U.S. Cellular reports second quarter 2015 results

2015 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

$4,000-$4,100

$4,000-$4,200

Operating cash flow (1)

$440-$540

$400-$500

Adjusted EBITDA (1)

$600-$700

$580-$680

Capital expenditures

Approx. $600

Unchanged

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation below.  Operating cash flow and Adjusted EBITDA exclude 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 Operating cash flow and/or Adjusted EBITDA 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.  Operating cash flow and Adjusted EBITDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to net income as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. U.S. Cellular believes Operating cash flow and Adjusted EBITDA are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as indicated below. The following tables provide a reconciliation to Operating cash flow and Adjusted EBITDA for 2015 estimated results, actual results for the six months ended June 30, 2015 and 2014 actual results:

2015 Estimated

Results (2)

Six Months Ended June 30, 2015

Year Ended

December 31, 2014

(Dollars in millions)

Net income (loss) (GAAP)

N/A

$

185

$

(47)

Add back:

Income tax expense (benefit)

N/A

121

(12)

Income (loss) before income taxes (GAAP)

$

165-265

$

306

$

(59)

Add back:

Interest expense

80

40

57

Depreciation, amortization and accretion expense

600

298

606

EBITDA

$

845-945

$

643

$

605

Add back (deduct):

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

(115)

(113)

(33)

(Gain) loss on license sales and exchanges, net

(145)

(123)

(113)

(Gain) loss on assets disposals, net

15

10

21

Adjusted EBITDA

$

600-700

$

417

$

480

Deduct:

Equity in earnings of unconsolidated entities

(125)

(70)

(130)

Interest and dividend income

(35)

(17)

(12)

Operating cash flow (3)

$

440-540

$

330

$

338

Note: Totals may not foot due to rounding differences.

(2)

In providing 2015 Estimated Results, U.S. Cellular has not completed the above reconciliation to net income because it does not provide guidance for income taxes. U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance. Accordingly, a reconciliation to net income is not available without unreasonable effort.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for June 30, 2015 actual results can be found on the company's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2015

3/31/2015

12/31/2014

9/30/2014

6/30/2014

Retail Customers

Postpaid

Total at end of period

4,324,000

4,307,000

4,298,000

4,200,000

4,148,000

Gross additions

191,000

200,000

302,000

251,000

190,000

Net additions (losses)

17,000

9,000

98,000

52,000

(26,000)

ARPU (1)

$

53.62

$

54.87

$

56.51

$

56.37

$

56.82

ARPA (2)

$

133.85

$

134.94

$

136.13

$

132.99

$

131.95

Churn rate (3)

1.3%

1.5%

1.6%

1.6%

1.7%

Smartphone penetration (4)

69.1%

66.9%

64.8%

61.7%

58.4%

Prepaid

Total at end of period

368,000

360,000

348,000

350,000

352,000

Gross additions

65,000

73,000

60,000

64,000

65,000

Net additions (losses)

8,000

12,000

(2,000)

(2,000)

(4,000)

ARPU (1)

$

35.98

$

35.72

$

35.33

$

34.40

$

34.02

Churn rate (3)

5.2%

5.8%

5.9%

6.3%

6.5%

Total customers at end of period

4,779,000

4,775,000

4,760,000

4,674,000

4,653,000

Billed ARPU (1)

$

51.29

$

52.29

$

53.63

$

53.24

$

53.36

Service revenue ARPU (1)

$

57.55

$

58.01

$

60.10

$

60.92

$

60.32

Smartphones sold as a percent of total handsets sold

86.7%

85.7%

86.5%

80.8%

79.0%

Total population

Consolidated markets (5)

45,737,000

45,737,000

50,906,000

54,817,000

54,817,000

Consolidated operating markets (5)

31,814,000

31,814,000

31,729,000

31,729,000

31,729,000

Market penetration at end of period

Consolidated markets (6)

10.4%

10.4%

9.4%

8.5%

8.5%

Consolidated operating markets (6)

15.0%

15.0%

15.0%

14.7%

14.7%

Capital expenditures (000s)

$

133,666

$

66,460

$

181,655

$

142,452

$

143,927

Total cell sites in service

6,223

6,219

6,220

6,209

6,183

Owned towers (7)

3,940

3,936

4,280

4,487

4,457

(1)

Average Revenue Per User ("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 postpaid, prepaid and reseller service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2)

Average Revenue Per Account ("ARPA") metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts by the number of months in the period.

(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 Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid handset customers.

(5)

The decrease in the population of Consolidated markets is due primarily to the license exchange transactions of certain non-operating licenses in North Carolina in December 2014 and Illinois and Indiana in March 2015. Total Population is used only to calculate market penetration of consolidated markets and consolidated 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 markets and consolidated operating markets, respectively, as estimated by Claritas.  The increase in consolidated markets penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (5) above.

(7)

During the quarters ended March 31, 2015 and December 31, 2014, sold 359 and 236 towers, respectively, in divested markets.

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

2015

2014

Amount

Percent

Operating revenues

Service

$

824,373

$

843,473

$

(19,100)

(2)%

Equipment sales

151,294

114,300

36,994

32%

Total operating revenues

975,667

957,773

17,894

2%

Operating expenses

System operations (excluding Depreciation, amortization and accretion reported below)

196,276

187,131

9,145

5%

Cost of equipment sold

253,671

271,978

(18,307)

(7)%

Selling, general and administrative

362,971

404,252

(41,281)

(10)%

Depreciation, amortization and accretion

150,581

148,337

2,244

2%

(Gain) loss on asset disposals, net

5,399

6,893

(1,494)

(22)%

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

(1,705)

(10,511)

8,806

84%

(Gain) loss on license sales and exchanges, net

(25)

–

(25)

Total operating expenses

967,168

1,008,080

(40,912)

(4)%

Operating income (loss)

8,499

(50,307)

58,806

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

35,584

33,120

2,464

7%

Interest and dividend income

8,969

1,573

7,396

>100%

Interest expense

(20,154)

(14,336)

(5,818)

(41)%

Other, net

91

100

(9)

(9)%

Total investment and other income

24,490

20,457

4,033

20%

Income (loss) before income taxes

32,989

(29,850)

62,839

>100%

Income tax expense (benefit)

13,079

(10,399)

23,478

>100%

Net income (loss)

19,910

(19,451)

39,361

>100%

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

558

(662)

1,220

>100%

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

$

19,352

$

(18,789)

$

38,141

>100%

Basic weighted average shares outstanding

84,293

84,341

(48)

-

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

$

0.23

$

(0.22)

$

0.45

>100%

Diluted weighted average shares outstanding

84,892

84,341

551

1%

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

$

0.23

$

(0.22)

$

0.45

>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

2015

2014

Amount

Percent

Operating revenues

Service

$

1,652,584

$

1,697,086

$

(44,502)

(3)%

Equipment sales

288,328

186,498

101,830

55%

Total operating revenues

1,940,912

1,883,584

57,328

3%

Operating expenses

System operations (excluding Depreciation, amortization and accretion reported below)

386,953

367,738

19,215

5%

Cost of equipment sold

491,972

542,452

(50,480)

(9)%

Selling, general and administrative

731,939

799,816

(67,877)

(8)%

Depreciation, amortization and accretion

297,666

316,090

(18,424)

(6)%

(Gain) loss on asset disposals, net

9,650

8,827

823

9%

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

(113,182)

(17,411)

(95,771)

>(100)%

(Gain) loss on license sales and exchanges, net

(122,898)

(91,446)

(31,452)

(34)%

Total operating expenses

1,682,100

1,926,066

(243,966)

(13)%

Operating income

258,812

(42,482)

301,294

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

70,055

70,195

(140)

-

Interest and dividend income

16,535

2,457

14,078

>100%

Interest expense

(40,118)

(29,198)

(10,920)

(37)%

Other, net

196

186

10

5%

Total investment and other income

46,668

43,640

3,028

7%

Income before income taxes

305,480

1,158

304,322

>100%

Income tax expense

120,580

2,205

118,375

>100%

Net income

184,900

(1,047)

185,947

>100%

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

5,484

(1,740)

7,224

>100%

Net income attributable to U.S. Cellular shareholders

$

179,416

$

693

$

178,723

>100%

Basic weighted average shares outstanding

84,168

84,277

(109)

-

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

$

2.13

$

0.01

$

2.12

>100%

Diluted weighted average shares outstanding

84,849

85,041

(192)

-

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

$

2.11

$

0.01

$

2.10

>100%

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

June 30,

December 31,

2015

2014

Current assets

Cash and cash equivalents

$

362,282

$

211,513

Accounts receivable from customers and others

562,468

556,958

Inventory, net

135,401

267,068

Prepaid expenses

73,319

59,744

Net deferred income tax asset

77,969

93,058

Other current assets

18,144

90,834

1,229,583

1,279,175

Assets held for sale

22,203

107,055

Investments

Licenses

1,827,656

1,443,438

Goodwill

369,596

370,151

Investments in unconsolidated entities

325,857

283,014

2,523,109

2,096,603

Property, plant and equipment

In service and under construction

7,420,889

7,458,740

Less: Accumulated depreciation

4,795,074

4,730,523

2,625,815

2,728,217

Other assets and deferred charges

195,909

276,218

Total assets

$

6,596,619

$

6,487,268

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

June 30,

December 31,

2015

2014

Current liabilities

Current portion of long-term debt

$

57

$

46

Accounts payable

Affiliated

11,892

9,774

Trade

274,844

306,845

Customer deposits and deferred revenues

280,715

287,562

Accrued taxes

97,537

36,652

Accrued compensation

54,533

66,162

Other current liabilities

108,996

149,853

828,574

856,894

Liabilities held for sale

–

20,934

Deferred liabilities and credits

Net deferred income tax liability

827,339

859,867

Other deferred liabilities and credits

290,302

284,002

Long-term debt

1,151,999

1,151,819

Noncontrolling interests with redemption features

1,178

1,150

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

1,484,753

1,472,558

Treasury shares

(157,795)

(169,139)

Retained earnings

2,072,000

1,910,498

Total U.S. Cellular shareholders' equity

3,487,032

3,301,991

Noncontrolling interests

10,195

10,611

Total equity

3,497,227

3,312,602

Total liabilities and equity

$

6,596,619

$

6,487,268

United States Cellular Corporation

Consolidated Statement of Cash Flows

Six Months Ended June 30,

(Unaudited, dollars in thousands)

2015

2014

Cash flows from operating activities

Net income (loss)

$

184,900

$

(1,047)

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

Depreciation, amortization and accretion

297,666

316,090

Bad debts expense

51,973

49,083

Stock-based compensation expense

11,913

10,560

Deferred income taxes, net

(16,549)

(13,267)

Equity in earnings of unconsolidated entities

(70,055)

(70,195)

Distributions from unconsolidated entities

27,214

65,565

(Gain) loss on asset disposals, net

9,650

8,827

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

(113,182)

(17,411)

(Gain) loss on license sales and exchanges, net

(122,898)

(91,446)

Noncash interest expense

795

540

Other operating activities

(387)

57

Changes in assets and liabilities from operations

Accounts receivable

4,669

79,148

Equipment installment plans receivable

(65,124)

(47,971)

Inventory

131,667

38,329

Accounts payable

25,404

(36,600)

Customer deposits and deferred revenues

(7,284)

10,793

Accrued taxes

138,804

(20,280)

Accrued interest

392

61

Other assets and liabilities

(65,599)

(67,976)

423,969

212,860

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(259,235)

(262,397)

Cash paid for acquisitions and licenses

(279,656)

(17,245)

Cash received from divestitures and exchanges

281,573

125,905

Cash received for investments

–

10,000

Other investing activities

1,125

836

(256,193)

(142,901)

Cash flows from financing activities

Common shares reissued for benefit plans, net of tax payments

(1,570)

830

Common shares repurchased

(2,302)

(8,298)

Payment of debt issuance costs

(3,080)

–

Acquisition of towers in common control transaction

(2,437)

–

Distributions to noncontrolling interests

(5,872)

(482)

Other financing activities

(1,746)

(16)

(17,007)

(7,966)

Net increase in cash and cash equivalents

150,769

61,993

Cash and cash equivalents

Beginning of period

211,513

342,065

End of period

$

362,282

$

404,058

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Cash flows from operating activities

$

168,491

$

149,324

$

423,969

$

212,860

Add: Sprint Cost Reimbursement

7,462

22,862

23,174

34,116

Less: Cash used for additions to property, plant and equipment

143,156

152,899

259,235

262,397

Adjusted free cash flow (1)

$

32,797

$

19,287

$

187,908

$

(15,421)