U.S. Cellular Reports First Quarter 2011 Results

U.S. Cellular accelerates 4G/LTE deployment and increases capacity for data usage

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May 06, 2011, 08:01 ET

CHICAGO, May 6, 2011 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

1Q 2011 Highlights

A net loss of 31,000 retail customers, reflecting a loss of 22,000 postpaid customers and 9,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.
Service revenues were $985.1 million, up 2.1 percent.
Postpaid ARPU (average revenue per unit) increased to $51.21 from $50.70.
Postpaid churn improved to 1.37 percent from 1.41 percent.
5 percent increase in cell sites in service to 7,663.
Repurchased 357,021 common shares for $17.4 million.

As previously announced, U.S. Cellular will hold a teleconference May 6, 2011 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of uscellular.com or www.teldta.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $985.1 million for the first quarter of 2011 versus $965.0 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $34.1 million and $0.40, respectively, for the first quarter of 2011 compared to $47.4 million and $0.54, respectively, in the comparable period one year ago.

"We were pleased to see improvements in postpaid ARPU and churn in the quarter," said president and CEO Mary N. Dillon, "though it's clear from our subscriber results that we need to increase awareness of the unique value and benefits we offer to potential customers. We recently launched new advertising to better communicate our great network and phones and the unique benefits of the Belief Plans. In addition, the recent changes we've made to our senior management team will allow us to leverage the vast strengths and talents of our existing team and bring on additional perspectives as we continue to innovate and delight our customers.

"Smartphone sales were very strong in the quarter, representing 42 percent of all the devices we sold, and data use continued to grow dramatically. Accordingly, we've decided to increase overall data capacity and accelerate our 4G/LTE rollout, to ensure outstanding data experiences for our customers and better manage the related costs. We're also introducing a minimum of 13 new smartphones in 2011 to address the growing demand. Our device lineup will include some lower-priced smartphones with lower associated subsidies.

"We had migrations and additions totaling 1.8 million new and existing customers on our Belief Plans at the end of the quarter, and we're focused very intently on evolving our marketing messaging and sales strategies to put U.S. Cellular at the top of the list for consideration by potential switchers. We have the highest call quality and network satisfaction of any national carrier, and this quarter's very low postpaid churn rate demonstrates how happy our existing customers are with the value and outstanding service they get from U.S. Cellular.

"We continue to move forward with our enablement initiatives to improve efficiencies and cost structure. This spending, along with more smartphone subsidies, is pressuring margins now, but both are expected to have a positive, long-term effect on profitability."

Guidance for year ending Dec. 31, 2011

Guidance for the year ending Dec. 31, 2011 as of May 6, 2011 is provided below, compared to the previous guidance provided on Feb. 24, 2011. 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.


	Current Estimates	Previous Estimates (1)
Service revenues	$4,000-$4,100 million	Unchanged
Adjusted OIBDA (2) (4)	$775-$875 million	Unchanged
Operating income (3) (4)	$185-$285 million	Unchanged
Depreciation, amortization and accretion expenses, and
losses on asset disposals and impairment of assets (3)	Approx. $590 million	Unchanged
Capital expenditures (4)	$750-$800 million	Approx. $650 million

(1)	The 2011 Estimated Results as disclosed in U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2010.
(2)	Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows.
(3)	The 2011 Estimated Results do not include any estimate for losses on impairment of assets since these cannot be predicted.
(4)	This guidance is based on U.S. Cellular's current plans, which include a multi-year deployment of Long-term Evolution ("LTE") technology commencing in 2011. As customer demand for data services increases, and competitive conditions in the wireless industry evolve, such as the rate of deployment of LTE technology by other carriers, the timing of U.S. Cellular's deployment of LTE and the timing of other capital expenditures could change. These factors could affect U.S. Cellular's estimated capital expenditures and operating expenses in 2011.

Conference call information

U.S. Cellular will hold a conference call on May 6, 2011 at 9:30 a.m. CDT.

Access the live call on the Investor Relations page of uscellular.com or at http://www.videonewswire.com/event.asp?id=79230.
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 uscellular.com. The call will be archived on the Conference Calls page of uscellular.com.

About U.S. Cellular

United States Cellular Corporation, the nation's sixth-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to approximately six million customers in 26 states. The Chicago-based company employed approximately 9,000 full-time equivalent associates as of March 31, 2011. At the end of the first quarter, Telephone and Data Systems, Inc. owned 83 percent of U.S. Cellular.

Visit uscellular.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: the ability of the company to successfully manage and grow its markets; the economy; competition; 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 unit, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by the company; and the ability to obtain or maintain roaming arrangements with other carriers. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by U.S. Cellular to furnish this press release to the SEC, which are incorporated by reference herein.


United States Cellular Corporation
Summary Operating Data (Unaudited)

Quarter Ended			3/31/2011		12/31/2010		9/30/2010		6/30/2010		3/31/2010
Total population
	Consolidated markets(1)		91,090,000		90,468,000		90,468,000		90,468,000		90,468,000
	Consolidated operating markets(1)		46,774,000		46,546,000		46,546,000		46,546,000		46,546,000
Market penetration at end of period
	Consolidated markets(2)		6.6%		6.7%		6.7%		6.8%		6.8%
	Consolidated operating markets(2)		12.9%		13.0%		13.1%		13.2%		13.2%
All customers
	Total at end of period		6,033,000		6,072,000		6,103,000		6,144,000		6,147,000
	Gross additions		293,000		327,000		338,000		349,000		358,000
	Net additions (losses)		(39,000)		(31,000)		(41,000)		(3,000)		6,000
	Smartphones sold as a percent of
	total devices sold(3)		42.5%		39.6%		23.6%		15.8%		16.6%
Retail customers
	Total at end of period		5,698,000		5,729,000		5,750,000		5,775,000		5,768,000
	Smartphone penetration (3) (4)		20.2%		16.6%		12.0%		10.1%		8.9%
	Gross additions		256,000		292,000		301,000		307,000		305,000
	Net retail additions (losses)(5)		(31,000)		(21,000)		(25,000)		7,000		24,000
	Net postpaid additions (losses)		(22,000)		(10,000)		(25,000)		(22,000)		(9,000)
	Net prepaid additions (losses)		(9,000)		(11,000)		---		29,000		33,000
Service revenue components (000s)
	Retail service	$	864,602	$	864,905	$	865,766	$	863,836	$	865,039
	Inbound roaming		64,386		67,545		72,901		60,902		51,942
	Other		56,125		59,464		44,836		47,838		48,027
Total service revenues (000s)		$	985,113	$	991,914	$	983,503	$	972,576	$	965,008
Total ARPU(6)		$	54.29	$	54.37	$	53.53	$	52.71	$	52.41
Billed ARPU(7)		$	47.65	$	47.41	$	47.12	$	46.81	$	46.98
Postpaid ARPU(8)		$	51.21	$	50.99	$	50.82	$	50.55	$	50.70
Postpaid churn rate(9)			1.4%		1.5%		1.6%		1.4%		1.4%
Capital expenditures (000s)		$	95,900	$	203,400	$	124,700	$	133,500	$	121,500
Cell sites in service			7,663		7,645		7,524		7,416		7,310

(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 a Blackberry®, Windows Mobile, or Android operating system.
(4)	Smartphone penetration is calculated by dividing postpaid customers on smartphone service plans by total postpaid customers.
(5)	Includes net postpaid additions (losses) and net prepaid additions (losses).
(6)	Total ARPU - Average monthly service revenue per customer 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 customer 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 customer 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 retail 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 March 31,
(Unaudited, dollars and shares in thousands, except per share amounts)

								Increase (Decrease)
				2011		2010		Amount		Percent
Operating revenues
	Service			$	985,113	$	965,008	$	20,105		2%
	Equipment sales				71,979		58,849		13,130		22%
		Total operating revenues			1,057,092		1,023,857		33,235		3%
Operating expenses
	System operations (excluding Depreciation,
		amortization and accretion reported below)			217,603		207,114		10,489		5%
	Cost of equipment sold				194,360		161,105		33,255		21%
	Selling, general and administrative				442,004		429,605		12,399		3%
	Depreciation, amortization and accretion				145,045		143,233		1,812		1%
	Loss on asset disposals, net				1,037		5,176		(4,139)		(80%)
		Total operating expenses			1,000,049		946,233		53,816		6%

Operating income					57,043		77,624		(20,581)		(27%)

Investment and other income (expense)
	Equity in earnings of unconsolidated entities				20,891		24,694		(3,803)		(15%)
	Interest and dividend income				849		1,021		(172)		(17%)
	Interest expense				(15,186)		(16,524)		1,338		8%
	Other, net				(125)		(65)		(60)		(92%)

			Total investment and other income (expense)		6,429		9,126		(2,697)		(30%)

Income before income taxes					63,472		86,750		(23,278)		(27%)
	Income tax expense				24,092		33,662		(9,570)		(28%)

Net income					39,380		53,088		(13,708)		(26%)
	Less: Net income attributable to noncontrolling
		interests, net of tax			(5,269)		(5,719)		450		8%
Net income attributable to U.S. Cellular shareholders				$	34,111	$	47,369	$	(13,258)		(28%)

Basic weighted average shares outstanding					85,484		86,576		(1,092)		(1%)
Basic earnings per share attributable to
	U.S. Cellular shareholders			$	0.40	$	0.55	$	(0.15)		(27%)

Diluted weighted average shares outstanding					86,101		86,978		(877)		(1%)
Diluted earnings per share attributable to
	U.S. Cellular shareholders			$	0.40	$	0.54	$	(0.14)		(26%)


United States Cellular Corporation Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)

ASSETS

		March 31,		December 31,
		2011		2010
Current assets
	Cash and cash equivalents	$	421,294	$	294,426
	Short-term investments		121,252		146,586
	Accounts receivable from customers and others		405,563		424,019
	Inventory		108,818		112,279
	Prepaid income taxes		4,910		41,397
	Prepaid expenses		62,709		53,356
	Net deferred income tax asset		26,757		26,757
	Other current assets		10,282		10,804
			1,161,585		1,109,624

Investments
	Licenses		1,452,401		1,452,101
	Goodwill		494,737		494,737
	Customer lists		648		759
	Investments in unconsolidated entities		171,485		160,847
	Notes and interest receivable - long-term		4,033		4,070
	Long-term investments		35,737		46,033
			2,159,041		2,158,547

Property, plant and equipment
	In service and under construction		6,465,667		6,382,581
	Less: accumulated depreciation		3,898,393		3,767,509
			2,567,274		2,615,072

Other assets and deferred charges			74,028		50,367

Total assets		$	5,961,928	$	5,933,610


United States Cellular Corporation Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY

			March 31,		December 31,
			2011		2010
Current liabilities
	Current portion of long-term debt		$	101	$	101
	Accounts payable
		Affiliated		8,750		10,791
		Trade		279,657		281,601
	Customer deposits and deferred revenues			156,673		146,428
	Accrued taxes			36,263		39,299
	Accrued compensation			41,651		65,952
	Other current liabilities			94,696		121,823
				617,791		665,995

Deferred liabilities and credits
	Net deferred income tax liability			624,884		579,769
	Other deferred liabilities and credits			287,217		284,949

Long-term debt				868,102		867,941

Commitments and contingencies

Noncontrolling interests with mandatory redemption features				894		855

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			1,374,323		1,368,487
	Treasury shares			(120,475)		(105,616)
	Retained earnings			2,162,556		2,129,638
		Total U.S. Cellular shareholders' equity		3,504,478		3,480,583

Noncontrolling interests				58,562		53,518

	Total equity			3,563,040		3,534,101

Total liabilities and equity			$	5,961,928	$	5,933,610

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 March 31, 2011 and December 31, 2010.

			March 31,		December 31,
			2011		2010

	Cash and cash equivalents		$	421,294	$	294,426
	Amounts included in short-term investments (1)(2)
		Government-backed securities (3)		121,002		146,336
		Certificates of deposit		250		250
			$	121,252	$	146,586
	Amounts included in long-term investments (1)(4)
		Government-backed securities (3)	$	35,737	$	46,033

(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 March 31, 2011, maturities range between 14 and 21 months from the balance sheet date.


United States Cellular Corporation Consolidated Statement of Cash Flows
Three Months Ended March 31,
(Unaudited, dollars in thousands)

				2011		2010
Cash flows from operating activities
	Net income			$	39,380	$	53,088
	Add (deduct) adjustments to reconcile net income to net
		cash flows from operating activities
			Depreciation, amortization and accretion		145,045		143,233
			Bad debts expense		13,507		19,193
			Stock-based compensation expense		5,792		3,830
			Deferred income taxes, net		44,413		(2,419)
			Equity in earnings of unconsolidated entities		(20,891)		(24,694)
			Distributions from unconsolidated entities		8,323		7,238
			Loss on asset disposals, net		1,037		5,176
			Other operating activities		1,064		274
	Changes in assets and liabilities from operations
			Accounts receivable		4,950		1,313
			Inventory		3,461		(722)
			Accounts payable - trade		(2,244)		(39,375)
			Accounts payable - affiliate		(2,041)		(5,843)
			Customer deposits and deferred revenues		10,245		403
			Accrued taxes		11,174		30,723
			Accrued interest		9,205		9,221
			Other assets and liabilities		(70,598)		(48,387)
					201,822		152,252
Cash flows from investing activities
	Additions to property, plant and equipment				(95,933)		(121,514)
	Cash paid for acquisitions and licenses				-		(3,800)
	Cash paid for investments				-		(25,000)
	Cash received for investments				35,000		126
	Other investing activities				2,200		230
					(58,733)		(149,958)
Cash flows from financing activities
	Common shares reissued for benefit plans, net of tax payments				1,305		486
	Common shares repurchased				(17,357)		(5,186)
	Distributions to noncontrolling interests				(186)		(2,284)
	Other financing activities				17		(63)
					(16,221)		(7,047)

Net increase (decrease) in cash and cash equivalents					126,868		(4,753)

Cash and cash equivalents
	Beginning of period				294,426		294,411
	End of period			$	421,294	$	289,658


United States Cellular Corporation Financial Measures and Reconciliations
Three Months Ended March 31,
(Unaudited, dollars in thousands)


				2011		2010

	Service revenues			$	985,113	$	965,008

	Operating income				57,043		77,624
	Add:
		Depreciation, amortization and accretion			145,045		143,233
		Loss on impairment of intangible assets			-		-
		Loss on asset disposals			1,037		5,176
			Adjusted OIBDA (1)	$	203,125	$	226,033

			Adjusted OIBDA margin (2)		20.6%		23.4%


				2011		2010

	Cash flows from operating activities			$	201,822	$	152,252
	Deduct:
		Capital expenditures			95,933		121,514
			Free cash flow (3)	$	105,889	$	30,738

(1)	Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization, and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows. Adjusted OIBDA excludes the net gain or loss on asset disposals and loss on impairment of assets, if any, in order to show operating results on a more comparable basis from period to period. U.S. Cellular does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual, and accordingly, they may be incurred in the future.
(2)	Adjusted OIBDA margin is defined as adjusted OIBDA divided by service revenues. Equipment revenues are excluded from the denominator of the calculation since equipment is generally sold at a net loss, and such net loss is included in adjusted OIBDA as a cost of earning service revenues for purposes of assessing business results. U.S. Cellular believes that this calculation method is consistent with the method used by certain investors to assess U.S. Cellular's business results. Adjusted OIBDA margin may also be commonly referred to by management as operating cash flow margin.
(3)	Free cash flow is defined as cash flows from operating activities minus capital expenditures. Free cash flow is a non-GAAP financial measure. U.S. Cellular believes that free cash flow as reported by U.S. Cellular is 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.