U.S. Cellular Reports First Quarter 2012 Results

Smartphone penetration accelerates; strong growth in ARPU and profitability

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May 04, 2012, 08:03 ET

CHICAGO, May 4, 2012 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

1Q 2012 Highlights

Smartphones as a percent of total devices sold increased to 54.1 percent from 42.5 percent; smartphone customers increased to 34.4 percent of postpaid customers from 20.3 percent.
Postpaid ARPU (average revenue per customer) increased 5 percent to $54.00 from $51.21.
Service revenues increased 4 percent to $1,023.8 million.
Operating income increased 45 percent to $85.2 million.
Retail gross additions increased 7 percent to 273,000 from 256,000.
Postpaid churn increased to 1.6 percent from 1.4 percent.
Net loss of 34,000 retail customers, reflecting loss of 38,000 postpaid customers and gain of 4,000 prepaid customers; postpaid customers comprised 94 percent of retail customers.
Cell sites in service increased 3 percent to 7,875.

As previously announced, U.S. Cellular will hold a teleconference May 4, 2012 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of www.uscellular.com or www.teldta.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $1,023.8 million for the first quarter of 2012, up 4 percent versus $985.1 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $62.5 million and $0.73, respectively, for the first quarter of 2012, compared to $35.2 million and $0.41, respectively, in the comparable period one year ago.

"We generated increased revenues and improved profitability in the quarter," said Mary N. Dillon, U.S. Cellular president and CEO. "Our top priority remains to improve our net customer additions. We're encouraged by the increase in retail gross additions, which we attribute to improved marketing awareness, strong in-store execution and the launch of 4G LTE service in several of our markets. However, we experienced higher postpaid churn and therefore had a net loss of postpaid customers.

"On April 30, we announced that U.S. Cellular prepaid service and devices will soon be available through 415 Wal-Mart stores under the U Prepaid brand. Gaining distribution in Wal-Mart gives us another significant opportunity to be where our customers want to shop, and we're evaluating additional ways to expand and enhance our distribution.

"Smartphone sales continue to drive higher data usage and average revenue per customer. At the end of the quarter, 34 percent of our postpaid customers had smartphones, and smartphones were 54 percent of our total devices sold. Despite the increase in smartphones sold, we were able to keep loss on equipment essentially stable. Those efforts, along with good expense control, contributed to a strong increase in operating income. To further support customer demand for data services, as well as to make smartphones accessible to a broader array of customers and budgets, we introduced a set of tiered data plans on May 1, and we're on track with our 4G LTE network rollout. Sales of both 4G devices introduced to date have been strong, and we plan to build on our offerings throughout the year, as we bring 4G speeds to at least 50 percent of our customers."

Guidance for year ending Dec. 31, 2012

Guidance for the year ending Dec. 31, 2012, as of May 4, 2012, is unchanged from the previous guidance provided on Feb. 24, 2012. U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from this guidance.

		2012 Estimated Results (1)
	Service revenues	$4,050-$4,150 million
	Operating income	$200-$300 million
	Depreciation, amortization and accretion expenses,
	and losses on asset disposals and exchanges
	and impairment of assets (2)	Approx. $600 million
	Adjusted OIBDA (2) (3)	$800-$900 million
	Capital expenditures	Approx. $850 million


(1)	These estimates are based on U.S. Cellular's current plans, which include a multi-year deployment of 4G LTE technology which commenced in 2011. New developments or changing conditions (such as customer net growth, customer demand for data services or possible acquisitions, dispositions or exchanges) could affect U.S. Cellular's plans and, therefore, its 2012 estimated results.
(2)	The 2012 Estimated Results do not include any estimate for unrecognized net gains or losses related to disposals and exchanges of assets or losses on impairment of assets (since such transactions and their effects are uncertain).
(3)	Adjusted OIBDA is defined as operating income excluding the effects of depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals and exchanges (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows. Adjusted OIBDA excludes the net gain or loss on asset disposals and exchanges (if any) and loss on impairment of assets (if any), in order to show operating results on a more comparable basis from period to period. U.S. Cellular does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual and, accordingly, they may be incurred in the future. U.S. Cellular believes this measure provides useful information to investors regarding U.S. Cellular's financial condition and results or operations because it highlights certain key cash and non-cash items and their impacts on cash flows from operating activities.

Conference call information

U.S. Cellular will hold a conference call on May 4, 2012 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=86868.
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 8,700 people as of March 31, 2012. At the end of the first quarter of 2012, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular.

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

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

United States Cellular Corporation
Summary Operating Data (Unaudited)

Quarter Ended			3/31/2012		12/31/2011		9/30/2011		6/30/2011		3/31/2011
Total population
	Consolidated markets (1)		92,684,000		91,965,000		91,965,000		91,204,000		91,090,000
	Consolidated operating markets (1)		46,966,000		46,888,000		46,888,000		46,888,000		46,774,000
Market penetration at end of period
	Consolidated markets (2)		6.3%		6.4%		6.5%		6.5%		6.6%
	Consolidated operating markets (2)		12.4%		12.6%		12.7%		12.7%		12.9%
All customers
	Total at end of period		5,837,000		5,891,000		5,932,000		5,968,000		6,033,000
	Gross additions		285,000		306,000		299,000		257,000		293,000
	Net additions (losses)		(49,000)		(41,000)		(36,000)		(70,000)		(39,000)
	Smartphones sold as a percent of
	total devices sold (3)		54.1%		52.5%		39.9%		39.6%		42.5%
Retail customers
	Total at end of period		5,570,000		5,608,000		5,621,000		5,644,000		5,698,000
	Smartphone penetration (3) (4)		34.4%		30.5%		26.2%		23.1%		20.3%
	Gross additions		273,000		298,000		284,000		226,000		256,000
	Net retail additions (losses) (5)		(34,000)		(13,000)		(23,000)		(58,000)		(31,000)
	Net postpaid additions (losses)		(38,000)		(20,000)		(34,000)		(41,000)		(22,000)
	Net prepaid additions (losses)		4,000		7,000		11,000		(17,000)		(9,000)
Service revenue components (000s)
	Retail service	$	888,527	$	882,091	$	871,199	$	868,630	$	864,602
	Inbound roaming		80,132		93,353		107,810		82,760		64,386
	Other		55,161		54,601		57,600		50,640		56,125
Total service revenues (000s)		$	1,023,820	$	1,030,045	$	1,036,609	$	1,002,030	$	985,113
Total ARPU (6)			58.21	$	58.13	$	58.09	$	55.69	$	54.29
Billed ARPU (7)			50.52	$	49.78	$	48.82	$	48.27	$	47.65
Postpaid ARPU (8)		$	54.00	$	53.35	$	52.41	$	51.84	$	51.21
Postpaid churn rate (9)			1.6%		1.6%		1.5%		1.4%		1.4%
Capital expenditures (000s)		$	201,300	$	276,400	$	248,000	$	162,100	$	95,900
Cell sites in service			7,875		7,882		7,828		7,770		7,663


(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 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 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)
				2012		2011		Amount		Percent
Operating revenues
	Service			$	1,023,820	$	985,113	$	38,707		4%
	Equipment sales				68,301		71,979		(3,678)		(5%)
		Total operating revenues			1,092,121		1,057,092		35,029		3%

Operating expenses
	System operations (excluding Depreciation,
		amortization and accretion reported below)			233,164		217,603		15,561		7%
	Cost of equipment sold				187,036		194,360		(7,324)		(4%)
	Selling, general and administrative				442,244		442,004		240		-
	Depreciation, amortization and accretion				146,685		143,340		3,345		2%
	(Gain) loss on asset disposals				(2,210)		1,037		(3,247)		>(100)%
		Total operating expenses			1,006,919		998,344		8,575		1%

Operating income					85,202		58,748		26,454		45%

Investment and other income (expense)
	Equity in earnings of unconsolidated entities				21,614		20,891		723		3%
	Interest and dividend income				1,043		849		194		23%
	Interest expense				(13,411)		(15,186)		1,775		12%
	Other, net				202		(125)		327		>100%
			Total investment and other income (expense)		9,448		6,429		3,019		47%

Income before income taxes					94,650		65,177		29,473		45%
	Income tax expense				25,638		24,747		891		4%

Net income					69,012		40,430		28,582		71%
	Less: Net income attributable to noncontrolling
		interests, net of tax			(6,520)		(5,269)		(1,251)		(24%)
Net income attributable to U.S. Cellular shareholders				$	62,492	$	35,161	$	27,331		78%

Basic weighted average shares outstanding					84,570		85,484		(914)		(1%)
Basic earnings per share attributable to
	U.S. Cellular shareholders			$	0.74	$	0.41	$	0.33		80%

Diluted weighted average shares outstanding					85,133		86,101		(968)		(1%)
Diluted earnings per share attributable to
	U.S. Cellular shareholders			$	0.73	$	0.41	$	0.32		78%

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

ASSETS

		March 31,		December 31,
		2012		2011
Current assets
	Cash and cash equivalents	$	511,078	$	424,155
	Short-term investments		116,368		127,039
	Accounts receivable from customers and other		397,567		441,821
	Inventory		131,510		127,056
	Income taxes receivable		70		74,791
	Prepaid expenses		57,655		55,980
	Net deferred income tax asset		31,905		31,905
	Other current assets		11,149		10,096
			1,257,302		1,292,843

Assets held for sale			—		49,647

Investments
	Licenses		1,481,865		1,470,769
	Goodwill		494,737		494,737
	Customer lists, net		223		314
	Investments in unconsolidated entities		154,431		138,096
	Notes and interest receivable – long-term		81		1,921
	Long-term investments		40,276		30,057
			2,171,613		2,135,894

Property, plant and equipment, net
	In service and under construction		7,126,220		7,008,449
	Less: accumulated depreciation		4,278,794		4,218,147
			2,847,426		2,790,302

Other assets and deferred charges			65,094		59,290

Total assets		$	6,341,435	$	6,327,976

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

LIABILITIES AND EQUITY

			March 31,		December 31,
			2012		2011
Current liabilities
	Current portion of long-term debt		$	127	$	127
	Accounts payable
		Affiliated		15,172		12,183
		Trade		280,433		303,779
	Customer deposits and deferred revenues			190,866		181,355
	Accrued taxes			38,999		34,095
	Accrued compensation			33,374		69,551
	Other current liabilities			87,322		121,190
				646,293		722,280

Liabilities held for sale				-		1,051

Deferred liabilities and credits
	Net deferred income tax liability			812,929		799,190
	Other deferred liabilities and credits			250,177		248,213

Long-term debt				880,486		880,320


Noncontrolling interests with mandatory redemption features				1,064		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			1,392,845		1,387,341
	Treasury shares			(152,220)		(152,817)
	Retained earnings			2,359,589		2,297,363
		Total U.S. Cellular shareholders' equity		3,688,288		3,619,961

Noncontrolling interests				62,198		55,956

	Total equity			3,750,486		3,675,917

Total liabilities and equity			$	6,341,435	$	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 March 31, 2012 and December 31, 2011.



		March 31,		December 31,
		2012		2011

Cash and cash equivalents		$	511,078	$	424,155

Amounts included in short-term investments (1)(2)
	Government-backed securities (3)	$	116,368	$	127,039

Amounts included in long-term investments (1)(4)
	Government-backed securities (3)	$	40,276	$	30,057


(1)	Designated as held-to-maturity investments and recorded at amortized cost on the Consolidated Balance Sheet.
(2)	Maturities are less than twelve months from the respective balance sheet dates.
(3)	Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.
(4)	At March 31, 2012, maturities range between 15 and 24 months from the balance sheet date.



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


				2012		2011
Cash flows from operating activities
	Net income			$	69,012	$	40,430
	Add (deduct) adjustments to reconcile net income to net
		cash flows from operating activities
			Depreciation, amortization and accretion		146,685		143,340
			Bad debts expense		13,850		13,507
			Stock-based compensation expense		5,391		5,792
			Deferred income taxes, net		6,283		44,413
			Equity in earnings of unconsolidated entities		(21,614)		(20,891)
			Distributions from unconsolidated entities		2,822		8,323
			(Gain) loss on asset disposals, net		(2,210)		1,037
			Noncash interest expense		451		463
			Other operating activities		449		601
	Changes in assets and liabilities from operations
			Accounts receivable		36,621		4,950
			Inventory		(4,410)		3,461
			Accounts payable - trade		(17,689)		53,713
			Accounts payable - affiliate		2,989		(2,041)
			Customer deposits and deferred revenues		9,512		10,245
			Accrued taxes		79,765		11,829
			Accrued interest		9,167		9,205
			Other assets and liabilities		(80,107)		(70,669)
					256,967		257,708

Cash flows from investing activities
	Cash used for additions to property, plant and equipment				(209,160)		(121,041)
	Cash paid for acquisitions and licenses				(11,096)		-
	Cash received for divestitures				49,786		-
	Cash paid for investments				(10,000)		-
	Cash received for investments				10,000		35,000
	Other investing activities				296		2,200
					(170,174)		(83,841)

Cash flows from financing activities
	Common shares reissued for benefit plans, net of tax payments				357		1,305
	Common shares repurchased				-		(17,357)
	Distributions to noncontrolling interests				(218)		(186)
	Other financing activities				(9)		17
					130		(16,221)


Net increase in cash and cash equivalents					86,923		157,646

Cash and cash equivalents
	Beginning of period				424,155		276,915
	End of period			$	511,078	$	434,561



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

				Three Months Ended March 31,
				2012			2011

	Service revenues			$	1,023,820		$	985,113

	Operating income				85,202			58,748
	Add:
		Depreciation, amortization and accretion			146,685			143,340
		Loss on impairment of intangible assets			-			-
		(Gain) loss on asset disposals			(2,210)			1,037
			Adjusted OIBDA (1)	$	229,677		$	203,125

			Adjusted OIBDA margin (2)		22.4	%		20.6	%

				2012			2011

	Cash flows from operating activities			$	256,967		$	257,708
	Deduct:
		Cash used for additions to property, plant and equipment			209,160			121,041
			Free cash flow (3)	$	47,807		$	136,667


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