U.S. Cellular reports third quarter 2017 results

2017 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues ⁽¹⁾

$3,850-$3,950

$3,800-$4,000

Adjusted OIBDA ^(1)(2)(3)

$600-$700

$550-$650

Adjusted EBITDA ⁽²⁾

$740-$840

$700-$800

Capital expenditures

Approx.

$500

Unchanged

Actual Results

2017 Estimated

Results

Nine Months
Ended September
30, 2017

Year Ended

December 31,
2016

(Dollars in millions)

Net income (loss) (GAAP)

N/A

$

(259)

$

49

Add back:

Income tax expense (benefit)

N/A

(19)

33

Income (loss) before income taxes (GAAP)

$

(350)-(250)

$

(278)

$

82

Add back:

Interest expense

110

85

113

Depreciation, amortization and accretion expense

610

460

618

EBITDA (Non-GAAP)

$

370-470

$

267

$

813

Add back (deduct):

Loss on impairment of goodwill

370

370

–

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

–

(1)

–

(Gain) loss on license sales and exchanges, net

(20)

(19)

(19)

(Gain) loss on assets disposals, net

20

14

22

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$

740-840

$

631

$

816

Deduct:

Equity in earnings of unconsolidated entities

130

101

140

Interest and dividend income ⁽¹⁾

10

6

6

Other, net

–

1

1

Adjusted OIBDA (Non-GAAP) ^(1)(2)(3)

$

600-700

$

523

$

669

Note: Totals may not foot due to rounding differences.

(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. 

(2)

Adjusted EBITDA is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted OIBDA is defined as net income adjusted for the items set forth in the reconciliation above.  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 Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income (loss) or Income (loss) before income taxes.

(3)

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for September 30, 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

9/30/2017

6/30/2017

3/31/2017

12/31/2016

9/30/2016

Retail Connections

Postpaid

Total at end of period

4,513,000

4,478,000

4,455,000

4,482,000

4,484,000

Gross additions

191,000

174,000

146,000

187,000

174,000

Feature phones

7,000

7,000

7,000

7,000

10,000

Smartphones

132,000

116,000

88,000

109,000

105,000

Connected devices

52,000

51,000

51,000

71,000

59,000

Net additions (losses)

35,000

23,000

(27,000)

(2,000)

(6,000)

Feature phones

(15,000)

(15,000)

(19,000)

(21,000)

(20,000)

Smartphones

44,000

34,000

(9,000)

(4,000)

(7,000)

Connected devices

6,000

4,000

1,000

23,000

21,000

ARPU ⁽¹⁾

$

43.41

$

44.60

$

45.42

$

45.19

$

47.08

ABPU (Non-GAAP)⁽²⁾

$

54.71

$

55.19

$

55.82

$

55.43

$

56.79

ARPA ⁽³⁾

$

116.36

$

119.73

$

121.88

$

120.67

$

125.31

ABPA (Non-GAAP)⁽⁴⁾

$

146.65

$

148.15

$

149.78

$

148.02

$

151.16

Churn rate ⁽⁵⁾

1.16%

1.13%

1.29%

1.41%

1.34%

Handsets

0.96%

0.91%

1.08%

1.23%

1.22%

Connected devices

2.33%

2.35%

2.55%

2.49%

2.04%

Prepaid

Total at end of period

515,000

484,000

480,000

484,000

480,000

Gross additions

102,000

73,000

78,000

83,000

132,000

Net additions (losses)

31,000

3,000

(4,000)

4,000

67,000

ARPU ⁽¹⁾

$

33.12

$

33.52

$

33.66

$

33.25

$

34.39

Churn rate ⁽⁵⁾

4.75%

4.93%

5.69%

5.44%

4.84%

Total connections at end of period ⁽⁶⁾

5,089,000

5,023,000

4,996,000

5,031,000

5,030,000

Market penetration at end of period

Consolidated operating population

31,834,000

32,089,000

32,089,000

31,994,000

31,994,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

112

$

84

$

61

$

171

$

103

Total cell sites in service

6,436

6,421

6,417

6,415

6,374

Owned towers

4,051

4,044

4,041

4,040

4,015

(1)

Average Revenue Per User (ARPU) - metric 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 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 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 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)

Three Months Ended September 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

Service⁽¹⁾ 

$

737

$

784

$

(47)

(6)%

Equipment sales

226

239

(13)

(5)%

Total operating revenues⁽¹⁾

963

1,023

(60)

(6)%

Operating expenses

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

185

196

(11)

(6)%

Cost of equipment sold

261

280

(19)

(7)%

Selling, general and administrative

350

370

(20)

(5)%

Depreciation, amortization and accretion

153

155

(2)

(2)%

Loss on impairment of goodwill

370

–

370

N/M

(Gain) loss on asset disposals, net

5

7

(2)

(26)%

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

(1)

–

(1)

N/M

(Gain) loss on license sales and exchanges, net

–

(7)

7

100%

Total operating expenses

1,323

1,001

322

32%

Operating income (loss)⁽¹⁾

(360)

22

(382)

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

35

38

(3)

(7)%

Interest and dividend income⁽¹⁾

2

1

1

68%

Interest expense

(28)

(28)

–

(2)%

Total investment and other income⁽¹⁾

9

11

(2)

(21)%

Income (loss) before income taxes

(351)

33

(384)

>(100)%

Income tax expense (benefit)

(53)

15

(68)

>(100)%

Net income (loss) 

(298)

18

(316)

>(100)%

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

1

1

–

(9)%

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

$

(299)

$

17

$

(316)

>(100)%

Basic weighted average shares outstanding

85

85

–

-

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

$

(3.51)

$

0.20

$

(3.71)

>(100)%

Diluted weighted average shares outstanding

85

85

–

-

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

$

(3.51)

$

0.20

$

(3.71)

>(100)%

N/M - Percentage change not meaningful

(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)

Nine Months Ended September 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

Service⁽¹⁾

$

2,223

$

2,330

$

(107)

(5)%

Equipment sales

639

655

(16)

(3)%

Total operating revenues⁽¹⁾

2,862

2,985

(123)

(4)%

Operating expenses

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

549

572

(23)

(4)%

Cost of equipment sold

749

799

(50)

(6)%

Selling, general and administrative

1,041

1,089

(48)

(4)%

Depreciation, amortization and accretion

460

462

(2)

-

Loss on impairment of goodwill

370

–

370

N/M

(Gain) loss on asset disposals, net

14

16

(2)

(17)%

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

(1)

–

(1)

>(100)%

(Gain) loss on license sales and exchanges, net

(19)

(16)

(3)

(16)%

Total operating expenses

3,163

2,922

241

8%

Operating income (loss)⁽¹⁾

(301)

63

(364)

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

101

110

(9)

(8)%

Interest and dividend income⁽¹⁾

6

4

2

45%

Interest expense

(85)

(84)

(1)

(1)%

Other, net

1

–

1

(9)%

Total investment and other income⁽¹⁾

23

30

(7)

(25)%

Income (loss) before income taxes

(278)

93

(371)

>(100)%

Income tax expense (benefit)

(19)

39

(58)

>(100)%

Net income (loss)

(259)

54

(313)

>(100)%

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

2

1

1

>100%

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

$

(261)

$

53

$

(314)

>(100)%

Basic weighted average shares outstanding

85

85

–

-

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

$

(3.07)

$

0.63

$

(3.70)

>(100)%

Diluted weighted average shares outstanding

85

85

–

-

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

$

(3.07)

$

0.63

$

(3.70)

>(100)%

N/M - Percentage change not meaningful

(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 Cash Flows

(Unaudited)

Nine Months Ended

September 30,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income (loss)

$

(259)

$

54

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

Depreciation, amortization and accretion

460

462

Bad debts expense

64

69

Stock-based compensation expense

21

19

Deferred income taxes, net

(73)

11

Equity in earnings of unconsolidated entities

(101)

(110)

Distributions from unconsolidated entities

85

55

Loss on impairment of goodwill

370

–

(Gain) loss on asset disposals, net

14

16

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

(1)

–

(Gain) loss on license sales and exchanges, net

(19)

(16)

Noncash interest

1

1

Other operating activities

–

(2)

Changes in assets and liabilities from operations

Accounts receivable

(16)

1

Equipment installment plans receivable

(164)

(160)

Inventory

36

2

Accounts payable

(58)

45

Customer deposits and deferred revenues

(13)

(41)

Accrued taxes

31

38

Accrued interest

9

7

Other assets and liabilities

7

(36)

Net cash provided by operating activities

394

415

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(252)

(280)

Cash paid for licenses

(189)

(46)

Cash paid for investments

(50)

–

Cash received from divestitures and exchanges

19

20

Federal Communications Commission deposit

–

(143)

Net cash used in investing activities

(472)

(449)

Cash flows from financing activities

Repayment of long-term debt

(9)

(8)

Common shares reissued for benefit plans, net of tax payments

1

4

Common shares repurchased

–

(2)

Payment of debt issuance costs

–

(2)

Distributions to noncontrolling interests

(2)

(1)

Other financing activities

–

2

Net cash used in financing activities

(10)

(7)

Net decrease in cash and cash equivalents

(88)

(41)

Cash and cash equivalents

Beginning of period

586

715

End of period

$

498

$

674

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

498

$

586

Short-term investments

50

–

Accounts receivable from customers and others, net

757

727

Inventory, net

102

138

Prepaid expenses

76

84

Other current assets

21

23

Total current assets

1,504

1,558

Assets held for sale

5

8

Licenses

2,225

1,886

Goodwill

–

370

Investments in unconsolidated entities

429

413

Property, plant and equipment

In service and under construction

7,576

7,712

Less: Accumulated depreciation and amortization

5,313

5,242

Property, plant and equipment, net

2,263

2,470

Other assets and deferred charges

354

405

Total assets

$

6,780

$

7,110

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

September 30,

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

Affiliated

11

12

Trade

259

309

Customer deposits and deferred revenues

176

190

Accrued taxes

65

39

Accrued compensation

68

73

Other current liabilities

76

84

Total current liabilities

673

718

Deferred liabilities and credits

Deferred income tax liability, net

753

826

Other deferred liabilities and credits

321

302

Long-term debt, net

1,626

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

1,543

1,522

Treasury shares

(120)

(136)

Retained earnings

1,884

2,160

Total U.S. Cellular shareholders' equity

3,395

3,634

Noncontrolling interests

11

11

Total equity

3,406

3,645

Total liabilities and equity

$

6,780

$

7,110

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

174

$

155

$

394

$

415

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

96

102

252

280

Free cash flow (Non-GAAP) ⁽¹⁾

$

78

$

53

$

142

$

135

(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 September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(Dollars in millions, except per share amounts)

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

$

(299)

$

17

$

(261)

$

53

Adjustments:

Loss on impairment of goodwill

370

–

370

–

Tax benefit on impairment of goodwill⁽¹⁾

(61)

–

(61)

–

Total adjustments (Non-GAAP)

309

–

309

–

Net income attributable to U.S. Cellular shareholders excluding goodwill impairment charge (Non-GAAP)

$

10

$

17

$

48

$

53

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

$

(3.51)

$

0.20

$

(3.07)

$

0.63

Adjustments:

Adjustment to weighted average diluted shares⁽²⁾

0.03

–

0.03