U.S. Cellular reports second quarter 2014 results

Provides 2014 financial guidance

As previously announced, U.S. Cellular will hold a teleconference Aug. 1, 2014 at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

News provided by

United States Cellular Corporation

Aug 01, 2014, 07:56 ET

CHICAGO, Aug. 1, 2014 /PRNewswire/ -- United States Cellular Corporation (NYSE:USM) reported total operating revenues of $957.8 million for the second quarter of 2014, versus $995.1 million for the same period one year ago. Net income (loss) attributable to U.S. Cellular shareholders and related diluted earnings (loss) per share were $(18.8) million and $(0.22) respectively, for the second quarter of 2014, compared to $143.4 million and $1.69, respectively, in the comparable period one year ago. Year-over-year comparisons are affected by the divestiture transaction in 2013.

"We have continued to generate strong gross additions and reduce churn, which led to net postpaid customer growth for the month of June, and that has continued into July," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We are building momentum from strategic actions we've taken to attract more new customers and increase loyalty.

"More wireless consumers are responding to our strong value proposition that offers the speed and quality of our award-winning network, together with a wide range of devices and data services, and competitive pricing. Now that the billing system is stabilized, our associates are again delivering outstanding service to customers in our service centers and stores which has led to a significant reduction in postpaid customer churn.

"With smartphone penetration at 55 percent among postpaid customers, data use continues to grow, driving up our postpaid average revenue per user. Our equipment installment plans, introduced in April, have been well received and represented 14 percent of equipment transactions in the quarter.

"Growing our customer base is our highest priority in 2014, and our recent performance gives me confidence that we're on the right track to achieve this goal, with our competitive devices, plans, and pricing, our fast and reliable network, and our highly engaged associates."

2014 Estimated Results

U.S. Cellular's estimates of full-year 2014 results are shown below. Such estimates represent U.S. Cellular's view as of August 1, 2014. Such forward‑looking statements should not be assumed to be current as of any future date. 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 such estimated results.

	2014 Estimated Results
	Current	Previous
(Dollars in millions)
Total operating revenues	$3,900-$4,000	N/A
Adjusted income before income taxes (1)	$350-$450	N/A
Capital expenditures	$640	Unchanged

(1)

Adjusted income before income taxes is defined as income before income taxes, adjusted for the items set forth in the reconciliation below. Adjusted income before income taxes excludes 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 adjusted income before income taxes 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. Adjusted income before income taxes is not a measure of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as an alternative to income before income taxes as an indicator of the company's operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity. U.S. Cellular believes adjusted income before income taxes is a useful measure of U.S. Cellular's operating results before significant recurring non-cash charges, discrete gains and losses, and financing charges (interest expense). The following table provides a reconciliation of income before income taxes to adjusted income before income taxes for 2014 estimated results, six months ended June 30, 2014 actual results, and year ended December 31, 2013 actual results:

		Actual Results
	2014 Estimated Results	Six Months Ended June 30, 2014	Year Ended December 31, 2013
(Dollars in millions)
Income (loss) before income taxes	($189)-($89)	$1	$258
Depreciation, amortization and accretion expense	$630	$316	$804
(Gain) loss on sale of business and other exit costs, net	($50)	($17)	($247)
(Gain) loss on license sales and exchanges	($91)	($91)	($255)
(Gain) loss on investments	―	―	($19)
Interest expense	$50	$29	$44
Adjusted income before income taxes	$350-$450	$238	$585

Conference Call Information
U.S. Cellular will hold a conference call on Aug. 1, 2014 at 9:30 a.m. CDT.

Access the live call on the Events & Presentation page of investors.uscellular.com or at www.videonewswire.com/event.asp?id=100144.
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 investors.uscellular.com. The call will be archived on the Events & Presentations page of investors.uscellular.com.

About U.S. Cellular
United States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to 4.7 million customers in 23 states. The Chicago-based company had 6,400 full- and part-time associates as of June 30, 2014. At the end of the second quarter of 2014, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

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: impacts of any pending acquisition and divestiture transactions, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; 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 on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular 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 user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of products and services offered by U.S. Cellular. 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
*Total Markets Summary Operating Data (Unaudited)**

As of or for the Quarter Ended			6/30/2014		3/31/2014		12/31/2013		9/30/2013		6/30/2013
Retail Customers
	Postpaid
		Total at end of period		4,148,000		4,174,000		4,267,000		4,343,000		4,412,000
		Gross additions		190,000		197,000		176,000		165,000		165,000
		Net additions (losses)		(26,000)		(93,000)		(71,000)		(60,000)		(120,000)
		ARPU (1)	$	56.82	$	57.59	$	53.53	$	54.64	$	54.18
		Churn rate (2)		1.7%		2.3%		1.9%		1.7%		2.0%
		Smartphone penetration (3)		55.3%		53.1%		50.8%		47.1%		45.5%
	Prepaid
		Total at end of period		352,000		356,000		343,000		370,000		381,000
		Gross additions		65,000		85,000		63,000		65,000		77,000
		Net additions (losses)		(4,000)		13,000		(26,000)		(11,000)		(7,000)
		ARPU (1)	$	34.02	$	32.22	$	31.66	$	28.72	$	31.69
		Churn rate (2)		6.5%		6.9%		8.3%		6.8%		6.8%
Total customers at end of period				4,653,000		4,684,000		4,774,000		4,875,000		4,968,000
Billed ARPU (1)			$	53.36	$	53.93	$	50.25	$	50.92	$	50.60
Service revenue ARPU (1)			$	60.32	$	60.19	$	57.05	$	58.36	$	57.45
Smartphones sold as a percent of total devices sold				72.6%		73.0%		79.6%		65.2%		66.0%
Total population
		Consolidated markets (4)		54,817,000		54,817,000		58,013,000		84,025,000		84,025,000
		Consolidated operating markets (4)		31,729,000		31,729,000		31,759,000		31,822,000		31,822,000
Market penetration at end of period
		Consolidated markets (5)		8.5%		8.5%		8.2%		5.8%		5.9%
		Consolidated operating markets (5)		14.7%		14.8%		15.0%		15.3%		15.6%
Capital expenditures (000s)			$	143,927	$	89,581	$	208,135	$	242,459	$	168,497
Total cell sites in service				6,183		6,165		6,975		7,687		7,748
Owned towers				4,457		4,448		4,448		4,422		4,411


*	Represents U.S. Cellular's consolidated markets. These results include markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and are not adjusted in prior periods for subsequent divestitures or deconsolidations.

	Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

United States Cellular Corporation
*Core Markets Summary Operating Data (Unaudited)**

As of or for the Quarter Ended			6/30/2014		3/31/2014		12/31/2013		9/30/2013		6/30/2013
Retail Customers
	Postpaid
		Total at end of period		4,148,000		4,174,000		4,267,000		4,343,000		4,412,000
		Gross additions		190,000		197,000		176,000		165,000		165,000
		Net additions (losses)		(26,000)		(93,000)		(71,000)		(60,000)		(53,000)
		ARPU (1)	$	56.82	$	57.59	$	53.53	$	54.64	$	54.44
		Churn rate (2)		1.7%		2.3%		1.9%		1.7%		1.6%
		Smartphone penetration (3)		55.3%		53.1%		50.8%		47.1%		45.5%
	Prepaid
		Total at end of period		352,000		356,000		343,000		370,000		381,000
		Gross additions		65,000		85,000		63,000		65,000		76,000
		Net additions (losses)		(4,000)		13,000		(26,000)		(11,000)		8,000
		ARPU (1)	$	34.02	$	32.22	$	31.66	$	28.72	$	31.65
		Churn rate (2)		6.5%		6.9%		8.3%		6.8%		6.0%
Total customers at end of period				4,653,000		4,684,000		4,774,000		4,875,000		4,968,000
Billed ARPU (1)			$	53.36	$	53.93	$	50.25	$	50.92	$	50.98
Service revenue ARPU (1)			$	60.32	$	60.19	$	57.05	$	58.36	$	57.88
Smartphones sold as a percent of total devices sold				72.6%		73.0%		79.6%		65.2%		66.1%
Total population
		Consolidated markets (4)		54,817,000		54,817,000		58,013,000		84,025,000		84,025,000
		Consolidated operating markets (4)		31,729,000		31,729,000		31,759,000		31,822,000		31,822,000
Market penetration at end of period
		Consolidated markets (5)		8.5%		8.5%		8.2%		5.8%		5.9%
		Consolidated operating markets (5)		14.7%		14.8%		15.0%		15.3%		15.6%
Capital expenditures (000s)			$	143,927	$	89,581	$	211,247	$	239,332	$	171,166
Total cell sites in service				6,183		6,165		6,161		6,127		6,113
Owned towers				3,892		3,883		3,883		3,857		3,846


*	U.S. Cellular's Core Markets excludes the results of the Divestiture Markets and NY1 and NY2 Partnerships for the periods presented.

	Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

(1)	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 retail service or "billed" revenues (total postpaid, prepaid and reseller service revenues) and postpaid, prepaid and reseller customers.
	d.	Service revenue ARPU consists of total retail service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.
(2)	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.
(3)	Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding tablets. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.
(4)	The decrease in the population of Consolidated markets is due primarily to the divestiture of the Mississippi Valley non-operating license in October 2013 and the majority of the St. Louis area non-operating market license in March 2014. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (5) below.
(5)	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 penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (4) above.

United States Cellular Corporation
Consolidated Statement of Operations Highlights
Three Months Ended June 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
							Change
			2014		2013		Amount		Percent
Operating revenues
	Service		$	843,473	$	910,966	$	(67,493)	(7%)
	Equipment sales			114,300		84,164		30,136	36%
		Total operating revenues		957,773		995,130		(37,357)	(4%)

Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			187,131		192,267		(5,136)	(3%)
	Cost of equipment sold			271,978		217,070		54,908	25%
	Selling, general and administrative			404,252		404,127		125	—
	Depreciation, amortization and accretion			148,337		202,580		(54,243)	(27%)
	(Gain) loss on asset disposals, net			6,893		9,018		(2,125)	(24%)
	(Gain) loss on sale of business and other exit costs, net			(10,511)		(249,024)		238,513	96%
		Total operating expenses		1,008,080		776,038		232,042	30%

Operating income (loss)				(50,307)		219,092		(269,399)	>(100%)

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			33,120		35,602		(2,482)	(7%)
	Interest and dividend income			1,573		969		604	62%
	Gain (loss) on investments			—		18,527		(18,527)	N/M
	Interest expense			(14,336)		(10,154)		(4,182)	(41%)
	Other, net			100		321		(221)	(69%)
		Total investment and other income		20,457		45,265		(24,808)	(55%)

Income (loss) before income taxes				(29,850)		264,357		(294,207)	>(100%)
	Income tax expense (benefit)			(10,399)		120,682		(131,081)	>(100%)
Net income (loss)				(19,451)		143,675		(163,126)	>(100%)
	Less: Net income (loss) attributable to noncontrolling interests, net of tax			(662)		284		(946)	>(100%)
Net income (loss)attributable to U.S. Cellular shareholders			$	(18,789)	$	143,391	$	(162,180)	>(100%)

Basic weighted average shares outstanding				84,341		83,845		496	1%
Basic earnings (loss) per share attributable to U.S. Cellular shareholders			$	(0.22)	$	1.71	$	(1.93)	>(100%)

Diluted weighted average shares outstanding				84,341		84,661		(320)	—
Diluted earnings (loss) per share attributable to U.S. Cellular shareholders			$	(0.22)	$	1.69	$	(1.91)	>(100%)

United States Cellular Corporation
Consolidated Statement of Operations Highlights
Six Months Ended June 30,
(Unaudited, dollars and shares in thousands, except per share amounts)
							Change
			2014		2013		Amount		Percent
Operating revenues
	Service		$	1,697,086	$	1,907,315	$	(210,229)	(11%)
	Equipment sales			186,498		169,561		16,937	10%
		Total operating revenues		1,883,584		2,076,876		(193,292)	(9%)

Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			367,738		408,566		(40,828)	(10%)
	Cost of equipment sold			542,452		458,761		83,691	18%
	Selling, general and administrative			799,816		824,207		(24,391)	(3%)
	Depreciation, amortization and accretion			316,090		392,425		(76,335)	(19%)
	(Gain) loss on asset disposals, net			8,827		14,452		(5,625)	(39%)
	(Gain) loss on sale of business and other exit costs, net			(17,411)		(242,093)		224,682	93%
	(Gain) loss on license sales and exchanges			(91,446)		—		(91,446)	N/M
		Total operating expenses		1,926,066		1,856,318		69,748	4%

Operating income (loss)				(42,482)		220,558		(263,040)	>(100%)

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			70,195		62,437		7,758	12%
	Interest and dividend income			2,457		1,872		585	31%
	Gain (loss) on investments			—		18,527		(18,527)	N/M
	Interest expense			(29,198)		(21,064)		(8,134)	(39%)
	Other, net			186		106		80	75%
		Total investment and other income		43,640		61,878		(18,238)	(29%)

Income before income taxes				1,158		282,436		(281,278)	(100%)
	Income tax expense			2,205		128,051		(125,846)	(98%)
Net income (loss)				(1,047)		154,385		(155,432)	>(100%)
	Less: Net income (loss) attributable to noncontrolling interests, net of tax			(1,740)		6,080		(7,820)	>(100%)
Net income attributable to U.S. Cellular shareholders			$	693	$	148,305	$	(147,612)	(100%)

Basic weighted average shares outstanding				84,277		83,842		435	1%
Basic earnings per share attributable to U.S. Cellular shareholders			$	0.01	$	1.77	$	(1.76)	(99%)

Diluted weighted average shares outstanding				85,041		84,655		386	—
Diluted earnings per share attributable to U.S. Cellular shareholders			$	0.01	$	1.75	$	(1.74)	(99%)

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

ASSETS


		June 30,		December 31,
		2014		2013
Current assets
	Cash and cash equivalents	$	404,058	$	342,065
	Short-term investments		40,035		50,104
	Accounts receivable from customers and others		480,488		586,595
	Inventory, net		199,859		238,188
	Prepaid expenses		63,836		65,596
	Net deferred income tax asset		99,105		99,105
	Other current assets		20,908		19,538
			1,308,289		1,401,191

Assets held for sale			—		16,027

Investments
	Licenses		1,437,831		1,401,126
	Goodwill		387,524		387,524
	Investments in unconsolidated entities		270,215		265,585
			2,095,570		2,054,235

Property, plant and equipment
	In service and under construction		7,670,466		7,717,512
	Less: Accumulated depreciation		4,909,062		4,860,992
			2,761,404		2,856,520

Other assets and deferred charges			133,704		117,735

Total assets		$	6,298,967	$	6,445,708

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

LIABILITIES AND EQUITY


			June 30,		December 31,
			2014		2013
Current liabilities
	Current portion of long-term debt		$	46	$	166
	Accounts payable
		Affiliated		9,937		11,243
		Trade		348,223		405,583
	Customer deposits and deferred revenues			267,533		256,740
	Accrued taxes			51,249		73,820
	Accrued compensation			54,993		66,566
	Other current liabilities			139,229		192,055
				871,210		1,006,173

Deferred liabilities and credits
	Net deferred income tax liability			822,205		836,297
	Other deferred liabilities and credits			318,793		315,073

Long-term debt				876,715		878,032

Noncontrolling interests with redemption features				911		536

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			1,434,045		1,424,729
	Treasury shares			(161,137)		(164,692)
	Retained earnings			2,032,355		2,043,095
		Total U.S. Cellular shareholders' equity		3,393,337		3,391,206

Noncontrolling interests				15,796		18,391

	Total equity			3,409,133		3,409,597

Total liabilities and equity			$	6,298,967	$	6,445,708

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 June 30, 2014 and December 31, 2013.

		June 30,		December 31,
		2014		2013

Cash and cash equivalents		$	404,058	$	342,065

Amounts included in short-term investments (1)(2)
	U.S. Treasury Notes		40,035		50,104

Total cash and cash equivalents and investments		$	444,093	$	392,169


(1)	Designated as held-to-maturity investments and are recorded at amortized cost on the Consolidated Balance Sheet.
(2)	Maturities are less than twelve months from the respective balance sheet dates.

United States Cellular Corporation
Consolidated Statement of Cash Flows
Six Months Ended June 30,
(Unaudited, dollars in thousands)

			2014		2013
Cash flows from operating activities
	Net income (loss)		$	(1,047)	$	154,385
	Add (deduct) adjustments to reconcile net income to cash flows from operating activities
		Depreciation, amortization and accretion		316,090		392,425
		Bad debts expense		49,083		32,715
		Stock-based compensation expense		10,560		6,530
		Deferred income taxes, net		(13,267)		(26,527)
		Equity in earnings of unconsolidated entities		(70,195)		(62,437)
		Distributions from unconsolidated entities		65,565		45,370
		(Gain) loss on asset disposals, net		8,827		14,452
		(Gain) loss on sale of business and other exit costs, net		(17,411)		(242,093)
		(Gain) loss on investments		—		(18,527)
		(Gain) loss on license sales and exchanges		(91,446)		—
		Noncash interest expense		540		526
		Other operating activities		57		489
	Changes in assets and liabilities from operations
		Accounts receivable		52,471		(1,544)
		Inventory		38,329		(7,644)
		Accounts payable - trade		(34,666)		67,457
		Accounts payable - affiliate		(1,934)		4,734
		Customer deposits and deferred revenues		10,793		8,663
		Accrued taxes		(20,280)		147,566
		Accrued interest		61		176
		Other assets and liabilities		(89,270)		(68,131)
				212,860		448,585

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(262,397)		(323,157)
	Cash paid for acquisitions and licenses			(17,245)		(14,150)
	Cash received from divestitures			125,905		480,000
	Cash received for investments			10,000		—
	Other investing activities			836		3,993
				(142,901)		146,686

Cash flows from financing activities
	Repayment of long-term debt			(28)		(71)
	Common shares reissued for benefit plans, net of tax payments			830		(2,206)
	Common shares repurchased			(8,298)		(18,425)
	Dividends paid			—		(482,270)
	Distributions to noncontrolling interests			(482)		(3,292)
	Other financing activities			12		56
				(7,966)		(506,208)

Net increase in cash and cash equivalents				61,993		89,063

Cash and cash equivalents
	Beginning of period			342,065		378,358
	End of period		$	404,058	$	467,421

United States Cellular Corporation
Financial Measures and Reconciliations
(Unaudited, dollars in thousands)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
				2014		2013		2014		2013

	Cash flows from operating activities		$	149,324	$	224,970	$	212,860	$	448,585
	Add: Sprint Cost Reimbursement			22,862		—		34,116		—
	Less: Cash used for additions to property, plant and equipment			152,899		172,133		262,397		323,157
		Adjusted free cash flow (1)	$	19,287	$	52,837	$	(15,421)	$	125,428

(1)

Adjusted free cash flow is defined as Cash flows from operating activities, 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. The prior manner of calculating free cash flow has been adjusted to include the Sprint Cost Reimbursement. The reason for this is that the Sprint decommissioning cash outflows are included in "Cash flows from operating activities," but the reimbursements from Sprint related to these outflows are not included in this caption.

SOURCE United States Cellular Corporation