U.S. Cellular reports third quarter 2015 results

2015 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

Approx. $

4,000

$4,000-$4,100

Operating cash flow (1)

$540-$620

$440-$540

Adjusted EBITDA (1)

$710-$790

$600-$700

Capital expenditures

Approx. $

600

Unchanged

2015 Estimated

Results (2)

Nine Months Ended September 30, 2015

Year Ended

December 31, 2014

(Dollars in millions)

Net income (loss) (GAAP)

N/A

$

250

$

(47)

Add back:

Income tax expense (benefit)

N/A

161

(12)

Income (loss) before income taxes

   (GAAP)

$

275-355

$

411

$

(59)

Add back:

Interest expense

80

61

57

Depreciation, amortization and accretion expense

600

450

606

EBITDA

$

955-1,035

$

922

$

605

Add back (deduct):

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

(115)

(114)

(33)

(Gain) loss on license sales and exchanges, net

(145)

(147)

(113)

(Gain) loss on assets disposals, net

15

12

21

Adjusted EBITDA

$

710-790

$

674

$

480

Deduct:

Equity in earnings of unconsolidated entities

(135)

(110)

(130)

Interest and dividend income

(35)

(26)

(12)

Operating cash flow (3)

$

540-620

$

538

$

338

Note: Totals may not foot due to rounding differences.

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation below.  Operating cash flow and Adjusted EBITDA exclude 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 Operating cash flow and/or Adjusted EBITDA 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.  Operating cash flow and Adjusted EBITDA 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 as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. U.S. Cellular believes Operating cash flow and Adjusted EBITDA are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as indicated above.

(2)

In providing 2015 Estimated Results, U.S. Cellular has not completed the above reconciliation to net income because it does not provide guidance for income taxes. U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance. Accordingly, a reconciliation to net income is not available without unreasonable effort.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for September 30, 2015 actual results can be found on the company's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

9/30/2015

6/30/2015

3/31/2015

12/31/2014

9/30/2014

Retail Customers

Postpaid

Total at end of period

4,341,000

4,324,000

4,307,000

4,298,000

4,200,000

Gross additions

200,000

191,000

200,000

302,000

251,000

Net additions (losses)

17,000

17,000

9,000

98,000

52,000

ARPU (1)

$

58.12

$

53.62

$

54.87

$

56.51

$

56.37

ARPA (2)

$

147.00

$

133.85

$

134.94

$

136.13

$

132.99

Churn rate (3)

1.4%

1.3%

1.5%

1.6%

1.6%

Smartphone penetration (4)

72%

69%

67%

65%

62%

Prepaid

Total at end of period

380,000

368,000

360,000

348,000

350,000

Gross additions

71,000

65,000

73,000

60,000

64,000

Net additions (losses)

12,000

8,000

12,000

(2,000)

(2,000)

ARPU (1)

$

35.64

$

35.98

$

35.72

$

35.33

$

34.40

Churn rate (3)

5.2%

5.2%

5.8%

5.9%

6.3%

Total customers at end of period

4,807,000

4,779,000

4,775,000

4,760,000

4,674,000

Billed ARPU (1)

$

55.42

$

51.29

$

52.29

$

53.63

$

53.24

Service revenue ARPU (1)

$

62.31

$

57.55

$

58.01

$

60.10

$

60.92

Smartphones sold as a percent of total handsets sold

87%

87%

86%

87%

81%

Total population

Consolidated markets (5) (8)

50,313,000

52,809,000

52,822,000

58,840,000

60,136,000

Consolidated operating markets (5)

31,814,000

31,814,000

31,814,000

31,729,000

31,729,000

Market penetration at end of period

Consolidated markets (6)

10%

9%

9%

8%

8%

Consolidated operating markets (6)

15%

15%

15%

15%

15%

Capital expenditures (000s)

$

134,816

$

133,666

$

66,460

$

181,655

$

142,452

Total cell sites in service

6,246

6,223

6,219

6,220

6,209

Owned towers (7)

3,957

3,940

3,936

4,280

4,487

(1)

Average Revenue Per User ("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 postpaid, prepaid and reseller service revenues and postpaid, prepaid and reseller customers.

d.

Service revenue ARPU consists of total postpaid, prepaid and reseller service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2)

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

(3)

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.

(4)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid handset customers.

(5)

During the third quarter of 2015 U.S. Cellular reassessed population statistics with respect to markets which U.S. Cellular consolidates and revised its calculations to more accurately accumulate such population statistics.  As a result, prior period population data and corresponding market penetration ratios were revised for markets that U.S. Cellular currently consolidates, or previously consolidated in the periods presented.  The decrease in the population of Consolidated markets is due primarily to the license exchange transactions of certain non-operating licenses in North Carolina in December 2014 and Illinois and Indiana in March 2015. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively.  See footnote (6) below.

(6)

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.

(7)

During the quarters ended March 31, 2015 and December 31, 2014, U.S. Cellular sold 359 and 236 towers, respectively, in divested markets.

(8)

As licenses awarded in Auction 97 have not yet been granted, population statistics related to such licenses have not been included in population data.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

      Change

2015

2014

Amount

Percent

Operating revenues

Service

$

895,960

$

851,063

$

44,897

5%

Equipment sales

172,946

149,356

23,590

16%

Total operating revenues

1,068,906

1,000,419

68,487

7%

Operating expenses

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

198,982

199,750

(768)

-

Cost of equipment sold

287,256

307,862

(20,606)

(7)%

Selling, general and administrative

374,585

397,545

(22,960)

(6)%

Depreciation, amortization and accretion

152,369

148,952

3,417

2%

(Gain) loss on asset disposals, net

2,618

7,947

(5,329)

(67)%

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

(643)

(10,283)

9,640

94%

(Gain) loss on license sales and exchanges, net

(23,986)

–

(23,986)

Total operating expenses

991,181

1,051,773

(60,592)

(6)%

Operating income (loss)

77,725

(51,354)

129,079

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

39,674

35,971

3,703

10%

Interest and dividend income

9,299

3,572

5,727

>100%

Interest expense

(21,121)

(13,514)

(7,607)

(56)%

Other, net

78

95

(17)

(18)%

Total investment and other income

27,930

26,124

1,806

7%

Income (loss) before income taxes

105,655

(25,230)

130,885

>100%

Income tax expense (benefit)

40,634

(1,459)

42,093

>100%

Net income (loss)

65,021

(23,771)

88,792

>100%

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

1,427

(1,606)

3,033

>100%

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

$

63,594

$

(22,165)

$

85,759

>100%

Basic weighted average shares outstanding

84,333

84,233

100

-

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

$

0.75

$

(0.26)

$

1.02

>100%

Diluted weighted average shares outstanding

84,947

84,233

714

1%

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

$

0.75

$

(0.26)

$

1.01

>100%

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Nine Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

Change

2015

2014

Amount

Percent

Operating revenues

Service

$

2,548,544

$

2,548,149

$

395

-

Equipment sales

461,274

335,854

125,420

37%

Total operating revenues

3,009,818

2,884,003

125,815

4%

Operating expenses

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

585,935

567,488

18,447

3%

Cost of equipment sold

779,228

850,314

(71,086)

(8)%

Selling, general and administrative

1,106,524

1,197,361

(90,837)

(8)%

Depreciation, amortization and accretion

450,035

465,042

(15,007)

(3)%

(Gain) loss on asset disposals, net

12,268

16,774

(4,506)

(27)%

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

(113,825)

(27,694)

(86,131)

>(100)%

(Gain) loss on license sales and exchanges, net

(146,884)

(91,446)

(55,438)

(61)%

Total operating expenses

2,673,281

2,977,839

(304,558)

(10)%

Operating income (loss)

336,537

(93,836)

430,373

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

109,729

106,166

3,563

3%

Interest and dividend income

25,834

6,029

19,805

>100%

Interest expense

(61,239)

(42,712)

(18,527)

(43)%

Other, net

274

281

(7)

(2)%

Total investment and other income

74,598

69,764

4,834

7%

Income (loss) before income taxes

411,135

(24,072)

435,207

>100%

Income tax expense

161,214

746

160,468

>100%

Net income (loss)

249,921

(24,818)

274,739

>100%

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

6,911

(3,346)

10,257

>100%

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

$

243,010

$

(21,472)

$

264,482

>100%

Basic weighted average shares outstanding

84,224

84,262

(38)

-

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

$

2.89

$

(0.25)

$

3.14

>100%

Diluted weighted average shares outstanding

84,869

84,262

607

1%

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

$

2.86

$

(0.25)

$

3.11

>100%

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

September 30,

December 31,

2015

2014

Current assets

Cash and cash equivalents

$

596,766

$

211,513

Accounts receivable from customers and others, net

628,796

556,958

Inventory, net

176,259

267,068

Prepaid expenses

88,041

59,744

Net deferred income tax asset

82,719

93,058

Other current assets

18,730

90,834

1,591,311

1,279,175

Assets held for sale

–

107,055

Investments

Licenses

1,834,061

1,443,438

Goodwill

369,596

370,151

Investments in unconsolidated entities

347,710

283,014

2,551,367

2,096,603

Property, plant and equipment

In service and under construction

7,511,997

7,458,740

Less: Accumulated depreciation

4,903,559

4,730,523

2,608,438

2,728,217

Other assets and deferred charges

187,268

276,218

Total assets

$

6,938,384

$

6,487,268

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

September 30,

December 31,

2015

2014

Current liabilities

Current portion of long-term debt

$

8,501

$

46

Accounts payable

Affiliated

7,874

9,774

Trade

362,268

306,845

Customer deposits and deferred revenues

236,568

287,562

Accrued taxes

121,177

36,652

Accrued compensation

57,547

66,162

Other current liabilities

92,617

149,853

886,552

856,894

Liabilities held for sale

–

20,934

Deferred liabilities and credits

Net deferred income tax liability

828,563

859,867

Other deferred liabilities and credits

287,873

284,002

Long-term debt

1,368,656

1,151,819

Noncontrolling interests with redemption features

910

1,150

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

1,490,651

1,472,558

Treasury shares

(159,705)

(169,139)

Retained earnings

2,135,145

1,910,498

Total U.S. Cellular shareholders' equity

3,554,165

3,301,991

Noncontrolling interests

11,665

10,611

Total equity

3,565,830

3,312,602

Total liabilities and equity

$

6,938,384

$

6,487,268

United States Cellular Corporation

Consolidated Statement of Cash Flows

Nine Months Ended September 30,

(Unaudited, dollars in thousands)

2015

2014

Cash flows from operating activities

Net income (loss)

$

249,921

$

(24,818)

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

Depreciation, amortization and accretion

450,035

465,042

Bad debts expense

78,370

74,357

Stock-based compensation expense

18,161

16,502

Deferred income taxes, net

(20,075)

(14,124)

Equity in earnings of unconsolidated entities

(109,729)

(106,166)

Distributions from unconsolidated entities

45,035

74,853

(Gain) loss on asset disposals, net

12,268

16,774

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

(113,825)

(27,694)

(Gain) loss on license sales and exchanges, net

(146,884)

(91,446)

Noncash interest expense

1,206

845

Other operating activities

(391)

66

Changes in assets and liabilities from operations

Accounts receivable

(54,437)

73,741

Equipment installment plans receivable

(95,799)

(131,520)

Inventory

90,811

53,367

Accounts payable

116,740

21,677

Customer deposits and deferred revenues

(51,026)

28,486

Accrued taxes

161,237

(18,453)

Accrued interest

10,814

9,140

Other assets and liabilities

(86,977)

(89,998)

555,455

330,631

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(406,596)

(424,774)

Cash paid for acquisitions and licenses

(285,656)

(37,978)

Cash received from divestitures and exchanges

314,352

143,801

Cash received for investments

–

10,000

Other investing activities

990

804

(376,910)

(308,147)

Cash flows from financing activities

Issuance of long-term debt

225,000

–

Common shares reissued for benefit plans, net of tax payments

(868)

1,150

Common shares repurchased

(4,070)

(14,698)

Payment of debt issuance costs

(3,080)

(448)

Acquisition of towers in common control transaction

(2,437)

(76,298)

Distributions to noncontrolling interests

(6,097)

(439)

Other financing activities

(1,740)

(18)

206,708

(90,751)

Net increase (decrease) in cash and cash equivalents

385,253

(68,267)

Cash and cash equivalents

Beginning of period

211,513

342,065

End of period

$

596,766

$

273,798

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Cash flows from operating activities

$

131,486

$

117,771

$

555,455

$

330,631

Add: Sprint Cost Reimbursement

4,422

17,896

27,596

52,012

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

147,361

162,377

406,596

424,774

Adjusted free cash flow (1)

$

(11,453)

$

(26,710)

$

176,455

$

(42,131)

(1)

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 used for additions to property, plant and equipment. Sprint decommissioning and Sprint Cost Reimbursement are further defined and discussed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.  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.