U.S. Cellular reports first quarter 2014 results

As previously announced, U.S. Cellular will hold a teleconference May 2, 2014 at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations pages of investors.teldta.com or investors.uscellular.com.

PR Newswire

CHICAGO, May 2, 2014 /PRNewswire/ -- United States Cellular Corporation (USM) reported service revenues of $853.6 million for the first quarter of 2014, versus $996.3 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $19.5 million and $0.23 respectively, for the first quarter of 2014, compared to $4.9 million and $0.06, respectively, in the comparable period one year ago.

Year-over-year comparisons are affected by the divestiture transaction and the deconsolidation of certain partnerships, both in 2013.

"With our competitive range of plans and strong smartphone selection, including the iPhone, we have had success attracting new customers and increasing smartphone adoption and data use," said Kenneth R. Meyers, U.S. Cellular president and CEO. "This is reflected in higher gross customer additions and average revenue per customer. We're driving our smartphone penetration and data growth strategies by bringing 4G LTE access to 93 percent of our customers in 2014, and offering high-demand devices like the new Samsung Galaxy S5. Network quality is the foundation of our strategy to increase customer additions and build loyalty.

"We've made significant progress to return service levels to our normally high standards following the billing system conversion.  While churn is still elevated, we are currently seeing improvements in both voluntary and involuntary churn from peak levels back in 2013 and early 2014.  Additionally the new system has already enabled us to deliver more products and services that meet our customers' needs, like our Shared Connect Plans, new no contract Simple Connect Plans, and device installment contracts.

"The industry pricing environment is very dynamic at the present time.  However, we're confident that we have the right offerings  for our target customers and we'll continue to price them at competitive levels.  We have a strong financial foundation that will enable us to support our current initiatives and to continue to invest in our future by further expanding and enhancing our network and retail distribution."

2014 Estimated Results
Capital expenditures for 2014 are expected to be approximately $640 million, down from $738 million in 2013.

Conference Call Information
U.S. Cellular will hold a conference call on May 2, 2014 at 9:30 a.m. CDT.

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.uscellular.com. The call will be archived on the Events & Presentations page of investors.uscellular.com.

About U.S. Cellular
United States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to 4.7 million customers in 23 states. The Chicago-based company had 6,800 full- and part-time associates as of March 31, 2014. At the end of the first quarter of 2014, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:

All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: impacts of any pending acquisition and divestiture transactions,  including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the overall economy; competition; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets;  pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by U.S. Cellular. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by U.S. Cellular to furnish this press release to the Securities and Exchange Commission ("SEC"), which are incorporated by reference herein.   


 


United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)


















As of or for the Quarter Ended

3/31/2014


12/31/2013


9/30/2013


6/30/2013


3/31/2013

Retail Customers
















Postpaid

















Total at end of period


4,174,000



4,267,000



4,343,000



4,412,000



5,060,000



Gross additions


197,000



176,000



165,000



165,000



191,000



Net additions (losses)


(93,000)



(71,000)



(60,000)



(120,000)



(74,000)



ARPU (1)

$

57.59


$

53.53


$

54.64


$

54.18


$

54.85



Churn rate (2)


2.3%



1.9%



1.7%



2.0%



1.7%



Smartphone penetration (3) (4)


53.1%



50.8%



47.1%



45.5%



43.5%


Prepaid

















Total at end of period


356,000



343,000



370,000



381,000



446,000



Gross additions


85,000



63,000



65,000



77,000



104,000



Net additions (losses)


13,000



(26,000)



(11,000)



(7,000)



23,000



ARPU (1)

$

32.22


$

31.66


$

28.72


$

31.69


$

33.31



Churn rate (2)


6.9%



8.3%



6.8%



6.8%



6.2%

Total customers at end of period


4,684,000



4,774,000



4,875,000



4,968,000



5,736,000

Billed ARPU (1)

$

53.93


$

50.25


$

50.92


$

50.60


$

51.13

Service revenue ARPU (1)

$

60.19


$

57.05


$

58.36


$

57.45


$

57.63

Smartphones sold as a percent of total

  devices sold


73.0%



79.6%



65.2%



66.0%



61.7%

Total population

















Consolidated markets (5)


54,817,000



58,013,000



84,025,000



84,025,000



93,943,000



Consolidated operating markets (5)


31,729,000



31,759,000



31,822,000



31,822,000



47,440,000

Market penetration at end of period

















Consolidated markets (6)


8.5%



8.2%



5.8%



5.9%



6.1%



Consolidated operating markets (6)


14.8%



15.0%



15.3%



15.6%



12.1%

Capital expenditures (000s)

$

89,581


$

208,135


$

242,459


$

168,497


$

118,410

Total cell sites in service


6,165



6,975



7,687



7,748



8,027

Owned towers


4,448



4,448



4,422



4,411



4,411



*

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




Refer to U.S. Cellular's Form 8-K filed on May 3, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three months ended March 31, 2013, as if the transactions had occurred at the beginning of the period.

 

 

 

United States Cellular Corporation

Core* Markets Summary Operating Data (Unaudited)


















As of or for the Quarter Ended

3/31/2014


12/31/2013


9/30/2013


6/30/2013


3/31/2013

Retail Customers
















Postpaid

















Total at end of period


4,174,000



4,267,000



4,343,000



4,412,000



4,463,000



Gross additions


197,000



176,000



165,000



165,000



176,000



Net additions (losses)


(93,000)



(71,000)



(60,000)



(53,000)



(33,000)



ARPU (1)

$

57.59


$

53.53


$

54.64


$

54.44


$

54.21



Churn rate (2)


2.3%



1.9%



1.7%



1.6%



1.6%



Smartphone penetration (3) (4)


53.1%



50.8%



47.1%



45.5%



43.0%


Prepaid

















Total at end of period


356,000



343,000



370,000



381,000



373,000



Gross additions


85,000



63,000



65,000



76,000



91,000



Net additions (losses)


13,000



(26,000)



(11,000)



8,000



31,000



ARPU (1)

$

32.22


$

31.66


$

28.72


$

31.65


$

32.92



Churn rate (2)


6.9%



8.3%



6.8%



6.0%



5.6%

Total customers at end of period


4,684,000



4,774,000



4,875,000



4,968,000



5,005,000

Billed ARPU (1)

$

53.93


$

50.25


$

50.92


$

50.98


$

50.93

Service revenue ARPU (1)

$

60.19


$

57.05


$

58.36


$

57.88


$

57.14

Smartphones sold as a percent of total

  devices sold


73.0%



79.6%



65.2%



66.1%



62.1%

Total population

















Consolidated markets (5)


54,817,000



58,013,000



84,025,000



84,025,000



84,025,000



Consolidated operating markets (5)


31,729,000



31,759,000



31,822,000



31,822,000



31,822,000

Market penetration at end of period

















Consolidated markets (6)


8.5%



8.2%



5.8%



5.9%



6.0%



Consolidated operating markets (6)


14.8%



15.0%



15.3%



15.6%



15.7%

Capital expenditures (000s)

$

89,581


$

211,247


$

239,332


$

171,166


$

107,907

Total cell sites in service


6,165



6,161



6,127



6,113



6,113

Owned towers


3,883



3,883



3,857



3,846



3,846



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




Refer to U.S. Cellular's Form 8-K filed on May 3, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three months ended March 31, 2013, as if the transactions had occurred at the beginning of the period.



(1)

ARPU metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period.  These revenue bases and customer populations are shown below:


a. 

Postpaid ARPU consists of total postpaid service revenues and postpaid customers.


b. 

Prepaid ARPU consists of total prepaid service revenues and prepaid customers.


c. 

Billed ARPU consists of total postpaid, prepaid and reseller service revenues and postpaid, prepaid and reseller customers.


d. 

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

(2)

Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(3)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding tablets.

(4)

Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(5)

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.

 

 

 


United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended March 31,

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










      Change




2014


2013


Amount


Percent

Operating revenues












Service

$

853,613


$

996,349


$

(142,736)


(14%)


Equipment sales


72,198



85,397



(13,199)


(15%)



Total operating revenues


925,811



1,081,746



(155,935)


(14%)














Operating expenses












System operations (excluding Depreciation, amortization and accretion

  reported below)


180,607



216,299



(35,692)


(17%)


Cost of equipment sold


270,474



241,691



28,783


12%


Selling, general and administrative


395,564



420,080



(24,516)


(6%)


Depreciation, amortization and accretion


167,753



189,845



(22,092)


(12%)


(Gain) loss on asset disposals, net


1,934



5,434



(3,500)


(64%)


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


(6,900)



6,931



(13,831)


>(100%)


(Gain) loss on license sales and exchanges


(91,446)





(91,446)


N/M



Total operating expenses


917,986



1,080,280



(162,294)


(15%)














Operating income


7,825



1,466



6,359


>100%














Investment and other income (expense)












Equity in earnings of unconsolidated entities


37,075



26,835



10,240


38%


Interest and dividend income


884



903



(19)


(2%)


Interest expense


(14,862)



(10,910)



(3,952)


(36%)


Other, net


86



(215)



301


>(100%)



Total investment and other income


23,183



16,613



6,570


40%














Income before income taxes


31,008



18,079



12,929


72%


Income tax expense


12,604



7,369



5,235


71%

Net income


18,404



10,710



7,694


72%


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


(1,078)



5,796



(6,874)


>(100%)

Net income attributable to U.S. Cellular shareholders

$

19,482


$

4,914


$

14,568


>100%













Basic weighted average shares outstanding


84,213



83,838



375


Basic earnings per share attributable to U.S. Cellular shareholders

$

0.23


$

0.06


$

0.17


>100%














Diluted weighted average shares outstanding


85,065



84,588



477


1%

Diluted earnings per share attributable to U.S. Cellular shareholders

$

0.23


$

0.06


$

0.17


>100%

 

 

 


United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)








ASSETS

















March 31,


December 31,



2014


2013

Current assets







Cash and cash equivalents

$

398,541


$

342,065


Short-term investments


40,056



50,104


Accounts receivable from customers and others


484,471



586,595


Inventory, net


218,882



238,188


Prepaid expenses


65,510



65,596


Net deferred income tax asset


99,105



99,105


Other current assets


19,702



19,538




1,326,267



1,401,191








Assets held for sale




16,027








Investments







Licenses


1,425,945



1,401,126


Goodwill


387,524



387,524


Investments in unconsolidated entities


289,842



265,585




2,103,311



2,054,235








Property, plant and equipment







In service and under construction


7,715,292



7,717,512


Less: Accumulated depreciation


4,939,072



4,860,992




2,776,220



2,856,520








Other assets and deferred charges


132,536



117,735








Total assets

$

6,338,334


$

6,445,708

 

 

 


United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)









LIABILITIES AND EQUITY




















March 31,


December 31,




2014


2013

Current liabilities







Current portion of long-term debt

$

166


$

166


Accounts payable








Affiliated


9,266



11,243



Trade


347,459



405,583


Customer deposits and deferred revenues


255,230



256,740


Accrued taxes


58,574



73,820


Accrued compensation


35,930



66,566


Other current liabilities


161,446



192,055





868,071



1,006,173









Deferred liabilities and credits







Net deferred income tax liability


830,960



836,297


Other deferred liabilities and credits


330,467



315,073









Long-term debt


878,127



878,032









Noncontrolling interests with redemption features


543



536









Equity






U.S. Cellular shareholders' equity







Series A Common and Common Shares, par value $1 per share


88,074



88,074


Additional paid-in capital


1,429,148



1,424,729


Treasury shares


(165,577)



(164,692)


Retained earnings


2,061,561



2,043,095



Total U.S. Cellular shareholders' equity


3,413,206



3,391,206









Noncontrolling interests


16,960



18,391










Total equity


3,430,166



3,409,597









Total liabilities and equity

$

6,338,334


$

6,445,708

 

 

 

United States Cellular Corporation

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)


The following table presents U.S. Cellular's cash and cash equivalents and investments at March 31, 2014 and December 31, 2013.




March 31,


December 31,


2014


2013








Cash and cash equivalents

$

398,541


$

342,065








Amounts included in short-term investments (1)(2)







U.S. Treasury Notes


40,056



50,104








Total cash and cash equivalents and investments

$

438,597


$

392,169



(1)

Designated as held-to-maturity investments and are recorded at amortized cost on the Consolidated Balance Sheet.

(2)

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

 

 

 

United States Cellular Corporation

Consolidated Statement of Cash Flows

Three Months Ended March 31,

(Unaudited, dollars in thousands)







2014


2013

Cash flows from operating activities







Net income

$

18,404


$

10,710


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

  operating activities









Depreciation, amortization and accretion


167,753



189,845




Bad debts expense


20,492



16,910




Stock-based compensation expense


4,955



5,036




Deferred income taxes, net


(4,817)



7,048




Equity in earnings of unconsolidated entities


(37,075)



(26,835)




Distributions from unconsolidated entities


12,818



5,836




(Gain) loss on asset disposals, net


1,934



5,434




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


(6,900)



6,931




(Gain) loss on license sales and exchanges


(91,446)






Noncash interest expense


269



262




Other operating activities


47



250


Changes in assets and liabilities from operations









Accounts receivable


81,980



33,611




Inventory


19,306



16,750




Accounts payable - trade


(38,245)



4,644




Accounts payable - affiliate


(2,312)



(1,933)




Customer deposits and deferred revenues


(1,510)



8,862




Accrued taxes


(15,403)



6,175




Accrued interest


9,182



9,201




Other assets and liabilities


(75,896)



(75,122)






63,536



223,615










Cash flows from investing activities







Cash used for additions to property, plant and equipment


(109,498)



(151,024)


Cash paid for acquisitions and licenses


(9,135)



(14,150)


Cash received from divestitures


103,042




Cash received for investments


10,000




Other investing activities


584



3,654






(5,007)



(161,520)










Cash flows from financing activities







Repayment of long-term debt


(23)



(61)


Common shares reissued for benefit plans, net of tax payments


316



123


Common shares repurchased


(2,000)



(18,425)


Distributions to noncontrolling interests


(346)



(2,396)


Other financing activities




2






(2,053)



(20,757)










Net increase in cash and cash equivalents


56,476



41,338










Cash and cash equivalents







Beginning of period


342,065



378,358


End of period

$

398,541


$

419,696

 

 

 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)










Three months ended March 31,



2014



2013











Cash flows from operating activities


$

63,536


$

223,615


Deduct:








Cash used for additions to property, plant and equipment



109,498



151,024



Free cash flow (1)


$

(45,962)


$

72,591



(1)

Free cash flow is defined as Cash flows from operating activities less Cash used 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 the amount of cash generated by business operations, after Cash used for additions to property, plant and equipment.

 

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