U.S. Cellular reports fourth quarter and full year 2017 results

2018 Estimated Results and Actual Results for the Year Ended December 31, 2017

2018 Estimated Results

Actual Results for the Year
Ended December 31, 2017

(Dollars in millions)

Total operating revenues

$3,850-$4,050

$

3,890

Adjusted OIBDA ⁽¹⁾⁽²⁾

$625-$775

$

675

Adjusted EBITDA ⁽¹⁾

$765-$915

$

820

Capital expenditures

$500-$550

$

469

2018 Estimated Results

Actual Results for the
Year Ended December 31,
2017

(Dollars in millions)

Net income (GAAP)

N/A

$

15

Add back (deduct):

Income tax expense (benefit)

N/A

(287)

Income (loss) before income taxes (GAAP)

$

10-160

$

(272)

Add back:

Interest expense

110

113

Depreciation, amortization and accretion expense

625

615

EBITDA (Non-GAAP) ⁽¹⁾

$

745-895

$

456

Add back (deduct):

Loss on impairment of goodwill

–

370

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

–

(1)

(Gain) loss on license sales and exchanges, net

–

(22)

(Gain) loss on asset disposals, net

20

17

Adjusted EBITDA (Non-GAAP) ⁽¹⁾

$

765-915

$

820

Deduct:

Equity in earnings of unconsolidated entities

130

137

Interest and dividend income

10

8

Adjusted OIBDA (Non-GAAP) ⁽¹⁾⁽²⁾

$

625-775

$

675

Note: Totals may not foot due to rounding differences.

(1)

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above.  EBITDA, Adjusted EBITDA and Adjusted OIBDA 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 Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate.  Management believes Adjusted EBITDA and Adjusted OIBDA 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 Adjusted OIBDA 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 EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(2)

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for full year 2017 actual results can be found on U.S. Cellular's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Retail Connections

Postpaid

Total at end of period

4,518,000

4,513,000

4,478,000

4,455,000

4,482,000

Gross additions

177,000

191,000

174,000

146,000

187,000

Feature phones

5,000

7,000

7,000

7,000

7,000

Smartphones

128,000

132,000

116,000

88,000

109,000

Connected devices

44,000

52,000

51,000

51,000

71,000

Net additions (losses)

5,000

35,000

23,000

(27,000)

(2,000)

Feature phones

(15,000)

(15,000)

(15,000)

(19,000)

(21,000)

Smartphones

33,000

44,000

34,000

(9,000)

(4,000)

Connected devices

(13,000)

6,000

4,000

1,000

23,000

ARPU ⁽¹⁾

$

44.12

$

43.41

$

44.60

$

45.42

$

45.19

ABPU (Non-GAAP)⁽²⁾

$

56.69

$

54.71

$

55.19

$

55.82

$

55.43

ARPA ⁽³⁾

$

118.05

$

116.36

$

119.73

$

121.88

$

120.67

ABPA (Non-GAAP)⁽⁴⁾

$

151.68

$

146.65

$

148.15

$

149.78

$

148.02

Churn rate ⁽⁵⁾

1.27%

1.16%

1.13%

1.29%

1.41%

Handsets

1.00%

0.96%

0.91%

1.08%

1.23%

Connected devices

2.84%

2.33%

2.35%

2.55%

2.49%

Prepaid

Total at end of period

519,000

515,000

484,000

480,000

484,000

Gross additions

83,000

102,000

73,000

78,000

83,000

Net additions (losses)

4,000

31,000

3,000

(4,000)

4,000

ARPU ⁽¹⁾

$

32.42

$

33.12

$

33.52

$

33.66

$

33.25

Churn rate ⁽⁵⁾

5.09%

4.75%

4.93%

5.69%

5.44%

Total connections at end of period ⁽⁶⁾

5,096,000

5,089,000

5,023,000

4,996,000

5,031,000

Market penetration at end of period

Consolidated operating population

31,834,000

31,834,000

32,089,000

32,089,000

31,994,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

213

$

112

$

84

$

61

$

171

Total cell sites in service

6,460

6,436

6,421

6,417

6,415

Owned towers

4,080

4,051

4,044

4,041

4,040

⁽¹⁾

Average Revenue Per User (ARPU) - metric which is 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 which is 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 which is 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 which is 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⁾

Includes reseller and other connections.

⁽⁷⁾

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)

2017 vs. 2016

Increase

Three Months Ended December 31,

2017

2016

(Decrease)

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

Operating revenues

Service ⁽¹⁾

$

755

$

752

-

Equipment sales

274

254

8%

Total operating revenues ⁽¹⁾

1,029

1,006

2%

Operating expenses

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

183

188

(3)%

Cost of equipment sold

322

283

14%

Selling, general and administrative

372

390

(5)%

Depreciation, amortization and accretion

155

156

(1)%

(Gain) loss on asset disposals, net

4

6

(34)%

(Gain) loss on license sales and exchanges, net

(3)

(3)

(24)%

Total operating expenses

1,033

1,020

1%

Operating loss

(4)

(14)

75%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

36

30

17%

Interest and dividend income ⁽¹⁾

2

1

22%

Interest expense

(28)

(29)

5%

Other, net

–

1

(38)%

Total investment and other income ⁽¹⁾

10

3

>100%

Income (loss) before income taxes

6

(11)

>100%

Income tax expense (benefit)

(267)

(6)

>(100)%

Net income (loss)

273

(5)

>100%

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

–

1

(32)%

Net income (loss) attributable to U.S. Cellular shareholders

$

273

$

(6)

>100%

Basic weighted average shares outstanding

85

85

-

Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

3.21

$

(0.07)

>100%

Diluted weighted average shares outstanding

86

85

1%

Diluted earnings (loss) per share attributable to

   U.S. Cellular shareholders

$

3.18

$

(0.07)

>100%

(1)

Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017.  All prior period numbers have been recast to conform to this accounting change.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

2017 vs. 2016

Increase

Year Ended December 31,

2017

2016

(Decrease)

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

Operating revenues

Service

$

2,978

$

3,081

(3)%

Equipment sales

912

909

-

Total operating revenues

3,890

3,990

(3)%

Operating expenses

732

760

(4)%

Cost of equipment sold

1,071

1,081

(1)%

Selling, general and administrative

1,412

1,480

(4)%

Depreciation, amortization and accretion

615

618

-

Loss on impairment of goodwill

370

–

N/M

(Gain) loss on asset disposals, net

17

22

(22)%

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

(1)

–

>(100)%

(Gain) loss on license sales and exchanges, net

(22)

(19)

(17)%

Total operating expenses

4,194

3,942

6%

Operating income (loss)

(304)

48

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

137

140

(2)%

Interest and dividend income

8

6

40%

Interest expense

(113)

(113)

-

Other, net

–

1

(19)%

Total investment and other income

32

34

(1)%

Income (loss) before income taxes

(272)

82

>(100)%

Income tax expense (benefit)

(287)

33

>(100)%

Net income

15

49

(70)%

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

3

1

56%

Net income attributable to U.S. Cellular shareholders

$

12

$

48

(74)%

Basic weighted average shares outstanding

85

85

-

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

$

0.14

$

0.56

(75)%

Diluted weighted average shares outstanding

86

85

-

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

$

0.14

$

0.56

(75)%

N/M - Percentage change not meaningful

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Year Ended December 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income

$

15

$

49

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

Depreciation, amortization and accretion

615

618

Bad debts expense

89

96

Stock-based compensation expense

30

26

Deferred income taxes, net

(365)

6

Equity in earnings of unconsolidated entities

(137)

(140)

Distributions from unconsolidated entities

136

93

Loss on impairment of goodwill

370

–

(Gain) loss on asset disposals, net

17

22

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

(1)

–

(Gain) loss on license sales and exchanges, net

(22)

(19)

Noncash interest

2

2

Other operating activities

–

(2)

Changes in assets and liabilities from operations

Accounts receivable

(68)

(23)

Equipment installment plans receivable

(261)

(246)

Inventory

–

8

Accounts payable

(14)

48

Customer deposits and deferred revenues

(3)

(54)

Accrued taxes

26

40

Accrued interest

–

(2)

Other assets and liabilities

40

(21)

Net cash provided by operating activities

469

501

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(465)

(443)

Cash paid for licenses

(189)

(53)

Cash paid for investments

(50)

–

Cash received from divestitures and exchanges

21

21

Federal Communications Commission deposit

–

(143)

Net cash used in investing activities

(683)

(618)

Cash flows from financing activities

Repayment of long-term debt

(14)

(11)

Common shares reissued for benefit plans, net of tax payments

1

6

Common shares repurchased

–

(5)

Payment of debt issuance costs

(2)

(2)

Distributions to noncontrolling interests

(4)

(1)

Other financing activities

(1)

1

Net cash used in financing activities

(20)

(12)

Net decrease in cash, cash equivalents and restricted cash

(234)

(129)

Cash, cash equivalents and restricted cash ⁽¹⁾

Beginning of period

586

715

End of period

$

352

$

586

⁽¹⁾

As of December 31, 2017, U.S. Cellular early adopted ASU 2016-18 on a retrospective basis which requires that restricted cash be presented with Cash and cash equivalents in the Statement of Cash Flows.  The Statement of Cash Flows includes restricted cash of less than $1 million as of December 31, 2017, and no restricted cash as of December 31, 2016.

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

352

$

586

Short-term investments

50

–

Accounts receivable from customers and others, net

843

727

Inventory, net

138

138

Prepaid expenses

79

84

Other current assets

21

23

Total current assets

1,483

1,558

Assets held for sale

10

8

Licenses

2,223

1,886

Goodwill

–

370

Investments in unconsolidated entities

415

413

Property, plant and equipment, net

2,320

2,470

Other assets and deferred charges

390

405

Total assets

$

6,841

$

7,110

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

December 31,

2017

2016

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

Current liabilities

Current portion of long-term debt

$

18

$

11

Accounts payable

310

321

Customer deposits and deferred revenues

185

190

Accrued taxes

56

39

Accrued compensation

74

73

Other current liabilities

90

84

Total current liabilities

733

718

Deferred liabilities and credits

Deferred income tax liability, net

461

826

Other deferred liabilities and credits

337

302

Long-term debt, net

1,622

1,618

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

1,552

1,522

Treasury shares

(120)

(136)

Retained earnings

2,157

2,160

Total U.S. Cellular shareholders' equity

3,677

3,634

Noncontrolling interests

10

11

Total equity

3,687

3,645

Total liabilities and equity

$

6,841

$

7,110

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

Year Ended

December 31,

December 31,

2017

2016

2017

2016

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

76

$

86

$

469

$

501

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

213

163

465

443

Free cash flow (Non-GAAP) ⁽¹⁾

$

(137)

$

(77)

$

4

$

58

⁽¹⁾

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.  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 liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

Three Months Ended

Year Ended

December 31,

December 31,

2017

2016

2017

2016

(Dollars in millions, except per share amounts)

Net income (loss) attributable to U.S. Cellular shareholders (GAAP)

$

273

$

(6)

$

12

$

48

Adjustments:

Loss on impairment of goodwill

–

–

370

–

Tax benefit on impairment of goodwill⁽¹⁾

–

–

(63)

–

Subtotal of Non-GAAP goodwill adjustments

–

–

307

–

Effect of the Tax Act

(269)

–

(269)

–

Subtotal of Non-GAAP adjustments

(269)

–

38

–

Net income (loss) attributable to U.S. Cellular shareholders excluding adjustments (Non-GAAP)

$

4

$

(6)

$

50

$

48

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders (GAAP)

$

3.18

$

(0.07)

$

0.14

$

0.56

Adjustments:

Loss on impairment of goodwill

–

–

4.31

–

Tax benefit on impairment of goodwill⁽¹⁾

–

–

(0.74)

–

Effect of the Tax Act

(3.13)

–

(3.13)

–

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders excluding adjustments (Non-GAAP)

$

0.05

$

(0.07)

$

0.58

$

0.56

(1)

Tax benefit represents the amount associated with the tax-amortizable portion of the loss on goodwill impairment.

For the Quarter Ended

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues

$

598

$

586

$

597

$

608

$

607

Average number of postpaid connections

4.52

4.50

4.47

4.46

4.48

Number of months in period

3

3

3

3

3

Postpaid ARPU (GAAP metric)

$

44.12

$

43.41

$

44.60

$

45.42

$

45.19

Calculation of Postpaid ABPU

Postpaid service revenues

$

598

$

586

$

597

$

608

$

607

Equipment installment plan billings

170

152

142

139

138

Total billings to postpaid connections

$

768

$

738

$

739

$

747

$

745

Average number of postpaid connections

4.52

4.50

4.47

4.46

4.48

Number of months in period

3

3

3

3

3

Postpaid ABPU (Non-GAAP metric)

$

56.69

$

54.71

$

55.19

$

55.82

$

55.43

Calculation of Postpaid ARPA