UNITED STATES CELLULAR CORP - FORM 8-K - EX-99.1

Attached files

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8-K - 8-K - UNITED STATES CELLULAR CORP	form8-k.htm
EX-99.2 - EX-99.2 - UNITED STATES CELLULAR CORP	exhibit99-2.htm

As previously announced, U.S. Cellular will hold a teleconference Aug. 8, 2011 at 7:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of uscellular.com or www.teldta.com.

Contact: Jane W. McCahon, Vice President, Corporate Relations

(312) 592-5379; jane.mccahon@teldta.com

Julie D. Mathews, Manager, Investor Relations

(312) 592-5341; julie.mathews@teldta.com

FOR RELEASE: IMMEDIATE

U.S. cellular Reports second QUARTER 2011 RESULTS

Higher revenue and profits driven by data growth, lower churn and higher roaming revenue; Gross additions disappointing.

Note: Comparisons are year over year unless otherwise noted.

2Q 2011 Highlights

§ Smartphones sold, as a percent of total devices sold, increased to 39.6 percent from 15.8 percent.

§ Service revenues were $1,002.0 million, up 3 percent.

§ Postpaid ARPU (average revenue per unit) increased to $51.84 from $50.55.

§ Postpaid churn improved to 1.38 percent from 1.43 percent.

§ Operating income increased 61 percent to $102.4 million.

§ Net loss of 58,000 retail customers, reflecting loss of 41,000 postpaid customers and 17,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.

§ Cell sites in service increased 5 percent to 7,770, of which 4,400 are owned towers.

§ Repurchased 918,942 common shares for $45.0 million.

CHICAGO – Aug. 8, 2011 – United States Cellular Corporation [NYSE:USM] reported service revenues of $1,002.0 million for the second quarter of 2011, versus $972.6 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $73.9 million and $0.87, respectively, for the second quarter of 2011, compared to $40.8 million and $0.47, respectively, in the comparable period one year ago.

“We continued to increase postpaid ARPU and maintain a low churn rate,” said Mary N. Dillon, U.S. Cellular president and CEO, “although our subscriber results continue to reflect the intense competitive environment and the weak economy. This remains our greatest challenge. Our new advertising and marketing strategies are starting to increase awareness among potential switchers, and we’re working hard to break through to our target customers and leverage that awareness to improve gross additions.

“Smartphones sales continued to be strong, and we also saw an increase in sales of data plans for feature phones in the quarter. By balancing device subsidies among a wider range of both feature phones and smartphones, we were able to better control our loss on equipment. Overall, operating margins improved in the quarter due to higher ARPU, increased roaming revenue and good expense control, while fewer gross additions contributed to lower sales and marketing expenses.

“We now have 2.3 million customers on our Belief Plans, and we’re complementing those plans with some very exciting phones and devices. This quarter we added the new HTC 7 Pro™ with Windows Phone 7^®, the new Android™-powered HTC Merge™ Global Ready smartphone, and the Motorola Xoom™ tablet. And we have more feature-packed phones, smartphones and tablets on the way. We're also excited about our coming launch of 4G.”

Second quarter transactions

U.S. Cellular paid $24.6 million in cash to purchase the remaining interest in a wireless business in which it previously held a non-controlling interest. As a result, the company recorded a $13.4 million pre-tax gain on investments.

Additionally, U.S. Cellular sold $342 million of 6.95 percent senior notes and redeemed $330 million of its 7.5 percent senior notes. The redemption required U.S. Cellular to write-off $8.2 million of previously capitalized debt issuance costs related to the 7.5 percent senior notes. The $8.2 million was recorded in interest expense.

Guidance for year ending Dec. 31, 2011

Guidance for the year ending Dec. 31, 2011 as of Aug. 8, 2011 is provided below, compared to the previous guidance provided on May 6, 2011. 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 this guidance.

	Current Estimates	Previous Estimates (1)
Service revenues	$4,000-$4,100 million	Unchanged
Operating income (3) (4)	$210-$285 million	$185-$285 million
Depreciation, amortization and accretion expenses, and losses on asset disposals and impairment of assets (3)	Approx. $590 million	Unchanged
Adjusted OIBDA (2) (4)	$800-$875 million	$775-$875 million
Capital expenditures (4)	$750-$800 million	Unchanged

(1) The 2011 Estimated Results as disclosed in U.S. Cellular’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.

(2) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows.

(3) The 2011 Estimated Results do not include any estimate for losses on impairment of assets since these cannot be predicted.

(4) This guidance is based on U.S. Cellular’s current plans, which include a multi-year deployment of Long-term Evolution (“LTE”) technology commencing in 2011. As customer demand for data services increases, and competitive conditions in the wireless industry evolve, such as the rate of deployment of LTE technology by other carriers, the timing of U.S. Cellular’s deployment of LTE and the timing of other capital expenditures could change. These factors could affect U.S. Cellular’s estimated capital expenditures and operating expenses in 2011.

Conference call information

U.S. Cellular will hold a conference call on Aug. 8, 2011 at 7:30 a.m. CDT.

§ Access the live call on the Investor Relations page of uscellular.com or at http://www.videonewswire.com/event.asp?id=81248.

§ 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 the Investor Relations page of uscellular.com. The call will be archived on the Conference Calls page of uscellular.com.

About U.S. Cellular

United States Cellular Corporation, the nation's sixth-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to approximately six million customers in 26 states. The Chicago-based company employed approximately 9,000 people as of June 30, 2011. At the end of the second quarter, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular.

Visit uscellular.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

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: the ability of the company to successfully manage and grow its markets; the economy; competition; the ability to obtain or maintain roaming arrangements with other carriers; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded our 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 unit, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by the company; and the ability to obtain or maintain roaming arrangements with other carriers. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by U.S. Cellular to furnish this press release to the SEC, which are incorporated by reference herein.

United States Cellular Corporation Summary Operating Data (Unaudited)


Quarter Ended			6/30/2011			3/31/2011			12/31/2010			9/30/2010			6/30/2010
Total population
	Consolidated markets (1)		91,204,000			91,090,000			90,468,000			90,468,000			90,468,000
	Consolidated operating markets (1)		46,888,000			46,774,000			46,546,000			46,546,000			46,546,000
Market penetration at end of period
	Consolidated markets (2)		6.5	%		6.6	%		6.7	%		6.7	%		6.8	%
	Consolidated operating markets (2)		12.7	%		12.9	%		13.0	%		13.1	%		13.2	%
All customers
	Total at end of period		5,968,000			6,033,000			6,072,000			6,103,000			6,144,000
	Gross additions		257,000			293,000			327,000			338,000			349,000
	Net additions (losses)		(70,000	)		(39,000	)		(31,000	)		(41,000	)		(3,000	)
	Smartphones sold as a percent of
	total devices sold (3)		39.6	%		42.5	%		39.6	%		23.6	%		15.8	%
Retail customers
	Total at end of period		5,644,000			5,698,000			5,729,000			5,750,000			5,775,000
	Smartphone penetration (3) (4)		23.0	%		20.2	%		16.6	%		12.0	%		10.1	%
	Gross additions		226,000			256,000			292,000			301,000			307,000
	Net retail additions (losses) (5)		(58,000	)		(31,000	)		(21,000	)		(25,000	)		7,000
	Net postpaid additions (losses)		(41,000	)		(22,000	)		(10,000	)		(25,000	)		(22,000	)
	Net prepaid additions (losses)		(17,000	)		(9,000	)		(11,000	)		—			29,000
Service revenue components (000s)
	Retail service	$	868,630		$	864,602		$	864,905		$	865,766		$	863,836
	Inbound roaming		82,760			64,386			67,545			72,901			60,902
	Other		50,640			56,125			59,464			44,836			47,838
Total service revenues (000s)		$	1,002,030		$	985,113		$	991,914		$	983,503		$	972,576
Total ARPU (6)		$	55.69		$	54.29		$	54.37		$	53.53		$	52.71
Billed ARPU (7)		$	48.27		$	47.65		$	47.41		$	47.12		$	46.81
Postpaid ARPU (8)		$	51.84		$	51.21		$	50.99		$	50.82		$	50.55
Postpaid churn rate (9)			1.4	%		1.4	%		1.5	%		1.6	%		1.4	%
Capital expenditures (000s)		$	162,100		$	95,900		$	203,400		$	124,700		$	133,500
Cell sites in service			7,770			7,663			7,645			7,524			7,416

(1) Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (2) below.

(2) 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.

(3) Smartphones represent wireless devices which run on a Blackberry®, Windows Mobile, or Android operating system.

(4) Smartphone penetration is calculated by dividing postpaid customers on smartphone service plans by total postpaid customers.

(5) Includes net postpaid additions (losses) and net prepaid additions (losses).

(6) Total ARPU - Average monthly service revenue per customer includes retail service, inbound roaming and other service revenues and is calculated by dividing total service revenues by the number of months in the period and by the average total customers during the period.

(7) Billed ARPU - Average monthly billed revenue per customer is calculated by dividing total retail service revenues by the number of months in the period and by the average total customers during the period. Retail service revenues include revenues attributable to postpaid, prepaid and reseller customers.

(8) Postpaid ARPU - Average monthly revenue per postpaid customer is calculated by dividing total retail service revenues from postpaid customers by the number of months in the period and by the average postpaid customers during the period.

(9) Represents the percentage of the retail postpaid customer base that disconnects service each month. This amount represents the average postpaid churn rate for each respective quarterly period.

United States Cellular Corporation Consolidated Statement of Operations Highlights Three Months Ended June 30, (Unaudited, dollars and shares in thousands, except per share amounts)



										Increase (Decrease)
				2011			2010			Amount			Percent
Operating revenues
	Service			$	1,002,030		$	972,576		$	29,454		3	%
	Equipment sales				74,152			57,317			16,835		29	%
		Total operating revenues			1,076,182			1,029,893			46,289		4	%
Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)				227,801			213,542			14,259		7	%
	Cost of equipment sold				168,614			161,965			6,649		4	%
	Selling, general and administrative				426,172			445,177			(19,005	)	(4	%)
	Depreciation, amortization and accretion				148,283			144,455			3,828		3	%
	Loss on asset disposals, net				2,922			1,250			1,672		>100	%
		Total operating expenses			973,792			966,389			7,403		1	%

Operating income					102,390			63,504			38,886		61	%

Investment and other income (expense)
	Equity in earnings of unconsolidated entities				22,469			25,753			(3,284	)	(13	%)
	Interest and dividend income				748			862			(114	)	(13	%)
	Gain on investment				13,373			—			13,373		N/	M
	Interest expense				(25,197	)		(16,438	)		(8,759	)	(53	%)
	Other, net				175			472			(297	)	(63	%)

			Total investment and other income (expense)		11,568			10,649			919		9	%

Income before income taxes					113,958			74,153			39,805		54	%
	Income tax expense				34,077			28,181			5,896		21	%

Net income					79,881			45,972			33,909		74	%
	Less: Net income attributable to noncontrolling interests, net of tax				(5,993	)		(5,219)			(774	)	(15	%)
Net income attributable to U.S. Cellular shareholders				$	73,888		$	40,753		$	33,135		81	%

Basic weighted average shares outstanding					84,930			86,425			(1,495	)	(2	%)
Basic earnings per share attributable to U.S. Cellular shareholders				$	0.87		$	0.47		$	0.40		85	%

Diluted weighted average shares outstanding					85,397			86,787			(1,390	)	(2	%)
Diluted earnings per share attributable to U.S. Cellular shareholders				$	0.87		$	0.47		$	0.40		85	%

United States Cellular Corporation Consolidated Statement of Operations Highlights Six Months Ended June 30, (Unaudited, dollars and shares in thousands, except per share amounts)



										Increase (Decrease)
				2011			2010			Amount			Percent
Operating revenues
	Service			$	1,987,143		$	1,937,584		$	49,559		3	%
	Equipment sales				146,131			116,166			29,965		26	%
		Total operating revenues			2,133,274			2,053,750			79,524		4	%
Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)				445,404			420,656			24,748		6	%
	Cost of equipment sold				362,974			323,070			39,904		12	%
	Selling, general and administrative				868,176			874,782			(6,606	)	(1	%)
	Depreciation, amortization and accretion				293,328			287,688			5,640		2	%
	Loss on asset disposals, net				3,959			6,426			(2,467	)	(38	%)
		Total operating expenses			1,973,841			1,912,622			61,219		3	%

Operating income					159,433			141,128			18,305		13	%

Investment and other income (expense)
	Equity in earnings of unconsolidated entities				43,360			50,447			(7,087)		(14	%)
	Interest and dividend income				1,597			1,883			(286)		(15	%)
	Gain on investment				13,373			—			13,373		N/	M
	Interest expense				(40,383	)		(32,962)			(7,421)		(23	%)
	Other, net				50			407			(357)		(88	%)

			Total investment and other income (expense)		17,997			19,775			(1,778	)	(9	%)

Income before income taxes					177,430			160,903			16,527		10	%
	Income tax expense				58,169			61,843			(3,674	)	(6	%)

Net income					119,261			99,060			20,201		20	%
	Less: Net income attributable to noncontrolling interests, net of tax				(11,262	)		(10,938	)		(324	)	(3	%)
Net income attributable to U.S. Cellular shareholders				$	107,999		$	88,122		$	19,877		23	%

Basic weighted average shares outstanding					85,206			86,500			(1,294)		(1	%)
Basic earnings per share attributable to U.S. Cellular shareholders				$	1.27		$	1.02		$	0.25		25	%

Diluted weighted average shares outstanding					85,739			86,873			(1,134)		(1	%)
Diluted earnings per share attributable to U.S. Cellular shareholders				$	1.26		$	1.01		$	0.25		25	%

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


ASSETS

		June 30,		December 31,
		2011		2010
Current assets
	Cash and cash equivalents	$	428,625	$	294,426
	Short-term investments		96,085		146,586
	Accounts receivable from customers and others		430,447		424,019
	Inventory		160,783		112,279
	Income taxes receivable		32,106		41,397
	Prepaid expenses		64,208		53,356
	Net deferred income tax asset		37,582		26,757
	Other current assets		11,099		10,804
			1,260,935		1,109,624

Assets held for sale			53,910		—

Investments
	Licenses		1,454,901		1,452,101
	Goodwill		494,737		494,737
	Customer lists		536		759
	Investments in unconsolidated entities		142,377		160,847
	Notes and interest receivable – long-term		3,997		4,070
	Long-term investments		40,326		46,033
			2,136,874		2,158,547

Property, plant and equipment
	In service and under construction		6,598,300		6,382,581
	Less: accumulated depreciation		4,016,255		3,767,509
			2,582,045		2,615,072

Other assets and deferred charges			56,152		50,367

Total assets		$	6,089,916	$	5,933,610

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


LIABILITIES AND EQUITY

			June 30,			December 31,
			2011			2010
Current liabilities
	Current portion of long-term debt		$	101		$	101
	Accounts payable
		Affiliated		15,894			10,791
		Trade		290,308			281,601
	Customer deposits and deferred revenues			168,803			146,428
	Accrued taxes			41,421			39,299
	Accrued compensation			48,551			65,952
	Other current liabilities			79,726			121,823
				644,804			665,995

Liabilities held for sale				871			—

Deferred liabilities and credits
	Net deferred income tax liability			684,472			579,769
	Other deferred liabilities and credits			277,543			284,949

Long-term debt				880,300			867,941

Commitments and contingencies

Noncontrolling interests with mandatory redemption features				863			855

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			1,378,166			1,368,487
	Treasury shares			(153,525	)		(105,616	)
	Retained earnings			2,224,453			2,129,638
		Total U.S. Cellular shareholders' equity		3,537,168			3,480,583

Noncontrolling interests				63,895			53,518

	Total equity			3,601,063			3,534,101

Total liabilities and equity			$	6,089,916		$	5,933,610

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, 2011 and December 31, 2010.

		June 30,		December 31,
		2011		2010
Cash and cash equivalents		$	428,625	$	294,426
Amounts included in short-term investments (1)(2)
	Government-backed securities (3)		95,835		146,336
	Certificates of deposit		250		250
		$	96,085	$	146,586
Amounts included in long-term investments (1)(4)
	Government-backed securities (3)	$	40,326	$	46,033

(1) Designated as held-to-maturity investments and recorded at amortized cost on the consolidated balance sheet.

(2) Maturities are less than twelve months from the respective balance sheet dates.

(3) Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program.

(4) At June 30, 2011, maturities range between 12 and 24 months from the balance sheet date.

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



			2011		2010
Cash flows from operating activities
	Net income		$	119,261	$	99,060
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		293,328		287,688
		Bad debts expense		27,677		36,605
		Stock-based compensation expense		10,798		9,012
		Deferred income taxes, net		80,371		(9,935)
		Equity in earnings of unconsolidated entities		(43,360)		(50,447)
		Distributions from unconsolidated entities		47,143		48,491
		Loss on asset disposals, net		3,959		6,426
		Gain on investment		(13,373)		—
		Noncash interest expense		9,152		1,231
		Other operating activities		1,044		(1,695)
	Changes in assets and liabilities from operations
		Accounts receivable		(35,907)		(22,995)
		Inventory		(48,504)		32,252
		Accounts payable - trade		8,588		(34,009)
		Accounts payable - affiliate		5,102		(3,017)
		Customer deposits and deferred revenues		22,376		3,854
		Accrued taxes		10,215		27,744
		Accrued interest		111		121
		Other assets and liabilities		(74,549)		(26,680)
				423,432		403,706

Cash flows from investing activities
	Additions to property, plant and equipment			(258,040)		(255,004)
	Cash paid for acquisitions and licenses			(22,167)		(10,501)
	Cash paid for investments			(20,000)		(175,000)
	Cash received for investments			75,000		226
	Other investing activities			2,691		663
				(222,516)		(439,616)

Cash flows from financing activities
	Repayment of long-term debt			(330,043)		(32)
	Issuance of long-term debt			342,000		—
	Common shares reissued for benefit plans, net of tax payments			1,264		144
	Common shares repurchased			(62,308)		(21,423)
	Payment of debt issuance costs			(11,229)		—
	Distributions to noncontrolling interests			(877)		(4,314)
	Other financing activities			163		(23)
				(61,030)		(25,648)

Cash classified as held for sale				(5,687)		—

Net increase (decrease) in cash and cash equivalents				134,199		(61,558)

Cash and cash equivalents
	Beginning of period			294,426		294,411
	End of period		$	428,625	$	232,853

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


			Three Months Ended June 30,				Six Months Ended June 30,
				2011		2010		2011		2010
Service revenues			$	1,002,030	$	972,576	$	1,987,143	$	1,937,584

Operating income				102,390		63,504		159,433		141,128
Add:
	Depreciation, amortization and accretion			148,283		144,455		293,328		287,688
	Loss on impairment of intangible assets			—		—		—		—
	Loss on asset disposals			2,922		1,250		3,959		6,426
		Adjusted OIBDA (1)	$	253,595	$	209,209	$	456,720	$	435,242

		Adjusted OIBDA margin (2)		25.3%		21.5%		23.0%		22.5%


				2011		2010		2011		2010
Cash flows from operating activities			$	221,610	$	251,454	$	423,432	$	403,706
Deduct:
	Capital expenditures			162,107		133,490		258,040		255,004
		Free cash flow (3)	$	59,503	$	117,964	$	165,392	$	148,702

(1) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization, and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows. Adjusted OIBDA excludes the net gain or loss on asset disposals and loss on impairment of assets, if any, in order to show operating results on a more comparable basis from period to period. U.S. Cellular does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual, and accordingly, they may be incurred in the future.

(2) Adjusted OIBDA margin is defined as adjusted OIBDA divided by service revenues. Equipment revenues are excluded from the denominator of the calculation since equipment is generally sold at a net loss, and such net loss is included in adjusted OIBDA as a cost of earning service revenues for purposes of assessing business results. U.S. Cellular believes that this calculation method is consistent with the method used by certain investors to assess U.S. Cellular’s business results. Adjusted OIBDA margin may also be commonly referred to by management as operating cash flow margin. U.S. Cellular believes this measure provides useful information to investors regarding U.S. Cellular’s financial condition and results of operations because it highlights certain key cash and non-cash items and their impacts on cash flows from operating activities.

(3) Free cash flow is defined as cash flows from operating activities minus capital expenditures. Free cash flow is a non-GAAP financial measure. U.S. Cellular believes that free cash flow as reported by U.S. Cellular may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after consideration of capital expenditures.

UNITED STATES CELLULAR CORP - FORM 8-K - EX-99.1 - August 8, 2011

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UNITED STATES CELLULAR CORP Reports