U.S. Cellular reports fourth quarter and full year 2016 results

2017 Estimated Results and Actual Results for the Year Ended December 31, 2016

Estimate

Actual

(Dollars in millions)

Total operating revenues ⁽¹⁾

$3,800-$4,000

$

3,939

Operating cash flow ⁽²⁾

$500-$650

$

618

Adjusted EBITDA ⁽²⁾

$650-$800

$

816

Capital expenditures

Approx. $ 500

$

446

2017 Estimated Results

Actual Results for the Year
Ended

December 31, 2016

(Dollars in millions)

Net income (loss) (GAAP)

N/A

$

49

Add back:

Income tax expense (benefit)

N/A

33

Income (loss) before income taxes (GAAP)

$

(110)-40

$

82

Add back:

Interest expense

110

113

Depreciation, amortization and accretion expense

630

618

EBITDA (Non-GAAP)

$

630-780

$

813

Add back (deduct):

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

–

–

(Gain) loss on license sales and exchanges, net

–

(19)

(Gain) loss on assets disposals, net

20

22

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$

650-800

$

816

Deduct:

Equity in earnings of unconsolidated entities

140

140

Interest and dividend income⁽¹⁾

10

57

Other, net

–

1

Operating cash flow (Non-GAAP) ⁽²⁾⁽³⁾

$

500-650

$

618

Note: Totals may not foot due to rounding differences.

(1)

In 2016, Imputed interest related to equipment installment plans was recorded in Interest and dividend income.  Beginning in 2017, imputed interest will be recorded in service revenues.  The company recorded $51 million in imputed interest in 2016.

(2)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above.  Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA and Operating cash flow 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 or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity.  U.S. Cellular does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future.  Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate.  Management believes Adjusted EBITDA and Operating cash flow are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of U.S. Cellular's financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.  Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.  The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.    

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for full year 2016, 2015 and 2014 actual results can be found on the Guidance and Reconciliation page of the company's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

12/31/2016

9/30/2016

6/30/2016

3/31/2016

12/31/2015

Retail Connections

Postpaid

Total at end of period

4,482,000

4,484,000

4,490,000

4,454,000

4,409,000

Gross additions

187,000

174,000

197,000

215,000

240,000

Feature phones

7,000

10,000

8,000

9,000

10,000

Smartphones

109,000

105,000

107,000

124,000

132,000

Connected devices

71,000

59,000

82,000

82,000

98,000

Net additions (losses)

(2,000)

(6,000)

36,000

45,000

68,000

Feature phones

(21,000)

(20,000)

(21,000)

(25,000)

(25,000)

Smartphones

(4,000)

(7,000)

8,000

20,000

23,000

Connected devices

23,000

21,000

49,000

50,000

70,000

ARPU ⁽¹⁾

$

45.19

$

47.08

$

47.37

$

48.13

$

51.46

ABPU (Non-GAAP)⁽²⁾

$

55.43

$

56.79

$

56.09

$

56.06

$

58.57

ARPA ⁽³⁾

$

120.67

$

125.31

$

124.91

$

125.36

$

131.96

ABPA (Non-GAAP)⁽⁴⁾

$

148.02

$

151.16

$

147.90

$

145.99

$

150.19

Churn rate ⁽⁵⁾

1.41%

1.34%

1.20%

1.28%

1.31%

Handsets

1.23%

1.22%

1.10%

1.18%

1.23%

Connected devices

2.49%

2.04%

1.84%

2.01%

1.95%

Smartphone penetration ⁽⁶⁾

79%

78%

77%

75%

74%

Prepaid

Total at end of period

484,000

480,000

413,000

399,000

387,000

Gross additions

83,000

132,000

73,000

75,000

69,000

Net additions

4,000

67,000

14,000

12,000

7,000

ARPU ⁽¹⁾

$

33.25

$

34.39

$

34.58

$

35.51

$

35.54

Churn rate ⁽⁵⁾

5.44%

4.84%

4.86%

5.37%

5.40%

Total connections at end of period ⁽⁷⁾

5,031,000

5,030,000

4,973,000

4,926,000

4,876,000

Smartphones sold as a percent of total handsets sold

93%

92%

91%

92%

91%

Market penetration at end of period

Consolidated operating population

31,994,000

31,994,000

31,994,000

31,994,000

31,967,000

Consolidated operating penetration ⁽⁸⁾

16%

16%

16%

15%

15%

Capital expenditures (millions)

$

171

$

103

$

93

$

79

$

198

Total cell sites in service

6,415

6,374

6,324

6,306

6,297

Owned towers

4,040

4,015

3,988

3,989

3,978

(1)

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

▪

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

▪

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

(2)

Average Billings Per User ("ABPU") - non-GAAP metric calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(3)

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

(4)

Average Billings Per Account ("ABPA") - non-GAAP metric calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(5)

Churn rate represents the percentage of the connections that disconnect service each month.  These rates represent the average monthly churn rate for each respective period.

(6)

Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset connections.

(7)

Includes reseller and other connections.

(8)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended December 31,

2016 vs. 2015

2016

2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

Service

$

737

$

802

$

(65)

(8)%

Equipment sales

254

185

69

37%

Total operating revenues

991

987

4

-

Operating expenses

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

188

189

(1)

-

Cost of equipment sold

283

274

9

3%

Selling, general and administrative

390

388

2

1%

Depreciation, amortization and accretion

156

156

–

-

(Gain) loss on asset disposals, net

6

4

2

43%

(Gain) loss on license sales and exchanges, net

(3)

–

(3)

N/M

Total operating expenses

1,020

1,011

9

1%

Operating loss

(29)

(24)

(5)

(21)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

30

30

–

-

Interest and dividend income

16

10

6

53%

Interest expense

(29)

(25)

(4)

17%

Other, net

1

1

–

(13)%

Total investment and other income

18

16

2

9%

Loss before income taxes

(11)

(8)

(3)

(49)%

Income tax benefit

(6)

(5)

(1)

(24)%

Net loss

(5)

(3)

(2)

(95)%

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

1

(1)

2

>(100)%

Net loss attributable to U.S. Cellular shareholders

$

(6)

$

(2)

$

(4)

>(100)%

Basic weighted average shares outstanding

85

84

1

1%

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

$

(0.07)

$

(0.02)

$

(0.05)

>(100)%

Diluted weighted average shares outstanding

85

84

1

1%

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

$

(0.07)

$

(0.02)

$

(0.05)

>(100)%

N/M - Percentage change not meaningful

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

Year Ended December 31,

2016 vs. 2015

2016

2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

Service

$

3,030

$

3,350

$

(320)

(10)%

Equipment sales

909

647

262

41%

Total operating revenues

3,939

3,997

(58)

(1)%

Operating expenses

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

760

775

(15)

(2)%

Cost of equipment sold

1,081

1,053

28

3%

Selling, general and administrative

1,480

1,494

(14)

(1)%

Depreciation, amortization and accretion

618

607

11

2%

(Gain) loss on asset disposals, net

22

16

6

36%

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

–

(114)

114

100%

(Gain) loss on license sales and exchanges, net

(19)

(147)

128

87%

Total operating expenses

3,942

3,684

258

7%

Operating income (loss)

(3)

313

(316)

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

140

140

–

-

Interest and dividend income

57

36

21

57%

Interest expense

(113)

(86)

(27)

(31)%

Other, net

1

1

–

10%

Total investment and other income

85

91

(6)

(7)%

Income before income taxes

82

404

(322)

(80)%

Income tax expense

33

157

(124)

(79)%

Net income

49

247

(198)

(80)%

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

1

6

(5)

(71)%

Net income attributable to U.S. Cellular shareholders

$

48

$

241

$

(193)

(80)%

Basic weighted average shares outstanding

85

84

1

1%

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

$

0.56

$

2.86

$

(2.30)

(80)%

Diluted weighted average shares outstanding

85

85

–

1%

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

$

0.56

$

2.84

$

(2.28)

(80)%

N/M - Percentage change not meaningful

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Year Ended December 31,

2016

2015

(Dollars in millions)

Cash flows from operating activities

Net income

$

49

$

247

Add (deduct) adjustments to reconcile net income (loss) to net

   cash flows from operating activities

Depreciation, amortization and accretion

618

607

Bad debts expense

96

106

Stock-based compensation expense

26

25

Deferred income taxes, net

6

55

Equity in earnings of unconsolidated entities

(140)

(140)

Distributions from unconsolidated entities

93

60

(Gain) loss on asset disposals, net

22

16

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

–

(114)

(Gain) loss on license sales and exchanges, net

(19)

(147)

Noncash interest expense

2

2

Other operating activities

(2)

–

Changes in assets and liabilities from operations

Accounts receivable

(23)

(96)

Equipment installment plans receivable

(246)

(134)

Inventory

8

118

Accounts payable

48

5

Customer deposits and deferred revenues

(54)

(37)

Accrued taxes

40

34

Accrued interest

(2)

4

Other assets and liabilities

(21)

(56)

Net cash provided by operating activities

501

555

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(443)

(581)

Cash paid for acquisitions and licenses

(53)

(286)

Cash received from divestitures and exchanges

21

317

Federal Communications Commission deposit

(143)

–

Other investing activities

–

1

Net cash used in investing activities

(618)

(549)

Cash flows from financing activities

Issuance of long-term debt

–

525

Repayment of long-term debt

(11)

–

Common shares reissued for benefit plans, net of tax payments

6

2

Common shares repurchased

(5)

(6)

Payment of debt issuance costs

(2)

(13)

Acquisition of towers in common control transaction

–

(2)

Distributions to noncontrolling interests

(1)

(6)

Payments to acquire additional interest in subsidiaries

–

(2)

Other financing activities

1

(1)

Net cash provided by (used in) financing activities

(12)

497

Net increase (decrease) in cash and cash equivalents

(129)

503

Cash and cash equivalents

Beginning of period

715

212

End of period

$

586

$

715

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

December 31,

December 31,

2016

2015

(Dollars in millions)

Current assets

Cash and cash equivalents

$

586

$

715

Accounts receivable from customers and others, net

727

672

Inventory, net

138

149

Prepaid expenses

84

81

Other current assets

23

55

Total current assets

1,558

1,672

Assets held for sale

8

–

Licenses

1,886

1,834

Goodwill

370

370

Investments in unconsolidated entities

413

363

Property, plant and equipment

In service and under construction

7,712

7,669

Less: Accumulated depreciation

5,242

5,020

          Property, plant and equipment, net

2,470

2,649

Other assets and deferred charges

405

172

Total assets

$

7,110

$

7,060

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

December 31,

December 31,

2016

2015

(Dollars and shares in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

11

$

11

Accounts payable

Affiliated

12

10

Trade

309

275

Customer deposits and deferred revenues

190

251

Accrued taxes

39

28

Accrued compensation

73

68

Other current liabilities

84

105

Total current liabilities

718

748

Deferred liabilities and credits

Net deferred income tax liability, net

826

821

Other deferred liabilities and credits

302

290

Long-term debt, net

1,618

1,629

Noncontrolling interests with redemption features

1

1

Equity

U.S. Cellular shareholders' equity

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

88

88

Additional paid-in capital

1,522

1,497

Treasury shares

(136)

(157)

Retained earnings

2,160

2,133

Total U.S. Cellular shareholders' equity

3,634

3,561

Noncontrolling interests

11

10

Total equity

3,645

3,571

Total liabilities and equity

$

7,110

$

7,060

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2015

2016

2015

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

86

$

–

$

501

$

555

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

163

174

443

581

Free cash flow

(77)

(174)

58

(26)

Add: Sprint Cost Reimbursement

1

2

7

30

Adjusted free cash flow (Non-GAAP) ⁽¹⁾ 

$

(76)

$

(172)

$

65

$

4

Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment.  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 paid for additions to property, plant and equipment.  Sprint decommissioning and Sprint Cost Reimbursement are further defined and discussed in our Annual Report on Form 10-K for the year ended December 31, 2016.  Free cash flow and Adjusted free cash flow are non-GAAP financial measures 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 paid for additions to property, plant and equipment.

12/31/2016

9/30/2016

6/30/2016

3/31/2016

12/31/2015

(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues

$

607

$

635

$

636

$

639

$

674

Average number of postpaid connections

4.48

4.49

4.48

4.43

4.37

Number of months in period

3

3

3

3

3

Postpaid ARPU (GAAP metric)

$

45.19

$

47.08

$

47.37

$

48.13

$

51.46

Calculation of Postpaid ABPU

Postpaid service revenues

$

607

$

635

$

636

$

639

$

674

Equipment installment plan billings

138

131

118

105

93

Total billings to postpaid connections

$

745

$

766

$

754

$

744

$

767

Average number of postpaid connections

4.48

4.49

4.48

4.43

4.37

Number of months in period

3

3

3

3

3

Postpaid ABPU (Non-GAAP metric)

$

55.43