U.S. Cellular reports lower profits in Q3
The carrier offers the wildly successful Samsung Galaxy S III
"We increased gross postpaid customers seven percent through effective marketing and sales programs such as our new Hello Better advertising campaign and by offering high-demand devices like the Samsung Galaxy S III, though our postpaid churn rate remained high. Profitability declined, however, as we incurred higher subsidies to encourage adoption of 4G LTE devices, which represented 50 percent of smartphone sales. While the cost to subsidize these devices has a short-term impact on profitability, we expect longer-term benefits as customers migrate to the more efficient 4G LTE network, including growth in ARPU and lower capital expenditures for our legacy networks."-Mary N. Dillon, CEO, U.S.Cellular
source: U.S.Cellular
United States Cellular Corporation (NYSE: USM) reported service revenues of $1,036.4 million for the third quarter of 2012 and $1,036.6 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $35.5 million and $0.42, respectively, for the third quarter of 2012, compared to $62.1 million and $0.73, respectively, in the comparable period one year ago.
"We achieved some positive milestones in the quarter, including retail customer growth driven by strong results in the prepaid segment of our business, and migration of customers to our 4G LTE network," said Mary N. Dillon, U.S. Cellular president and CEO, "though postpaid churn remained elevated and profitability was impacted by device subsidies and the expected decline in regulatory support.
"Sales of our U Prepaid service at Walmart drove prepaid net additions. We're now leveraging this important distribution channel to offer postpaid service in more than 400 Walmart stores, and we'll continue to explore new opportunities to bring our services and products to more customers.
"We increased gross postpaid customers seven percent through effective marketing and sales programs such as our new Hello Better advertising campaign and by offering high-demand devices like the Samsung Galaxy S® III, though our postpaid churn rate remained high. Profitability declined, however, as we incurred higher subsidies to encourage adoption of 4G LTE devices, which represented 50 percent of smartphone sales. While the cost to subsidize these devices has a short-term impact on profitability, we expect longer-term benefits as customers migrate to the more efficient 4G LTE network, including growth in ARPU and lower capital expenditures for our legacy networks."
U.S. Cellular Strategic Actions
In a separate release, U.S. Cellular also announced today two strategic actions designed to increase focus on markets where it has strong positions and streamline operations to increase overall efficiency and effectiveness. The company has entered into a definitive agreement with Sprint, who will purchase its customers and PCS spectrum in certain Midwest markets. U.S. Cellular will also transition the operations of its Bolingbrook, Ill., customer care center to an existing vendor partner. Further information can be found on the U.S. Cellular Investor Relations website.
Guidance for year ending Dec. 31, 2012
Guidance for the year ending Dec. 31, 2012, as of Nov. 7, 2012, before the effects of the Sprint Transaction is provided below, compared to the previous guidance provided on Aug. 3, 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)
Previous Estimates (2)
Service revenues
$4,075-$4,125 million
$4,050-$4,150 million
Operating income (3)
$200-$250 million
$200-$300 million
Depreciation, amortization and accretion expenses,
and impairment of assets and net gain
or loss on asset disposals and exchanges (3)
Approx. $600 million
Unchanged
Adjusted OIBDA (3) (4)
$800-$850 million
$800-$900 million
Capital expenditures
Approx. $850 million
Unchanged
(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. These estimates are before the effects of the definitive agreement signed with Sprint, who will purchase U.S. Cellular customers and PCS Spectrum in certain Midwest markets. The Company expects to incur incremental operating expenses in the fourth quarter of 2012 in the range of $30 to $60 million for severance, incremental accelerated depreciation, asset write-downs and other costs related to this transaction, which will decrease Operating income, increase Depreciation, amortization and accretion expenses, and impairment of assets and net gain or loss on asset disposals and exchanges, and decrease OIBDA.
(2)
The 2012 Estimated Results as disclosed in U.S. Cellular's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
(3)
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).
(4)
Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.
Adjusted OIBDA may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows.
Conference call information
U.S. Cellular will hold a conference call on Nov. 7, 2012 at 7:30 a.m. CST.
Access the live call on the Investor Relations page of uscellular.com or at http://www.videonewswire.com/event.asp?id=90531.
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 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 8,400 people as of Sept. 30, 2012. At the end of the third 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: impacts of the Sprint Transaction including, but not limited to, the ability to obtain regulatory approval, successfully complete the transaction and the financial impacts of such transaction; the ability of the company to successfully manage and grow its markets; the overall economy; competition; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded our debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; 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.
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United States Cellular Corporation
Summary Operating Data (Unaudited)
Quarter Ended
9/30/2012
6/30/2012
3/31/2012
12/31/2011
9/30/2011
Total population
Consolidated markets (1)
92,996,000
92,684,000
92,684,000
91,965,000
91,965,000
Consolidated operating markets (1)
46,966,000
46,966,000
46,966,000
46,888,000
46,888,000
Market penetration at end of period
Consolidated markets (2)
6.2%
6.3%
6.3%
6.4%
6.5%
Consolidated operating markets (2)
12.4%
12.3%
12.4%
12.6%
12.7%
All customers
Total at end of period
5,808,000
5,799,000
5,837,000
5,891,000
5,932,000
Gross additions
364,000
290,000
285,000
306,000
299,000
Net additions (losses)
9,000
(38,000)
(49,000)
(41,000)
(36,000)
Smartphones sold as a percent of
total devices sold (3)
53.0%
51.9%
54.1%
52.5%
39.9%
Retail customers
Total at end of period
5,561,000
5,542,000
5,570,000
5,608,000
5,621,000
Smartphone penetration (3) (4)
38.6%
36.8%
34.4%
30.5%
26.2%
Gross additions
350,000
277,000
273,000
298,000
284,000
Net retail additions (losses) (5)
19,000
(28,000)
(34,000)
(13,000)
(23,000)
Net postpaid additions (losses)
(38,000)
(48,000)
(38,000)
(20,000)
(34,000)
Net prepaid additions (losses)
57,000
20,000
4,000
7,000
11,000
Service revenue components (000s)
Retail service
$
884,219
$
889,219
$
888,527
$
882,091
$
871,199
Inbound roaming
106,132
86,363
80,132
93,353
107,810
Other
46,019
54,160
55,161
54,601
57,600
Total service revenues (000s)
$
1,036,370
$
1,029,742
$
1,023,820
$
1,030,045
$
1,036,609
Total ARPU (6)
$
59.57
$
59.05
$
58.21
$
58.13
$
58.09
Billed ARPU (7)
$
50.83
$
50.99
$
50.52
$
49.78
$
48.82
Postpaid ARPU (8)
$
54.34
$
54.42
$
54.00
$
53.35
$
52.41
Postpaid churn rate (9)
1.7%
1.6%
1.6%
1.6%
1.5%
Capital expenditures (000s)
$
199,100
$
183,200
$
201,300
$
276,400
$
248,000
Cell sites in service
7,984
7,932
7,875
7,882
7,828
(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 September 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
Increase (Decrease)
2012
2011
Amount
Percent
Operating revenues
Service
$
1,036,370
$
1,036,609
$
(239)
—
Equipment sales
103,987
73,830
30,157
41%
Total operating revenues
1,140,357
1,110,439
29,918
3%
Operating expenses
System operations (excluding Depreciation,
amortization and accretion reported below)
249,245
241,852
7,393
3%
Cost of equipment sold
248,029
196,229
51,800
26%
Selling, general and administrative
438,526
438,774
(248)
—
Depreciation, amortization and accretion
145,151
141,664
3,487
2%
(Gain) loss on asset disposals and exchanges, net
11,327
(9,700)
21,027
>100%
Total operating expenses
1,092,278
1,008,819
83,459
8%
Operating income
48,079
101,620
(53,541)
(53%)
Investment and other income (expense)
Equity in earnings of unconsolidated entities
24,816
21,929
2,887
13%
Interest and dividend income
935
869
66
8%
Interest expense
(9,501)
(11,522)
2,021
18%
Other, net
200
(97)
297
>100%
Total investment and other income (expense)
16,450
11,179
5,271
47%
Income before income taxes
64,529
112,799
(48,270)
(43%)
Income tax expense
22,389
43,292
(20,903)
(48%)
Net income
42,140
69,507
(27,367)
(39%)
Less: Net income attributable to noncontrolling
interests, net of tax
(6,689)
(7,367)
678
9%
Net income attributable to U.S. Cellular
shareholders
$
35,451
$
62,140
$
(26,689)
(43%)
Basic weighted average shares outstanding
84,737
84,547
190
—
Basic earnings per share attributable to
U.S. Cellular shareholders
$
0.42
$
0.73
$
(0.31)
(42%)
Diluted weighted average shares outstanding
85,152
84,940
212
—
Diluted earnings per share attributable to
U.S. Cellular shareholders
$
0.42
$
0.73
$
(0.31)
(42%)
United States Cellular Corporation
Consolidated Statement of Operations Highlights
Nine Months Ended September 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
Increase (Decrease)
2012
2011
Amount
Percent
Operating revenues
Service
$
3,089,932
$
3,023,752
$
66,180
2%
Equipment sales
246,946
219,961
26,985
12%
Total operating revenues
3,336,878
3,243,713
93,165
3%
Operating expenses
System operations (excluding Depreciation,
amortization and accretion reported below)
725,636
687,256
38,380
6%
Cost of equipment sold
626,765
563,717
63,048
11%
Selling, general and administrative
1,315,823
1,302,436
13,387
1%
Depreciation, amortization and accretion
439,391
431,581
7,810
2%
(Gain) loss on asset disposals and exchanges, net
11,819
(5,741)
17,560
>100%
Total operating expenses
3,119,434
2,979,249
140,185
5%
Operating income
217,444
264,464
(47,020)
(18%)
Investment and other income (expense)
Equity in earnings of unconsolidated entities
71,584
65,289
6,295
10%
Interest and dividend income
2,823
2,466
357
14%
Gain (loss) on investment
(3,728)
13,373
(17,101)
>(100)%
Interest expense
(35,272)
(51,905)
16,633
32%
Other, net
173
(47)
220
>100%
Total investment and other income (expense)
35,580
29,176
6,404
22%
Income before income taxes
253,024
293,640
(40,616)
(14%)
Income tax expense
82,624
102,771
(20,147)
(20%)
Net income
170,400
190,869
(20,469)
(11%)
Less: Net income attributable to noncontrolling
interests, net of tax
(19,772)
(18,629)
(1,143)
(6%)
Net income attributable to U.S. Cellular
shareholders
$
150,628
$
172,240
$
(21,612)
(13%)
Basic weighted average shares outstanding
84,671
84,984
(313)
—
Basic earnings per share attributable to
U.S. Cellular shareholders
$
1.78
$
2.03
$
(0.25)
(12%)
Diluted weighted average shares outstanding
85,090
85,448
(358)
—
Diluted earnings per share attributable to
U.S. Cellular shareholders
$
1.77
$
2.02
$
(0.25)
(12%)
United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
ASSETS
September 30,
December 31,
2012
2011
Current assets
Cash and cash equivalents
$
409,579
$
424,155
Short-term investments
140,494
127,039
Accounts receivable from customers and others
463,785
441,821
Inventory
196,523
127,056
Income taxes receivable
2,280
74,791
Prepaid expenses
60,631
55,980
Net deferred income tax asset
37,868
31,905
Other current assets
15,993
10,096
1,327,153
1,292,843
Assets held for sale
—
49,647
Investments
Licenses
1,531,873
1,470,769
Goodwill
494,737
494,737
Customer lists, net
135
314
Investments in unconsolidated entities
162,012
138,096
Notes and interest receivable – long-term
—
1,921
Long-term investments
10,171
30,057
2,198,928
2,135,894
Property, plant and equipment, net
In service and under construction
7,341,632
7,008,449
Less: accumulated depreciation
4,406,847
4,218,147
2,934,785
2,790,302
Other assets and deferred charges
75,482
59,290
Total assets
$
6,536,348
$
6,327,976
United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
LIABILITIES AND EQUITY
September 30,
December 31,
2012
2011
Current liabilities
Current portion of long-term debt
$
127
$
127
Accounts payable
Affiliated
7,398
12,183
Trade
250,681
303,779
Customer deposits and deferred revenues
208,042
181,355
Accrued taxes
60,695
34,095
Accrued compensation
52,200
69,551
Other current liabilities
92,957
121,190
672,100
722,280
Liabilities held for sale
—
1,051
Deferred liabilities and credits
Net deferred income tax liability
861,709
799,190
Other deferred liabilities and credits
259,499
248,213
Long-term debt
880,486
880,320
Noncontrolling interests with mandatory redemption features
759
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
1,406,617
1,387,341
Treasury shares
(145,859)
(152,817)
Retained earnings
2,438,760
2,297,363
Total U.S. Cellular shareholders' equity
3,787,592
3,619,961
Noncontrolling interests
74,203
55,956
Total equity
3,861,795
3,675,917
Total liabilities and equity
$
6,536,348
$
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 September 30, 2012 and December 31, 2011.
September 30,
December 31,
2012
2011
Cash and cash equivalents
$
409,579
$
424,155
Amounts included in short-term investments (1)(2)
Government-backed securities (3)
140,494
127,039
Amounts included in long-term investments (1)(4)
Government-backed securities (3)
10,171
30,057
Total cash and cash equivalents and investments
$
560,244
$
581,251
(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 September 30, 2012, maturities range between 17 and 18 months from the balance sheet date.
United States Cellular Corporation
Consolidated Statement of Cash Flows
Nine Months Ended September 30,
(Unaudited, dollars in thousands)
2012
2011
Cash flows from operating activities
Net income
$
170,400
$
190,869
Add (deduct) adjustments to reconcile net income to net
cash flows from operating activities
Depreciation, amortization and accretion
439,391
431,581
Bad debts expense
51,293
44,718
Stock-based compensation expense
15,924
15,475
Deferred income taxes, net
52,865
145,687
Equity in earnings of unconsolidated entities
(71,584)
(65,289)
Distributions from unconsolidated entities
45,211
52,037
(Gain) loss on asset disposals and exchanges, net
11,819
(5,741)
(Gain) loss on investment
3,728
(13,373)
Noncash interest expense
1,331
9,582
Other operating activities
863
1,143
Changes in assets and liabilities from operations
Accounts receivable
(67,302)
(57,564)
Inventory
(69,423)
(36,326)
Accounts payable - trade
(28,902)
41,733
Accounts payable - affiliate
(4,785)
1,185
Customer deposits and deferred revenues
26,687
30,695
Accrued taxes
99,556
9,679
Accrued interest
9,508
9,283
Other assets and liabilities
(77,821)
(66,553)
608,759
738,821
Cash flows from investing activities
Cash used for additions to property, plant and equipment
(611,431)
(462,327)
Cash paid for acquisitions and licenses
(57,957)
(23,773)
Cash received for divestitures
49,932
—
Cash paid for investments
(45,000)
(50,000)
Cash received for investments
50,000
85,250
Other investing activities
(5,030)
(210)
(619,486)
(451,060)
Cash flows from financing activities
Repayment of long-term debt
(343)
(330,106)
Issuance of long-term debt
—
342,000
Common shares reissued for benefit plans, net of tax payments
(2,299)
1,755
Common shares repurchased
—
(62,294)
Payment of debt issuance costs
—
(11,394)
Distributions to noncontrolling interests
(1,491)
(1,176)
Other financing activities
284
169
(3,849)
(61,046)
Cash classified as held for sale
—
(11,237)
Net increase (decrease) in cash and cash equivalents
(14,576)
215,478
Cash and cash equivalents
Beginning of period
424,155
276,915
End of period
$
409,579
$
492,393
United States Cellular Corporation
Financial Measures and Reconciliations
(Unaudited, dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2012
2011
2012
2011
Service revenues
$
1,036,370
$
1,036,609
$
3,089,932
$
3,023,752
Operating income
48,079
101,620
217,444
264,464
Add:
Depreciation, amortization and accretion
145,151
141,664
439,391
431,581
Loss of impairment of assets
—
—
—
—
(Gain) loss on asset disposals and exchanges, net
11,327
(9,700)
11,819
(5,741)
Adjusted OIBDA (1)
$
204,557
$
233,584
$
668,654
$
690,304
Adjusted OIBDA margin (2)
19.7%
22.5%
21.6%
22.8%
2012
2011
2012
2011
Cash flows from operating activities
$
196,522
$
300,721
$
608,759
$
738,821
Deduct:
Cash used for additions to property, plant and equipment
(181,206)
(196,933)
(611,431)
(462,327)
Free cash flow (3)
$
15,316
$
103,788
$
(2,672)
$
276,494
(1)
Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.
Adjusted OIBDA may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows
(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
PR Newswire (http://s.tt/1spxj)
"We achieved some positive milestones in the quarter, including retail customer growth driven by strong results in the prepaid segment of our business, and migration of customers to our 4G LTE network," said Mary N. Dillon, U.S. Cellular president and CEO, "though postpaid churn remained elevated and profitability was impacted by device subsidies and the expected decline in regulatory support.
"Sales of our U Prepaid service at Walmart drove prepaid net additions. We're now leveraging this important distribution channel to offer postpaid service in more than 400 Walmart stores, and we'll continue to explore new opportunities to bring our services and products to more customers.
"We increased gross postpaid customers seven percent through effective marketing and sales programs such as our new Hello Better advertising campaign and by offering high-demand devices like the Samsung Galaxy S® III, though our postpaid churn rate remained high. Profitability declined, however, as we incurred higher subsidies to encourage adoption of 4G LTE devices, which represented 50 percent of smartphone sales. While the cost to subsidize these devices has a short-term impact on profitability, we expect longer-term benefits as customers migrate to the more efficient 4G LTE network, including growth in ARPU and lower capital expenditures for our legacy networks."
U.S. Cellular Strategic Actions
In a separate release, U.S. Cellular also announced today two strategic actions designed to increase focus on markets where it has strong positions and streamline operations to increase overall efficiency and effectiveness. The company has entered into a definitive agreement with Sprint, who will purchase its customers and PCS spectrum in certain Midwest markets. U.S. Cellular will also transition the operations of its Bolingbrook, Ill., customer care center to an existing vendor partner. Further information can be found on the U.S. Cellular Investor Relations website.
Guidance for year ending Dec. 31, 2012
Guidance for the year ending Dec. 31, 2012, as of Nov. 7, 2012, before the effects of the Sprint Transaction is provided below, compared to the previous guidance provided on Aug. 3, 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)
Previous Estimates (2)
Service revenues
$4,075-$4,125 million
$4,050-$4,150 million
Operating income (3)
$200-$250 million
$200-$300 million
Depreciation, amortization and accretion expenses,
and impairment of assets and net gain
or loss on asset disposals and exchanges (3)
Approx. $600 million
Unchanged
Adjusted OIBDA (3) (4)
$800-$850 million
$800-$900 million
Capital expenditures
Approx. $850 million
Unchanged
(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. These estimates are before the effects of the definitive agreement signed with Sprint, who will purchase U.S. Cellular customers and PCS Spectrum in certain Midwest markets. The Company expects to incur incremental operating expenses in the fourth quarter of 2012 in the range of $30 to $60 million for severance, incremental accelerated depreciation, asset write-downs and other costs related to this transaction, which will decrease Operating income, increase Depreciation, amortization and accretion expenses, and impairment of assets and net gain or loss on asset disposals and exchanges, and decrease OIBDA.
(2)
The 2012 Estimated Results as disclosed in U.S. Cellular's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
(3)
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).
(4)
Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.
Adjusted OIBDA may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows.
Conference call information
U.S. Cellular will hold a conference call on Nov. 7, 2012 at 7:30 a.m. CST.
Access the live call on the Investor Relations page of uscellular.com or at http://www.videonewswire.com/event.asp?id=90531.
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 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 8,400 people as of Sept. 30, 2012. At the end of the third 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: impacts of the Sprint Transaction including, but not limited to, the ability to obtain regulatory approval, successfully complete the transaction and the financial impacts of such transaction; the ability of the company to successfully manage and grow its markets; the overall economy; competition; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded our debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; 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.
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United States Cellular Corporation
Summary Operating Data (Unaudited)
Quarter Ended
9/30/2012
6/30/2012
3/31/2012
12/31/2011
9/30/2011
Total population
Consolidated markets (1)
92,996,000
92,684,000
92,684,000
91,965,000
91,965,000
Consolidated operating markets (1)
46,966,000
46,966,000
46,966,000
46,888,000
46,888,000
Market penetration at end of period
Consolidated markets (2)
6.2%
6.3%
6.3%
6.4%
6.5%
Consolidated operating markets (2)
12.4%
12.3%
12.4%
12.6%
12.7%
All customers
Total at end of period
5,808,000
5,799,000
5,837,000
5,891,000
5,932,000
Gross additions
364,000
290,000
285,000
306,000
299,000
Net additions (losses)
9,000
(38,000)
(49,000)
(41,000)
(36,000)
Smartphones sold as a percent of
total devices sold (3)
53.0%
51.9%
54.1%
52.5%
39.9%
Retail customers
Total at end of period
5,561,000
5,542,000
5,570,000
5,608,000
5,621,000
Smartphone penetration (3) (4)
38.6%
36.8%
34.4%
30.5%
26.2%
Gross additions
350,000
277,000
273,000
298,000
284,000
Net retail additions (losses) (5)
19,000
(28,000)
(34,000)
(13,000)
(23,000)
Net postpaid additions (losses)
(38,000)
(48,000)
(38,000)
(20,000)
(34,000)
Net prepaid additions (losses)
57,000
20,000
4,000
7,000
11,000
Service revenue components (000s)
Retail service
$
884,219
$
889,219
$
888,527
$
882,091
$
871,199
Inbound roaming
106,132
86,363
80,132
93,353
107,810
Other
46,019
54,160
55,161
54,601
57,600
Total service revenues (000s)
$
1,036,370
$
1,029,742
$
1,023,820
$
1,030,045
$
1,036,609
Total ARPU (6)
$
59.57
$
59.05
$
58.21
$
58.13
$
58.09
Billed ARPU (7)
$
50.83
$
50.99
$
50.52
$
49.78
$
48.82
Postpaid ARPU (8)
$
54.34
$
54.42
$
54.00
$
53.35
$
52.41
Postpaid churn rate (9)
1.7%
1.6%
1.6%
1.6%
1.5%
Capital expenditures (000s)
$
199,100
$
183,200
$
201,300
$
276,400
$
248,000
Cell sites in service
7,984
7,932
7,875
7,882
7,828
(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 September 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
Increase (Decrease)
2012
2011
Amount
Percent
Operating revenues
Service
$
1,036,370
$
1,036,609
$
(239)
—
Equipment sales
103,987
73,830
30,157
41%
Total operating revenues
1,140,357
1,110,439
29,918
3%
Operating expenses
System operations (excluding Depreciation,
amortization and accretion reported below)
249,245
241,852
7,393
3%
Cost of equipment sold
248,029
196,229
51,800
26%
Selling, general and administrative
438,526
438,774
(248)
—
Depreciation, amortization and accretion
145,151
141,664
3,487
2%
(Gain) loss on asset disposals and exchanges, net
11,327
(9,700)
21,027
>100%
Total operating expenses
1,092,278
1,008,819
83,459
8%
Operating income
48,079
101,620
(53,541)
(53%)
Investment and other income (expense)
Equity in earnings of unconsolidated entities
24,816
21,929
2,887
13%
Interest and dividend income
935
869
66
8%
Interest expense
(9,501)
(11,522)
2,021
18%
Other, net
200
(97)
297
>100%
Total investment and other income (expense)
16,450
11,179
5,271
47%
Income before income taxes
64,529
112,799
(48,270)
(43%)
Income tax expense
22,389
43,292
(20,903)
(48%)
Net income
42,140
69,507
(27,367)
(39%)
Less: Net income attributable to noncontrolling
interests, net of tax
(6,689)
(7,367)
678
9%
Net income attributable to U.S. Cellular
shareholders
$
35,451
$
62,140
$
(26,689)
(43%)
Basic weighted average shares outstanding
84,737
84,547
190
—
Basic earnings per share attributable to
U.S. Cellular shareholders
$
0.42
$
0.73
$
(0.31)
(42%)
Diluted weighted average shares outstanding
85,152
84,940
212
—
Diluted earnings per share attributable to
U.S. Cellular shareholders
$
0.42
$
0.73
$
(0.31)
(42%)
United States Cellular Corporation
Consolidated Statement of Operations Highlights
Nine Months Ended September 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
Increase (Decrease)
2012
2011
Amount
Percent
Operating revenues
Service
$
3,089,932
$
3,023,752
$
66,180
2%
Equipment sales
246,946
219,961
26,985
12%
Total operating revenues
3,336,878
3,243,713
93,165
3%
Operating expenses
System operations (excluding Depreciation,
amortization and accretion reported below)
725,636
687,256
38,380
6%
Cost of equipment sold
626,765
563,717
63,048
11%
Selling, general and administrative
1,315,823
1,302,436
13,387
1%
Depreciation, amortization and accretion
439,391
431,581
7,810
2%
(Gain) loss on asset disposals and exchanges, net
11,819
(5,741)
17,560
>100%
Total operating expenses
3,119,434
2,979,249
140,185
5%
Operating income
217,444
264,464
(47,020)
(18%)
Investment and other income (expense)
Equity in earnings of unconsolidated entities
71,584
65,289
6,295
10%
Interest and dividend income
2,823
2,466
357
14%
Gain (loss) on investment
(3,728)
13,373
(17,101)
>(100)%
Interest expense
(35,272)
(51,905)
16,633
32%
Other, net
173
(47)
220
>100%
Total investment and other income (expense)
35,580
29,176
6,404
22%
Income before income taxes
253,024
293,640
(40,616)
(14%)
Income tax expense
82,624
102,771
(20,147)
(20%)
Net income
170,400
190,869
(20,469)
(11%)
Less: Net income attributable to noncontrolling
interests, net of tax
(19,772)
(18,629)
(1,143)
(6%)
Net income attributable to U.S. Cellular
shareholders
$
150,628
$
172,240
$
(21,612)
(13%)
Basic weighted average shares outstanding
84,671
84,984
(313)
—
Basic earnings per share attributable to
U.S. Cellular shareholders
$
1.78
$
2.03
$
(0.25)
(12%)
Diluted weighted average shares outstanding
85,090
85,448
(358)
—
Diluted earnings per share attributable to
U.S. Cellular shareholders
$
1.77
$
2.02
$
(0.25)
(12%)
United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
ASSETS
September 30,
December 31,
2012
2011
Current assets
Cash and cash equivalents
$
409,579
$
424,155
Short-term investments
140,494
127,039
Accounts receivable from customers and others
463,785
441,821
Inventory
196,523
127,056
Income taxes receivable
2,280
74,791
Prepaid expenses
60,631
55,980
Net deferred income tax asset
37,868
31,905
Other current assets
15,993
10,096
1,327,153
1,292,843
Assets held for sale
—
49,647
Investments
Licenses
1,531,873
1,470,769
Goodwill
494,737
494,737
Customer lists, net
135
314
Investments in unconsolidated entities
162,012
138,096
Notes and interest receivable – long-term
—
1,921
Long-term investments
10,171
30,057
2,198,928
2,135,894
Property, plant and equipment, net
In service and under construction
7,341,632
7,008,449
Less: accumulated depreciation
4,406,847
4,218,147
2,934,785
2,790,302
Other assets and deferred charges
75,482
59,290
Total assets
$
6,536,348
$
6,327,976
United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
LIABILITIES AND EQUITY
September 30,
December 31,
2012
2011
Current liabilities
Current portion of long-term debt
$
127
$
127
Accounts payable
Affiliated
7,398
12,183
Trade
250,681
303,779
Customer deposits and deferred revenues
208,042
181,355
Accrued taxes
60,695
34,095
Accrued compensation
52,200
69,551
Other current liabilities
92,957
121,190
672,100
722,280
Liabilities held for sale
—
1,051
Deferred liabilities and credits
Net deferred income tax liability
861,709
799,190
Other deferred liabilities and credits
259,499
248,213
Long-term debt
880,486
880,320
Noncontrolling interests with mandatory redemption features
759
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
1,406,617
1,387,341
Treasury shares
(145,859)
(152,817)
Retained earnings
2,438,760
2,297,363
Total U.S. Cellular shareholders' equity
3,787,592
3,619,961
Noncontrolling interests
74,203
55,956
Total equity
3,861,795
3,675,917
Total liabilities and equity
$
6,536,348
$
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 September 30, 2012 and December 31, 2011.
September 30,
December 31,
2012
2011
Cash and cash equivalents
$
409,579
$
424,155
Amounts included in short-term investments (1)(2)
Government-backed securities (3)
140,494
127,039
Amounts included in long-term investments (1)(4)
Government-backed securities (3)
10,171
30,057
Total cash and cash equivalents and investments
$
560,244
$
581,251
(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 September 30, 2012, maturities range between 17 and 18 months from the balance sheet date.
United States Cellular Corporation
Consolidated Statement of Cash Flows
Nine Months Ended September 30,
(Unaudited, dollars in thousands)
2012
2011
Cash flows from operating activities
Net income
$
170,400
$
190,869
Add (deduct) adjustments to reconcile net income to net
cash flows from operating activities
Depreciation, amortization and accretion
439,391
431,581
Bad debts expense
51,293
44,718
Stock-based compensation expense
15,924
15,475
Deferred income taxes, net
52,865
145,687
Equity in earnings of unconsolidated entities
(71,584)
(65,289)
Distributions from unconsolidated entities
45,211
52,037
(Gain) loss on asset disposals and exchanges, net
11,819
(5,741)
(Gain) loss on investment
3,728
(13,373)
Noncash interest expense
1,331
9,582
Other operating activities
863
1,143
Changes in assets and liabilities from operations
Accounts receivable
(67,302)
(57,564)
Inventory
(69,423)
(36,326)
Accounts payable - trade
(28,902)
41,733
Accounts payable - affiliate
(4,785)
1,185
Customer deposits and deferred revenues
26,687
30,695
Accrued taxes
99,556
9,679
Accrued interest
9,508
9,283
Other assets and liabilities
(77,821)
(66,553)
608,759
738,821
Cash flows from investing activities
Cash used for additions to property, plant and equipment
(611,431)
(462,327)
Cash paid for acquisitions and licenses
(57,957)
(23,773)
Cash received for divestitures
49,932
—
Cash paid for investments
(45,000)
(50,000)
Cash received for investments
50,000
85,250
Other investing activities
(5,030)
(210)
(619,486)
(451,060)
Cash flows from financing activities
Repayment of long-term debt
(343)
(330,106)
Issuance of long-term debt
—
342,000
Common shares reissued for benefit plans, net of tax payments
(2,299)
1,755
Common shares repurchased
—
(62,294)
Payment of debt issuance costs
—
(11,394)
Distributions to noncontrolling interests
(1,491)
(1,176)
Other financing activities
284
169
(3,849)
(61,046)
Cash classified as held for sale
—
(11,237)
Net increase (decrease) in cash and cash equivalents
(14,576)
215,478
Cash and cash equivalents
Beginning of period
424,155
276,915
End of period
$
409,579
$
492,393
United States Cellular Corporation
Financial Measures and Reconciliations
(Unaudited, dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2012
2011
2012
2011
Service revenues
$
1,036,370
$
1,036,609
$
3,089,932
$
3,023,752
Operating income
48,079
101,620
217,444
264,464
Add:
Depreciation, amortization and accretion
145,151
141,664
439,391
431,581
Loss of impairment of assets
—
—
—
—
(Gain) loss on asset disposals and exchanges, net
11,327
(9,700)
11,819
(5,741)
Adjusted OIBDA (1)
$
204,557
$
233,584
$
668,654
$
690,304
Adjusted OIBDA margin (2)
19.7%
22.5%
21.6%
22.8%
2012
2011
2012
2011
Cash flows from operating activities
$
196,522
$
300,721
$
608,759
$
738,821
Deduct:
Cash used for additions to property, plant and equipment
(181,206)
(196,933)
(611,431)
(462,327)
Free cash flow (3)
$
15,316
$
103,788
$
(2,672)
$
276,494
(1)
Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.
Adjusted OIBDA may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows
(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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