U.S. Cellular reports third quarter 2016 results

2016 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,100

Unchanged

Operating cash flow ⁽¹⁾

$525-$650

Unchanged

Adjusted EBITDA ⁽¹⁾

$725-$850

Unchanged

Capital expenditures

Approx. $

500

Unchanged

Actual Results

2016 Estimated
Results

Nine Months Ended
September 30, 2016

Year Ended

December 31, 2015*

(Dollars in millions)

Net income (GAAP)

N/A

$

54

$

247

Add back:

Income tax expense (benefit)

N/A

39

156

Income (loss) before income taxes

(GAAP)

$

(5)-120

$

93

$

404

Add back:

Interest expense

110

84

86

Depreciation, amortization and accretion expense

615

462

606

EBITDA (Non-GAAP)

$

720-845

$

639

$

1,096

Add back (deduct):

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

–

–

(114)

(Gain) loss on license sales and exchanges, net

(15)

(16)

(147)

(Gain) loss on assets disposals, net

20

16

16

Adjusted EBITDA (Non-GAAP) ⁽¹⁾

$

725-850

$

639

$

852

Deduct:

140

110

140

Interest and dividend income

60

41

37

Operating cash flow (Non-GAAP) ⁽¹⁾⁽²⁾

$

525-650

$

488

$

675

* Includes $58 million of revenue related to termination of the rewards points program.

Note: Totals may not foot due to rounding differences.

(1)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above.  Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA and Operating cash flow are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measure of liquidity.  TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future.  Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate.  Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.  Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.  The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(2)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for September 30, 2016 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

9/30/2016

6/30/2016

3/31/2016

12/31/2015

9/30/2015

Retail Connections

Postpaid

Total at end of period

4,484,000

4,490,000

4,454,000

4,409,000

4,341,000

Gross additions

174,000

197,000

215,000

240,000

200,000

Feature phones

10,000

8,000

9,000

10,000

14,000

Smartphones

105,000

107,000

124,000

132,000

119,000

Connected devices

59,000

82,000

82,000

98,000

67,000

Net additions (losses)

(6,000)

36,000

45,000

68,000

17,000

Feature phones

(20,000)

(21,000)

(25,000)

(25,000)

(28,000)

Smartphones

(7,000)

8,000

20,000

23,000

6,000

Connected devices

21,000

49,000

50,000

70,000

39,000

ARPU ⁽¹⁾⁽⁸⁾

$

47.08

$

47.37

$

48.13

$

51.46

$

58.12

ABPU (Non-GAAP)⁽²⁾⁽⁸⁾

$

56.79

$

56.09

$

56.06

$

58.57

$

63.88

ARPA ⁽³⁾⁽⁸⁾

$

125.31

$

124.91

$

125.36

$

131.96

$

147.00

ABPA (Non-GAAP)⁽⁴⁾⁽⁸⁾

$

151.16

$

147.90

$

145.99

$

150.19

$

161.57

Churn rate ⁽⁵⁾

1.34%

1.20%

1.28%

1.31%

1.41%

Handsets

1.22%

1.10%

1.18%

1.23%

1.33%

Connected devices

2.04%

1.84%

2.01%

1.95%

2.20%

Smartphone penetration ⁽⁶⁾

78%

77%

75%

74%

72%

Prepaid

Total at end of period

480,000

413,000

399,000

387,000

380,000

Gross additions

132,000

73,000

75,000

69,000

71,000

Net additions (losses)

67,000

14,000

12,000

7,000

12,000

ARPU ⁽¹⁾

$

34.39

$

34.58

$

35.51

$

35.54

$

35.64

Churn rate ⁽⁵⁾

4.84%

4.86%

5.37%

5.40%

5.24%

Total connections at end of period ⁽⁹⁾

5,030,000

4,973,000

4,926,000

4,876,000

4,807,000

Smartphones sold as a percent of total handsets sold

92%

91%

92%

91%

87%

Market penetration at end of period

Consolidated operating population

31,994,000

31,994,000

31,994,000

31,967,000

31,814,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

15%

15%

15%

Capital expenditures (millions)

$

103

$

93

$

79

$

198

$

135

Total cell sites in service

6,374

6,324

6,306

6,297

6,246

Owned towers

4,015

3,988

3,989

3,978

3,957

(1)

Average Revenue Per User ("ARPU") - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period.  These revenue bases and connection populations are shown below:

▪

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

▪

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

(2)

Average Billings Per User ("ABPU") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(3)

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

(4)

Average Billings Per Account ("ABPA") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(5)

Churn rate represents the percentage of the connections that disconnect service each month.  These rates represent the average monthly churn rate for each respective period.

(6)

Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset connections.

(7)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

(8)

The quarter ended September 30, 2015 results include the recognition of $58 million in revenue due to the discontinuation of the loyalty rewards points program.  The discontinuation had the effect of increasing ARPU/ABPU and ARPA/ABPA by $4.48 and $11.34 for the three months ended September 2015, respectively.

(9)

Includes reseller and other connections.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended September 30,

2016

2015

2016 vs. 2015

Increase (Decrease)

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

Operating revenues

Service

$

771

$

896

$

(125)

(14)%

Equipment sales

239

173

66

38%

Total operating revenues

1,010

1,069

(59)

(6)%

Operating expenses

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

196

199

(3)

(1)%

Cost of equipment sold

280

287

(7)

(2)%

Selling, general and administrative

370

375

(5)

(1)%

Depreciation, amortization and accretion

155

152

3

2%

(Gain) loss on asset disposals, net

7

3

4

>100%

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

–

(1)

1

N/M

(Gain) loss on license sales and exchanges, net

(7)

(24)

17

70%

Total operating expenses

1,001

991

10

1%

Operating income

9

78

(69)

(88)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

38

40

(2)

(5)%

Interest and dividend income

14

9

5

51%

Interest expense

(28)

(21)

(7)

(32)%

Other, net

–

–

–

20%

Total investment and other income

24

28

(4)

(14)%

Income before income taxes

33

106

(73)

(69)%

Income tax expense

15

41

(26)

(63)%

Net income

18

65

(47)

(73)%

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

1

1

–

(53)%

Net income attributable to U.S. Cellular shareholders

$

17

$

64

$

(47)

(73)%

Basic weighted average shares outstanding

85

84

1

1%

Basic earnings per share attributable to

   U.S. Cellular shareholders

$

0.20

$

0.75

$

(0.55)

(73)%

Diluted weighted average shares outstanding

85

85

–

-

Diluted earnings per share attributable to

   U.S. Cellular shareholders

$

0.20

$

0.75

$

(0.55)

(73)%

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

Nine Months Ended September 30,

2016

2015

2016 vs. 2015

Increase (Decrease)

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

Operating revenues

Service

$

2,293

$

2,549

$

(256)

(10)%

Equipment sales

655

461

194

42%

Total operating revenues

2,948

3,010

(62)

(2)%

Operating expenses

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

572

586

(14)

(2)%

Cost of equipment sold

799

779

20

2%

Selling, general and administrative

1,089

1,107

(18)

(2)%

Depreciation, amortization and accretion

462

450

12

3%

(Gain) loss on asset disposals, net

16

12

4

33%

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

–

(114)

114

100%

(Gain) loss on license sales and exchanges, net

(16)

(147)

131

89%

Total operating expenses

2,922

2,673

249

9%

Operating income

26

337

(311)

(92)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

110

110

–

-

Interest and dividend income

41

26

15

59%

Interest expense

(84)

(61)

(23)

(37)%

Other, net

–

(1)

1

26%

Total investment and other income

67

74

(7)

(10)%

Income before income taxes

93

411

(318)

(77)%

Income tax expense

39

161

(122)

(76)%

Net income

54

250

(196)

(78)%

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

1

7

(6)

(84)%

Net income attributable to U.S. Cellular shareholders

$

53

$

243

$

(190)

(78)%

Basic weighted average shares outstanding

85

84

1

1%

Basic earnings per share attributable to

U.S. Cellular shareholders

$

0.63

$

2.89

$

(2.26)

(78)%

Diluted weighted average shares outstanding

85

85

–

-

Diluted earnings per share attributable to

U.S. Cellular shareholders

$

0.63

$

2.86

$

(2.23)

(78)%

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2016

2015

(Dollars in millions)

Cash flows from operating activities

Net income

$

54

$

250

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

Depreciation, amortization and accretion

462

450

Bad debts expense

69

78

Stock-based compensation expense

19

18

Deferred income taxes, net

11

(20)

Equity in earnings of unconsolidated entities

(110)

(110)

Distributions from unconsolidated entities

55

45

(Gain) loss on asset disposals, net

16

12

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

–

(114)

(Gain) loss on license sales and exchanges, net

(16)

(147)

Noncash interest expense

1

1

Other operating activities

(2)

–

Changes in assets and liabilities from operations

Accounts receivable

1

(54)

Equipment installment plans receivable

(160)

(96)

Inventory

2

91

Accounts payable

45

117

Customer deposits and deferred revenues

(41)

(51)

Accrued taxes

38

161

Accrued interest

7

11

Other assets and liabilities

(36)

(87)

Net cash provided by operating activities

415

555

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(280)

(407)

Cash paid for acquisitions and licenses

(46)

(286)

Cash received from divestitures and exchanges

20

314

Federal Communications Commission deposit

(143)

–

Other investing activities

–

2

Net cash used in investing activities

(449)

(377)

Cash flows from financing activities

Issuance of long-term debt

–

225

Repayment of long-term debt

(8)

–

Common shares reissued for benefit plans, net of tax payments

4

(1)

Common shares repurchased

(2)

(4)

Payment of debt issuance costs

(2)

(3)

Acquisition of assets in common control transaction

–

(2)

Distributions to noncontrolling interests

(1)

(6)

Other financing activities

2

(2)

Net cash provided by (used in) financing activities

(7)

207

Net increase (decrease) in cash and cash equivalents

(41)

385

Cash and cash equivalents

Beginning of period

715

212

End of period

$

674

$

597

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,

December 31,

2016

2015

(Dollars in millions)

Current assets

Cash and cash equivalents

$

674

$

715

Accounts receivable from customers and others, net

688

672

Inventory, net

140

149

Prepaid expenses

80

81

Other current assets

25

55

Total current assets

1,607

1,672

Assets held for sale

16

–

Licenses

1,866

1,834

Goodwill

370

370

Investments in unconsolidated entities

420

363

Property, plant and equipment

In service and under construction

7,609

7,669

Less: Accumulated depreciation

5,151

5,020

Property, plant and equipment, net

2,458

2,649

Other assets and deferred charges

367

172

Total assets

$

7,104

$

7,060

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

September 30,

December 31,

2016

2015

(Dollars in millions)

Current liabilities

Current portion of long-term debt

$

11

$

11

Accounts payable

Affiliated

9

10

Trade

300

275

Customer deposits and deferred revenues

204

251

Accrued taxes

29

28

Accrued compensation

64

68

Other current liabilities

78

105

Total current liabilities

695

748

Deferred liabilities and credits

Deferred income tax liability, net

831

821

Other deferred liabilities and credits

311

290

Long-term debt

1,621

1,629

Noncontrolling interests with redemption features

1

1

Equity

U.S. Cellular shareholders' equity

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

88

88

Additional paid-in capital

1,516

1,497

Treasury shares

(136)

(157)

Retained earnings

2,167

2,133

Total U.S. Cellular shareholders' equity

3,635

3,561

Noncontrolling interests

10

10

Total equity

3,645

3,571

Total liabilities and equity

$

7,104

$

7,060

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow and Adjusted Free Cash Flow

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

(Dollars in millions)