U.S. Cellular Reports First Quarter 2015 Results

2015 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

$4,000-$4,200

Unchanged

Operating cash flow (1)

$400-$500

$350-$450

Adjusted EBITDA (1)

$580-$680

$530-$630

Capital expenditures

$600

Unchanged

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation below.  Operating cash flow and Adjusted EBITDA exclude these items in order to show operating results on a more comparable basis from period to period. From time to time, U.S. Cellular may exclude other items from Operating cash flow and/or Adjusted EBITDA if such items help reflect operating results on a more comparable basis. U.S. Cellular does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future.  Operating cash flow and Adjusted EBITDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to net income as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. U.S. Cellular believes Operating cash flow and Adjusted EBITDA are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as indicated below. The following tables provide a reconciliation to Operating cash flow and Adjusted EBITDA for 2015 estimated results, actual results for the three months ended March 31, 2015 and 2014 actual results:

Actual Results

2015 Estimated

Results (2)

Three Months Ended

March 31, 2015

Year Ended

December 31, 2014

(Dollars in millions)

Net income (loss) (GAAP)

N/A

$165

($47)

Add back:

Income tax expense (benefit)

N/A

$108

($12)

Income (loss) before income taxes (GAAP)

$140-$240

$273

($59)

Add back:

Interest expense

$80

$20

$57

Depreciation, amortization and accretion expense

$580

$147

$606

EBITDA

$800-$900

$440

$605

Add back (deduct):

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

($110)

($111)

($33)

(Gain) loss on license sales and exchanges, net

($125)

($123)

($113)

(Gain) loss on assets disposals, net

$15

$4

$21

Adjusted EBITDA

$580-$680

$209

$480

Deduct:

Equity in earnings of unconsolidated entities

($130)

($34)

($130)

Interest and dividend income

($50)

($8)

($12)

Operating cash flow (3)

$400-$500

$167

$338

Note: Totals may not foot due to rounding differences.

(2)

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

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for March 31, 2015 actual results can be found on the company's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

3/31/2015

12/31/2014

9/30/2014

6/30/2014

Retail Customers

   Postpaid

     Total at end of period

4,307,000

4,298,000

4,200,000

4,148,000

4,174,000

     Gross additions

200,000

302,000

251,000

190,000

197,000

     Net additions (losses)

9,000

98,000

52,000

(26,000)

(93,000)

     ARPU (1)

$

54.87

$

56.51

$

56.37

$

56.82

$

57.59

     ARPA (2)

$

134.94

$

136.13

$

132.99

$

131.95

$

132.03

     Churn rate (3)

1.5%

1.6%

1.6%

1.7%

2.3%

     Smartphone penetration (4)

66.9%

64.8%

61.7%

58.4%

55.8%

   Prepaid

     Total at end of period

360,000

348,000

350,000

352,000

356,000

     Gross additions

73,000

60,000

64,000

65,000

85,000

     Net additions (losses)

12,000

(2,000)

(2,000)

(4,000)

13,000

     ARPU (1)

$

35.72

$

35.33

$

34.40

$

34.02

$

32.22

     Churn rate (3)

5.8%

5.9%

6.3%

6.5%

6.9%

Total customers at end of period

4,775,000

4,760,000

4,674,000

4,653,000

4,684,000

Billed ARPU (1)

$

52.29

$

53.63

$

53.24

$

53.36

$

53.93

Service revenue ARPU (1)

$

58.01

$

60.10

$

60.92

$

60.32

$

60.19

Smartphones sold as a percent of total

  handsets sold

85.7%

86.5%

80.8%

79.0%

78.2%

Total population

     Consolidated markets (5)

45,737,000

50,906,000

54,817,000

54,817,000

54,817,000

     Consolidated operating markets (5)

31,814,000

31,729,000

31,729,000

31,729,000

31,729,000

Market penetration at end of period

     Consolidated markets (6)

10.4%

9.4%

8.5%

8.5%

8.5%

     Consolidated operating markets (6)

15.0%

15.0%

14.7%

14.7%

14.8%

Capital expenditures (000s)

$

66,460

$

181,655

$

142,452

$

143,927

$

89,581

Total cell sites in service

6,219

6,220

6,209

6,183

6,165

Owned towers (7)

3,955

4,281

4,487

4,457

4,448

(1)

Average Revenue Per User ("ARPU") metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period.  These revenue bases and customer populations are shown below:

a.

Postpaid ARPU consists of total postpaid service revenues and postpaid customers.

b.

Prepaid ARPU consists of total prepaid service revenues and prepaid customers.

c.

Billed ARPU consists of total postpaid, prepaid and reseller service revenues and postpaid,  prepaid and reseller customers.

d. 

Service revenue ARPU consists of total postpaid, prepaid and reseller service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2)

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

(3)

Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(4)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid handset customers.

(5)

The decrease in the population of Consolidated markets is due primarily to the license exchange transactions of certain non-operating licenses in North Carolina in December 2014 and Illinois and Indiana in March 2015. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively.  See footnote (6) below.

(6)

Market penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas.  The increase in consolidated markets penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (5) above.

(7)

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

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended March 31,

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

      Change

2015

2014

Amount

Percent

Operating revenues

    Service

$

828,211

$

853,613

$

(25,402)

(3%)

    Equipment sales

137,034

72,198

64,836

90%

      Total operating revenues

965,245

925,811

39,434

4%

Operating expenses

    System operations (excluding Depreciation, amortization and accretion

reported below)

190,677

180,607

10,070

6%

    Cost of equipment sold

238,301

270,474

(32,173)

(12%)

    Selling, general and administrative

368,968

395,564

(26,596)

(7%)

    Depreciation, amortization and accretion

147,085

167,753

(20,668)

(12%)

    (Gain) loss on asset disposals, net

4,251

1,934

2,317

>100%

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

(111,477)

(6,900)

(104,577)

>100%

    (Gain) loss on license sales and exchanges, net

(122,873)

(91,446)

(31,427)

(34%)

      Total operating expenses

714,932

917,986

(203,054)

(22%)

Operating income

250,313

7,825

242,488

>100%

Investment and other income (expense)

    Equity in earnings of unconsolidated entities

34,471

37,075

(2,604)

(7%)

    Interest and dividend income

7,566

884

6,682

>100%

    Interest expense

(19,964)

(14,862)

(5,102)

(34%)

    Other, net

105

86

19

22%

       Total investment and other income

22,178

23,183

(1,005)

(4%)

Income before income taxes

272,491

31,008

241,483

>100%

    Income tax expense

107,501

12,604

94,897

>100%

Net income

164,990

18,404

146,586

>100%

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

4,926

(1,078)

6,004

>(100%)

Net income attributable to U.S. Cellular shareholders

$

160,064

$

19,482

$

140,582

>100%

Basic weighted average shares outstanding

84,042

84,213

(171)

—

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

$

1.90

$

0.23

$

1.67

>100%

Diluted weighted average shares outstanding

84,838

85,065

(227)

—

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

$

1.89

$

0.23

$

1.66

>100%

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

March 31,

December 31,

2015

2014

Current assets

    Cash and cash equivalents

$

336,893

$

211,513

    Accounts receivable from customers and others

558,998

556,958

    Inventory, net

164,900

267,068

    Prepaid expenses

69,702

59,744

    Net deferred income tax asset

77,246

93,058

    Other current assets

18,112

90,834

1,225,851

1,279,175

Assets held for sale

22,203

107,055

Investments

    Licenses

1,827,102

1,443,438

    Goodwill

370,151

370,151

    Investments in unconsolidated entities

304,501

283,014

2,501,754

2,096,603

Property, plant and equipment

    In service and under construction

7,426,410

7,458,740

    Less: Accumulated depreciation

4,781,293

4,730,523

2,645,117

2,728,217

Other assets and deferred charges

211,453

276,218

Total assets

$

6,606,378

$

6,487,268

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

March 31,

December 31,

2015

2014

Current liabilities

    Current portion of long-term debt

$

57

$

46

    Accounts payable

      Affiliated

8,044

9,774

      Trade

245,170

306,845

    Customer deposits and deferred revenues

301,419

287,562

    Accrued taxes

139,407

36,652

    Accrued compensation

36,957

66,162

    Other current liabilities

130,780

149,853

861,834

856,894

Liabilities held for sale

---

20,934

Deferred liabilities and credits

    Net deferred income tax liability

816,999

859,867

    Other deferred liabilities and credits

295,287

284,002

Long-term debt

1,151,901

1,151,819

Noncontrolling interests with redemption features

6,619

1,150

Equity

U.S. Cellular shareholders' equity

    Series A Common and Common Shares, par value $1 per share

88,074

88,074

    Additional paid-in capital

1,478,910

1,472,558

    Treasury shares

(170,544)

(169,139)

    Retained earnings

2,067,455

1,910,498

       Total U.S. Cellular shareholders' equity

3,463,895

3,301,991

Noncontrolling interests

9,843

10,611

    Total equity

3,473,738

3,312,602

Total liabilities and equity

$

6,606,378

$

6,487,268

United States Cellular Corporation

Consolidated Statement of Cash Flows

Three Months Ended March 31,

(Unaudited, dollars in thousands)

2015

2014

Cash flows from operating activities

    Net income (loss)

$

164,990

$

18,404

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

operating activities

        Depreciation, amortization and accretion

147,085

167,753

        Bad debts expense

29,132

20,492

        Stock-based compensation expense

5,740

4,955

        Deferred income taxes, net

(26,166)

(4,817)

        Equity in earnings of unconsolidated entities

(34,471)

(37,075)

        Distributions from unconsolidated entities

12,985

12,818

        (Gain) loss on asset disposals, net

4,251

1,934

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

(111,477)

(6,900)

        (Gain) loss on license sales and exchanges, net

(122,873)

(91,446)

        Noncash interest expense

386

269

        Other operating activities

—

47

    Changes in assets and liabilities from operations

        Accounts receivable

(1,437)

79,586

        Equipment installment plans receivable

(36,498)

2,394

        Inventory

102,167

19,306

        Accounts payable

(18,691)

(40,557)

        Customer deposits and deferred revenues

13,419

(1,510)

        Accrued taxes

189,387

(15,403)

        Accrued interest

9,504

9,182

        Other assets and liabilities

(71,955)

(75,896)

255,478

63,536

Cash flows from investing activities

    Cash used for additions to property, plant and equipment

(116,079)

(109,498)

    Cash paid for acquisitions and licenses

(279,656)

(9,135)

    Cash received from divestitures and exchanges

274,111

103,042

    Cash received for investments

—

10,000

    Other investing activities

1,151

584

(120,473)

(5,007)

Cash flows from financing activities

    Common shares reissued for benefit plans, net of tax payments

487

316

    Common shares repurchased

(2,302)

(2,000)

    Payment of debt issuance costs

(3,018)

—

    Acquisition of towers in common control transaction

(2,437)

—

    Distributions to noncontrolling interests

(225)

(346)

    Other financing activities

(2,130)

(23)

(9,625)

(2,053)

Net increase in cash and cash equivalents

125,380

56,476

Cash and cash equivalents

    Beginning of period

211,513

342,065

    End of period

$

336,893

$

398,541

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Three Months Ended

March 31,

2015

Cash flows from operating activities

$

255,478

$

63,536

Add: Sprint Cost Reimbursement

15,712

11,254

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

116,079

109,498

     Adjusted free cash flow (1)

$

155,111

$

(34,708)

(1)

Adjusted free cash flow is defined as Cash flows from operating activities (which includes cash outflows related to the Sprint decommissioning), as adjusted for cash proceeds from the Sprint Cost Reimbursement (which are included in Cash flows from investing activities in the Consolidated Statement of Cash Flows), less Cash used for additions to property, plant and equipment. Adjusted free cash flow is a non-GAAP financial measure which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations (including cash proceeds from the Sprint Cost Reimbursement), after Cash used for additions to property, plant and equipment.