As previously announced, U.S. Cellular will hold a teleconference Nov. 4, 2011 at 9:00 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 third QUARTER 2011 RESULTS
Data drives ARPU growth; inbound roaming revenues increase; profitability improves
Note: Comparisons are year over year unless otherwise noted.
3Q 2011 Highlights
§ Smartphones sold, as a percent of total devices sold, increased to 39.9 percent from 23.6 percent; smartphone customers increased to 26.2 percent of postpaid customers from 12.1 percent.
§ Postpaid ARPU (average revenue per unit) increased to $52.41 from $50.82.
§ Service revenues increased 5 percent to $1,036.6 million.
§ Operating income increased 66 percent to $101.6 million.
§ Net loss of 23,000 retail customers, reflecting loss of 34,000 postpaid customers and gain of 11,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.
§ Cell sites in service increased 4 percent to 7,828.
CHICAGO – Nov. 4, 2011 – United States Cellular Corporation [NYSE:USM] reported service revenues of $1,036.6 million for the third quarter of 2011 versus $983.5 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $62.1 million and $0.73, respectively, for the third quarter of 2011, compared to $38.3 million and $0.44, 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, “and though our retail subscriber results remain disappointing, they did improve slightly compared to recent quarters. We are seeing increased awareness from our advertising, device launches and focused promotions, and we’re building on that with targeted campaigns to add more new customers during the holiday period and beyond.
“Smartphones sales and adoption of data plans remain very strong, and we’re continuing to control loss on equipment by balancing our device costs and promotions. We again improved operating margins by increasing ARPU and roaming revenue, and controlling expenses. Also during the quarter, we completed an exchange of licenses that will provide additional spectrum to meet anticipated future capactiy and coverage requirements in several of our markets.
“Along with our Belief Plans, which 2.8 million of our customers have now selected, we’re offering a competitive device lineup for the holiday period, including the highly rated Motorola ElectrifyTM, and several new smartphones at attractive price points from HTC. We’ll complete our first 4G LTE markets in November, and offer 4G-enabled devices early in 2012.
Guidance for year ending Dec. 31, 2011
Guidance for the year ending Dec. 31, 2011, as of Nov. 4, 2011, is provided below, compared to the previous guidance provided on Aug. 8, 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) | $230-$305 million | $210-$285 million | |
Depreciation, amortization and accretion expenses,and losses on asset disposals and exchangesand impairment of assets (3) | Approx. $590 million | Unchanged | |
Adjusted OIBDA (2) (4) | $820-$895 million | $800-$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 June 30, 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 and exchanges (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 operations, 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 Nov. 4, 2011 at 9:00 a.m. CDT.
· Access the live call on the Investor Relations page ofuscellular.com or athttp://www.videonewswire.com/event.asp?id=82599 .
· 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 ofuscellular.com. The call will be archived on the Conference Calls page ofuscellular.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 5.9 million customers in 26 states. The Chicago-based company employed approximately 8,900 people as of September 30, 2011. At the end of the third quarter, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular.
Visituscellular.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 expectation. 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 this Form 8-K used by U.S. Cellular to furnish the press release to the Securities and Exchange Commission (“SEC”), which are incorporated by reference herein.
2
United States Cellular Corporation Summary Operating Data (Unaudited) | ||||||||||||||||||||
Quarter Ended | 9/30/2011 | 6/30/2011 | 3/31/2011 | 12/31/2010 | 9/30/2010 | |||||||||||||||
Total population | ||||||||||||||||||||
Consolidated markets (1) | 91,965,000 | 91,204,000 | 91,090,000 | 90,468,000 | 90,468,000 | |||||||||||||||
Consolidated operating markets (1) | 46,888,000 | 46,888,000 | 46,774,000 | 46,546,000 | 46,546,000 | |||||||||||||||
Market penetration at end of period | ||||||||||||||||||||
Consolidated markets (2) | 6.5 | % | 6.5 | % | 6.6 | % | 6.7 | % | 6.7 | % | ||||||||||
Consolidated operating markets (2) | 12.7 | % | 12.7 | % | 12.9 | % | 13.0 | % | 13.1 | % | ||||||||||
All customers | ||||||||||||||||||||
Total at end of period | 5,932,000 | 5,968,000 | 6,033,000 | 6,072,000 | 6,103,000 | |||||||||||||||
Gross additions | 299,000 | 257,000 | 293,000 | 327,000 | 338,000 | |||||||||||||||
Net additions (losses) | (36,000 | ) | (70,000 | ) | (39,000 | ) | (31,000 | ) | (41,000 | ) | ||||||||||
Smartphones sold as a percent of total devices sold (3) | 39.9 | % | 39.6 | % | 42.5 | % | 39.6 | % | 23.6 | % | ||||||||||
Retail customers | ||||||||||||||||||||
Total at end of period | 5,621,000 | 5,644,000 | 5,698,000 | 5,729,000 | 5,750,000 | |||||||||||||||
Smartphone penetration (3) (4) | 26.2 | % | 23.0 | % | 20.2 | % | 16.6 | % | 12.1 | % | ||||||||||
Gross additions | 284,000 | 226,000 | 256,000 | 292,000 |
| 301,000 | ||||||||||||||
Net retail additions (losses) (5) | (23,000 | ) | (58,000 | ) | (31,000 | ) | (21,000 | ) | (25,000 | ) | ||||||||||
Net postpaid additions (losses) | (34,000 | ) | (41,000 | ) | (22,000 | ) | (10,000 | ) | (25,000 | ) | ||||||||||
Net prepaid additions (losses) | 11,000 | (17,000 | ) | (9,000 | ) | (11,000 | ) | — | ||||||||||||
Service revenue components (000s) | ||||||||||||||||||||
Retail service | $ | 871,199 | $ | 868,630 | $ | 864,602 | $ | 864,905 | $ | 865,766 | ||||||||||
Inbound roaming | 107,810 | 82,760 | 64,386 | 67,545 | 72,901 | |||||||||||||||
Other |
| 57,600 |
|
| 50,640 |
|
| 56,125 |
|
| 59,464 |
|
| 44,836 |
| |||||
Total service revenues (000s) | $ | 1,036,609 | $ | 1,002,030 | $ | 985,113 | $ | 991,914 | $ | 983,503 | ||||||||||
Total ARPU (6) | $ | 58.09 | $ | 55.69 | $ | 54.29 | $ | 54.37 | $ | 53.53 | ||||||||||
Billed ARPU (7) | $ | 48.82 | $ | 48.27 | $ | 47.65 | $ | 47.41 | $ | 47.12 | ||||||||||
Postpaid ARPU (8) | $ | 52.41 | $ | 51.84 | $ | 51.21 | $ | 50.99 | $ | 50.82 | ||||||||||
Postpaid churn rate (9) | 1.5 | % | 1.4 | % | 1.4 | % | 1.5 | % | 1.6 | % | ||||||||||
Capital expenditures (000s) | $ | 248,000 | $ | 162,100 | $ | 95,900 | $ | 203,400 | $ | 124,700 | ||||||||||
Cell sites in service | 7,828 | 7,770 | 7,663 | 7,645 | 7,524 | |||||||||||||||
(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.
3
United States Cellular Corporation Consolidated Statement of Operations Highlights Three Months Ended September 30, (Unaudited, dollars and shares in thousands, except per share amounts) | ||||||||||||||||||
Increase (Decrease) | ||||||||||||||||||
2011 | 2010 (1) | Amount | Percent | |||||||||||||||
Operating revenues |
|
|
|
| ||||||||||||||
Service | $ | 1,036,609 | $ | 983,503 | $ | 53,106 | 5 | % | ||||||||||
Equipment sales | 73,830 |
| 77,278 |
| (3,448 | ) | (4 | %) | ||||||||||
Total operating revenues | 1,110,439 |
| 1,060,781 |
| 49,658 |
| 5 | % | ||||||||||
Operating expenses | ||||||||||||||||||
System operations (excluding Depreciation,amortization and accretion reported below) | 241,852 | 218,021 | 23,831 | 11 | % | |||||||||||||
Cost of equipment sold | 193,491 | 189,291 | 4,200 | 2 | % | |||||||||||||
Selling, general and administrative | 441,512 | 446,938 | (5,426 | ) | (1 | %) | ||||||||||||
Depreciation, amortization and accretion | 141,664 | 143,191 | (1,527 | ) | (1 | %) | ||||||||||||
(Gain) loss on asset disposals and exchanges, net | (9,700 | ) | 1,981 |
| (11,681 | ) | >(100 | %) | ||||||||||
Total operating expenses | 1,008,819 |
| 999,422 |
| 9,397 |
| 1 | % | ||||||||||
Operating income | 101,620 | 61,359 | 40,261 | 66 | % | |||||||||||||
Investment and other income (expense) | ||||||||||||||||||
Equity in earnings of unconsolidated entities | 21,929 | 23,971 | (2,042 | ) | (9 | %) | ||||||||||||
Interest and dividend income | 869 | 1,101 | (232 | ) | (21 | %) | ||||||||||||
Interest expense | (11,522 | ) | (15,956 | ) | 4,434 | 28 | % | |||||||||||
Other, net | (97 | ) | (620 | ) | 523 |
| 84 | % | ||||||||||
Total investment and other income (expense) | 11,179 |
| 8,496 |
| 2,683 |
| 32 | % | ||||||||||
Income before income taxes | 112,799 | 69,855 | 42,944 | 61 | % | |||||||||||||
Income tax expense | 43,292 |
| 25,639 |
| 17,653 |
| 69 | % | ||||||||||
Net income | 69,507 | 44,216 | 25,291 | 57 | % | |||||||||||||
Less: Net income attributable to noncontrollinginterests, net of tax | (7,367 | ) | (5,920 | ) | (1,447 | ) | (24 | %) | ||||||||||
Net income attributable to U.S. Cellular shareholders | $ | 62,140 |
| $ | 38,296 | $ | 23,844 |
| 62 | % | ||||||||
Basic weighted average shares outstanding | 84,547 | 85,992 | (1,445 | ) | (2 | %) | ||||||||||||
Basic earnings per share attributable to U.S. Cellular shareholders | $ | 0.73 |
| $ | 0.45 |
| $ | 0.28 |
| 62 | % | |||||||
Diluted weighted average shares outstanding | 84,940 | 86,428 | (1,488 | ) | (2 | %) | ||||||||||||
Diluted earnings per share attributable to U.S. Cellular shareholders | $ | 0.73 |
| $ | 0.44 |
| $ | 0.29 |
| 66 | % | |||||||
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
4
United States Cellular Corporation Consolidated Statement of Operations Highlights Nine Months Ended September 30, (Unaudited, dollars and shares in thousands, except per share amounts) | |||||||||||||||||
Increase (Decrease) | |||||||||||||||||
2011 | 2010 (1) | Amount |
| Percent | |||||||||||||
Operating revenues |
|
|
|
| |||||||||||||
Service | $ | 3,023,752 | $ | 2,921,087 | $ | 102,665 | 4 | % | |||||||||
Equipment sales |
| 219,961 |
|
| 193,444 |
|
| 26,517 |
| 14 | % | ||||||
Total operating revenues |
| 3,243,713 |
| 3,114,531 |
| 129,182 |
| 4 | % | ||||||||
Operating expenses | |||||||||||||||||
System operations (excluding Depreciation,amortization and accretion reported below) | 687,256 | 638,677 | 48,579 | 8 | % | ||||||||||||
Cost of equipment sold | 556,465 | 512,361 | 44,104 | 9 | % | ||||||||||||
Selling, general and administrative | 1,309,688 | 1,321,720 | (12,032 | ) | (1 | %) | |||||||||||
Depreciation, amortization and accretion | 431,581 | 427,831 | 3,750 | 1 | % | ||||||||||||
(Gain) loss on asset disposals and exchanges, net |
| (5,741 | ) |
| 8,407 |
|
| (14,148 | ) | >(100 | )% | ||||||
Total operating expenses |
| 2,979,249 |
|
| 2,908,996 |
|
| 70,253 |
| 2 | % | ||||||
Operating income | 264,464 | 205,535 | 58,929 | 29 | % | ||||||||||||
Investment and other income (expense) | |||||||||||||||||
Equity in earnings of unconsolidated entities | 65,289 | 74,418 | (9,129 | ) | (12 | %) | |||||||||||
Interest and dividend income | 2,466 | 2,984 | (518 | ) | (17 | %) | |||||||||||
Gain on investment | 13,373 | — | 13,373 | N/M | |||||||||||||
Interest expense | (51,905 | ) | (48,918 | ) | (2,987 | ) | (6 | %) | |||||||||
Other, net |
| (47 | ) |
| (213 | ) |
| 166 |
| 78 | % | ||||||
Total investment and other income (expense) |
| 29,176 |
|
| 28,271 |
|
| 905 |
| 3 | % | ||||||
Income before income taxes | 293,640 | 233,806 | 59,834 | 26 | % | ||||||||||||
Income tax expense |
| 102,771 |
|
| 88,656 |
|
| 14,115 |
| 16 | % | ||||||
Net income | 190,869 | 145,150 | 45,719 | 31 | % | ||||||||||||
| |||||||||||||||||
Less: Net income attributable to noncontrollinginterests, net of tax |
| (18,629 | ) |
| (16,858 | ) |
| (1,771 | ) | (11 | %) | ||||||
Net income attributable to U.S. Cellular shareholders | $ | 172,240 |
| $ | 128,292 |
| $ | 43,948 |
| 34 | % | ||||||
Basic weighted average shares outstanding | 84,984 | 86,329 | (1,345 | ) | (2 | %) | |||||||||||
| |||||||||||||||||
Basic earnings per share attributable toU.S. Cellular shareholders | $ | 2.03 |
| $ | 1.49 |
|
| $ | 0.54 |
| 36 | % | |||||
Diluted weighted average shares outstanding | 85,448 | 86,706 | (1,258 | ) | (1 | %) | |||||||||||
Diluted earnings per share attributable to U.S. Cellular shareholders | $ | 2.02 |
| $ | 1.48 |
| $ | 0.54 |
| 36 | % | ||||||
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
.
5
United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands) | ||||||
ASSETS | ||||||
September 30, | December 31, | |||||
2011 | 2010 (1) | |||||
Current assets |
| |||||
Cash and cash equivalents | $ | 504,952 | $ | 294,426 | ||
Short-term investments | 110,761 | 146,586 | ||||
Accounts receivable from customers and others | 434,334 | 424,019 | ||||
Inventory | 148,770 | 112,279 | ||||
Income taxes receivable | 35,121 | 41,397 | ||||
Prepaid expenses | 56,607 | 53,356 | ||||
Net deferred income tax asset | 26,757 | 26,757 | ||||
Other current assets |
| 10,693 |
| 10,804 | ||
1,327,995 | 1,109,624 | |||||
Assets held for sale | 60,829 | — | ||||
Investments | ||||||
Licenses | 1,470,550 | 1,452,101 | ||||
Goodwill | 494,737 | 494,737 | ||||
Customer lists, net | 425 | 759 | ||||
Investments in unconsolidated entities | 160,374 | 160,847 | ||||
Notes and interest receivable – long-term | 3,959 | 4,070 | ||||
Long-term investments |
| 45,297 |
| 46,033 | ||
2,175,342 | 2,158,547 | |||||
Property, plant and equipment, net | ||||||
In service and under construction | 6,778,852 | 6,340,537 | ||||
Less: accumulated depreciation |
| 4,124,358 |
| 3,766,015 | ||
2,654,494 | 2,574,522 | |||||
Other assets and deferred charges | 61,941 | 50,367 | ||||
Total assets | $ | 6,280,601 | $ | 5,893,060 | ||
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
6
United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands) | |||||||||
LIABILITIES AND EQUITY | |||||||||
September 30, | December 31, | ||||||||
2011 | 2010 (1) | ||||||||
Current liabilities |
|
| |||||||
Current portion of long-term debt | $ | 101 | $ | 101 | |||||
Accounts payable | |||||||||
Affiliated | 11,976 | 10,791 | |||||||
Trade | 360,788 | 281,601 | |||||||
Customer deposits and deferred revenues | 177,123 | 146,428 | |||||||
Accrued taxes | 43,910 | 39,299 | |||||||
Accrued compensation | 48,117 | 65,952 | |||||||
Other current liabilities |
| 95,665 |
| 121,823 | |||||
737,680 | 665,995 | ||||||||
Liabilities held for sale | 858 | — | |||||||
Deferred liabilities and credits | |||||||||
Net deferred income tax liability | 742,343 | 583,444 | |||||||
Other deferred liabilities and credits | 235,032 | 234,855 | |||||||
Long-term debt | 880,411 | 867,941 | |||||||
| |||||||||
Commitments and contingencies | |||||||||
Noncontrolling interests with mandatory redemption features | 923 | 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 | 1,382,826 | 1,368,487 | |||||||
Treasury shares | (153,011) | (105,616) | |||||||
Retained earnings |
| 2,294,562 |
| 2,135,507 | |||||
Total U.S. Cellular shareholders’ equity | 3,612,451 | 3,486,452 | |||||||
Noncontrolling interests |
| 70,903 |
| 53,518 | |||||
Total equity | 3,683,354 | 3,539,970 | |||||||
Total liabilities and equity | $ | 6,280,601 | $ | 5,893,060 | |||||
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
7
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 September 30, 2011 and December 31, 2010.
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
|
| ||||||
Cash and cash equivalents | $ | 504,952 | $ | 294,426 | |||
Amounts included in short-term investments (1)(2) | |||||||
Government-backed securities (3) | 110,761 | 146,336 | |||||
Certificates of deposit | — | 250 | |||||
$ | 110,761 | $ | 146,586 | ||||
Amounts included in long-term investments (1)(4) | |||||||
Government-backed securities (3) | $ | 45,297 | $ | 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 September 30, 2011, maturities range between 13 and 23 months from the balance sheet date.
8
United States Cellular Corporation Consolidated Statement of Cash Flows Nine Months Ended September 30, (Unaudited, dollars in thousands) | ||||||||||
2011 | 2010 (1) | |||||||||
Cash flows from operating activities |
|
| ||||||||
Net income | $ | 190,869 | $ | 145,150 | ||||||
Add (deduct) adjustments to reconcile net income to net | ||||||||||
cash flows from operating activities | ||||||||||
Depreciation, amortization and accretion | 431,581 | 427,831 | ||||||||
Bad debts expense | 44,718 | 56,244 | ||||||||
Stock-based compensation expense | 15,475 | 13,539 | ||||||||
Deferred income taxes, net | 145,687 | 51,942 | ||||||||
Equity in earnings of unconsolidated entities | (65,289 | ) | (74,418 | ) | ||||||
Distributions from unconsolidated entities | 52,037 | 59,149 | ||||||||
(Gain) loss on asset disposals and exchanges, net | (5,741 | ) | 8,407 | |||||||
Gain on investment | (13,373 | ) | — | |||||||
Noncash interest expense | 9,582 | 1,846 | ||||||||
Other operating activities | 1,143 | (1,740 | ) | |||||||
Changes in assets and liabilities from operations | ||||||||||
Accounts receivable | (57,564 | ) | (46,293 | ) | ||||||
Inventory | (36,326 | ) | 32,673 | |||||||
Accounts payable - trade | 79,031 | (50,720 | ) | |||||||
Accounts payable - affiliate | 1,185 | (8,440 | ) | |||||||
Customer deposits and deferred revenues | 30,695 | 1,972 | ||||||||
Accrued taxes | 9,679 | (19,491 | ) | |||||||
Accrued interest | 9,283 | 9,295 | ||||||||
Other assets and liabilities |
| (65,048 | ) |
| (22,933 | ) | ||||
|
| 777,624 |
|
|
| 584,013 |
| |||
|
|
|
|
|
|
|
| |||
Cash flows from investing activities | ||||||||||
Additions to property, plant and equipment | (506,082 | ) | (379,692 | ) | ||||||
Cash paid for acquisitions and licenses | (23,773 | ) | (10,501 | ) | ||||||
Cash paid for investments | (50,000 | ) | (190,250 | ) | ||||||
Cash received for investments | 85,250 | 25,330 | ||||||||
Other investing activities |
| (210 | ) |
| 656 |
| ||||
|
| (494,815 | ) |
|
| (554,457 | ) | |||
|
|
|
|
|
|
|
| |||
Cash flows from financing activities | ||||||||||
Repayment of long-term debt | (330,106 | ) | (307 | ) | ||||||
Issuance of long-term debt | 342,000 | — | ||||||||
Common shares reissued for benefit plans, net of tax payments | 1,755 | 738 | ||||||||
Common shares repurchased | (62,294 | ) | (40,520 | ) | ||||||
Payment of debt issuance costs | (11,394 | ) | — | |||||||
Distributions to noncontrolling interests | (1,176 | ) | (5,828 | ) | ||||||
Other financing activities |
| 169 |
|
| (8,758 | ) | ||||
|
| (61,046 | ) |
|
| (54,675 | ) | |||
|
|
|
|
|
|
|
| |||
Cash classified as held for sale | (11,237 | ) | — | |||||||
|
|
|
|
|
|
|
| |||
Net increase (decrease) in cash and cash equivalents | 210,526 | (25,119 | ) | |||||||
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | ||||||||||
Beginning of period |
| 294,426 |
| 294,411 |
| |||||
End of period | $ | 504,952 |
| $ | 269,292 |
| ||||
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
9
United States Cellular Corporation Financial Measures and Reconciliations | |||||||||||||||||
(Unaudited, dollars in thousands) | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 (4) | 2011 | 2010 (4) | ||||||||||||||
Service revenues | $ | 1,036,609 | $ | 983,503 | $ | 3,023,752 | $ | 2,921,087 | |||||||||
Operating income | 101,620 | 61,359 | 264,464 | 205,535 | |||||||||||||
Add: | |||||||||||||||||
Depreciation, amortization and accretion | 141,664 | 143,191 | 431,581 | 427,831 | |||||||||||||
Loss on impairment of intangible assets | — | — | — | — | |||||||||||||
(Gain) loss on asset disposals and exchanges, net |
| (9,700 | ) |
| 1,981 |
|
| (5,741 | ) |
| 8,407 |
| |||||
Adjusted OIBDA (1) | $ | 233,584 |
| $ | 206,531 |
| $ | 690,304 |
| $ | 641,773 |
| |||||
Adjusted OIBDA margin (2) | 22.5 | % | 21.0 | % | 22.8 | % | 22.0 | % | |||||||||
2011 | 2010 (4) | 2011 | 2010 (4) | ||||||||||||||
Cash flows from operating activities | $ | 354,192 | $ | 180,307 | $ | 777,624 | $ | 584,013 | |||||||||
Deduct: | |||||||||||||||||
Capital expenditures |
| 248,042 |
|
| 124,688 |
|
| 506,082 |
|
| 379,692 |
| |||||
Free cash flow (3) | $ | 106,150 |
| $ | 55,619 |
| $ | 271,542 |
| $ | 204,321 |
| |||||
(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 and exchanges (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 exchanges 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.
(4) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
10
Revision of Prior Period Amounts
In preparing its financial statements for the nine months ended September 30, 2011, U.S. Cellular discovered certain errors related to accounting for asset retirement obligations and asset retirement costs. These errors resulted in the overstatement of Operating expenses, Property, plant and equipment, net and Other deferred liabilities and credits for the first and second quarter 2011 interim financial statements andin the 2010, 2009 and 2008annual periods reported in the Company’s December 31, 2010 financial statements. The beginning retained earnings balance presented in the December 31, 2010 annual financial statements was also understated as a result of these errors. In accordance withSEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), U.S. Cellular evaluated these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendments of previously filed reports was not required. However, if the adjustments to correct the cumulative errors had been recorded in the third quarter 2011, U.S. Cellular believes the impact would have been significant to the third quarter results and wouldhaveimpacted comparisons to prior periods. As permitted by SAB 108,revisions for these immaterial amounts to previously reported annual and quarterly results are reflected in the financial information herein and will be reflected in future filings containing such financial information.
The Consolidated Balance Sheet at December 31, 2010 was revised to reflect the cumulative effect of these errors which resulted in an increase to Retained earnings of $5.9 million. In accordance with SAB 108,the Consolidated Balance Sheet,the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows have been revised as follows:
Consolidated Balance Sheet -- December 31, 2010 | |||||||||||||
As previously | |||||||||||||
(Dollars in thousands) | reported (1) | Adjustment | Revised | ||||||||||
Property, plant and equipment, net | $ | 2,615,072 | $ | (40,550 | ) | $ | 2,574,522 | ||||||
Total assets | 5,933,610 | (40,550 | ) | 5,893,060 | |||||||||
Net deferred income tax liability | 579,769 | 3,675 | 583,444 | ||||||||||
Other deferred liabilities and credits | 284,949 | (50,094 | ) | 234,855 | |||||||||
Retained earnings | 2,129,638 | 5,869 | 2,135,507 | ||||||||||
Total U.S. Cellular shareholders' equity | 3,480,583 | 5,869 | 3,486,452 | ||||||||||
Total equity | 3,534,101 | 5,869 | 3,539,970 | ||||||||||
Total liabilities and equity | 5,933,610 | (40,550 | ) | 5,893,060 | |||||||||
Consolidated Statement of Operations -- Three Months Ended September 30, 2010 | |||||||||||||
As previously | |||||||||||||
(Dollars in thousands) | reported (1) | Adjustment | Revised | ||||||||||
| |||||||||||||
Depreciation, amortization and accretion | $ | 144,717 | $ | (1,526 | ) | $ | 143,191 | ||||||
Total operating expenses | 1,000,948 | (1,526 | ) | 999,422 | |||||||||
Operating income | 59,833 | 1,526 | 61,359 | ||||||||||
Income before income taxes | 68,329 | 1,526 | 69,855 | ||||||||||
Income tax expense | 25,051 | 588 | 25,639 | ||||||||||
Net income | 43,278 | 938 | 44,216 | ||||||||||
Net income attributable to U.S. Cellular shareholders | 37,358 | 938 | 38,296 | ||||||||||
Basic earnings per share attributable to U.S. Cellular shareholders | 0.43 | 0.02 | 0.45 | ||||||||||
Diluted earnings per share attributable to U.S. Cellular shareholders | 0.43 | 0.01 | 0.44 | ||||||||||
Consolidated Statement of Operations -- Nine Months Ended September 30, 2010 | |||||||||||||
As previously | |||||||||||||
(Dollars in thousands) | reported (2) | Adjustment | Revised | ||||||||||
| |||||||||||||
Depreciation, amortization and accretion | $ | 432,405 | $ | (4,574 | ) | $ | 427,831 | ||||||
Total operating expenses | 2,913,570 | (4,574 | ) | 2,908,996 | |||||||||
Operating income | 200,961 | 4,574 | 205,535 | ||||||||||
Income before income taxes | 229,232 | 4,574 | 233,806 | ||||||||||
Income tax expense | 86,894 | 1,762 | 88,656 | ||||||||||
Net income | 142,338 | 2,812 | 145,150 | ||||||||||
Net income attributable to U.S. Cellular shareholders | 125,480 | 2,812 | 128,292 | ||||||||||
Basic earnings per share attributable to U.S. Cellular shareholders | 1.45 | 0.04 | 1.49 | ||||||||||
Diluted earnings per share attributable to U.S. Cellular shareholders | 1.45 | 0.03 | 1.48 | ||||||||||
Consolidated Statement of Cash Flows -- Nine Months Ended September 30, 2010 | |||||||||||||
As previously | |||||||||||||
(Dollars in thousands) | reported (2) | Adjustment | Revised | ||||||||||
Net income | $ | 142,338 | $ | 2,812 | $ | 145,150 | |||||||
Depreciation, amortization and accretion | 432,405 | (4,574 | ) | 427,831 | |||||||||
Deferred income taxes, net | 50,180 | 1,762 | 51,942 | ||||||||||
Cash flows from operating activities | 584,013 | — | 584,013 | ||||||||||
(1) In Annual Report on Form 10-K for the year ended December 31, 2010, filed on February 25, 2011.
(2) In Quarterly Report of Form 10-Q for the period ended September 30, 2010, filed on November 4, 2010.
11