (loss)

$

(1,047)

$

154,385

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

  operating activities

Depreciation, amortization and accretion

316,090

392,425

Bad debts expense

49,083

32,715

Stock-based compensation expense

10,560

6,530

Deferred income taxes, net

(13,267)

(26,527)

Equity in earnings of unconsolidated entities

(70,195)

(62,437)

Distributions from unconsolidated entities

65,565

45,370

(Gain) loss on asset disposals, net

8,827

14,452

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

(17,411)

(242,093)

(Gain) loss on investments

(18,527)

(Gain) loss on license sales and exchanges

(91,446)

Noncash interest expense

540

526

Other operating activities

57

489

Changes in assets and liabilities from operations

Accounts receivable

52,471

(1,544)

Inventory

38,329

(7,644)

Accounts payable - trade

(34,666)

67,457

Accounts payable - affiliate

(1,934)

4,734

Customer deposits and deferred revenues

10,793

8,663

Accrued taxes

(20,280)

147,566

Accrued interest

61

176

Other assets and liabilities

(89,270)

(68,131)

212,860

448,585

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(262,397)

(323,157)

Cash paid for acquisitions and licenses

(17,245)

(14,150)

Cash received from divestitures

125,905

480,000

Cash received for investments

10,000

Other investing activities

836

3,993

(142,901)

146,686

Cash flows from financing activities

Repayment of long-term debt

(28)

(71)

Common shares reissued for benefit plans, net of tax payments

830

(2,206)

Common shares repurchased

(8,298)

(18,425)

Dividends paid

(482,270)

Distributions to noncontrolling interests

(482)

(3,292)

Other financing activities

12

56

(7,966)

(506,208)

Net increase in cash and cash equivalents

61,993

89,063

Cash and cash equivalents

Beginning of period

342,065

378,358

End of period

$

404,058

$

467,421

 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Cash flows from operating activities

$

149,324

$

224,970

$

212,860

$

448,585

Add: Sprint Cost Reimbursement

22,862

34,116

Less: Cash used for additions to property,

   plant and equipment

152,899

172,133

262,397

323,157

Adjusted free cash flow (1)

$

19,287

$

52,837

$

(15,421)

$

125,428

(1)

Adjusted free cash flow is defined as Cash flows from operating activities, as adjusted for cash proceeds from the Sprint Cost Reimbursement (which are included in Cash flows from investing activities in the Consolidated Statement of Cash Flows), less Cash used for additions to property, plant and equipment. Adjusted 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 (including cash proceeds from the Sprint Cost Reimbursement), after Cash used for additions to property, plant and equipment. The prior manner of calculating free cash flow has been adjusted to include the Sprint Cost Reimbursement. The reason for this is that the Sprint decommissioning cash outflows are included in "Cash flows from operating activities," but the reimbursements from Sprint related to these outflows are not included in this caption.

 

SOURCE United States Cellular Corporation



RELATED LINKS

http://www.uscellular.com