8-K

 

FORM 8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  February 24, 2012

UNITED STATES CELLULAR CORPORATION
 (Exact name of registrant as specified in its charter)

Delaware	1-9712	62-1147325
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois		60631
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:  (773) 399-8900

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 2.02.  Results of Operations and Financial Condition

On February 24, 2012, United States Cellular Corporation (“U.S. Cellular”) issued a news release announcing its results of operations for the period ended December 31, 2011.  A copy of the news release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information in this Item 2.02 of Form 8-K is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.

Item 9.01.  Financial Statements and Exhibits

(d)Exhibits:

                In accordance with the provisions of Item 601 of Regulation S-K, any Exhibits filed or furnished herewith are set forth on the Exhibit Index attached hereto.

Attached as Exhibit 99.2 is a safe harbor cautionary statement under the Private Securities Litigation Reform Act of 1995.

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

United States Cellular Corporation

(Registrant)          

Date:  February 24, 2012

By:	/s/ Steven T. Campbell
	Steven T. Campbell Executive Vice President – Finance, Chief Financial Officer and Treasurer

 

EXHIBIT INDEX

The following exhibits are filed or furnished herewith as noted below.

Exhibit No.	Description
99.1	Earnings Press Release dated February 24, 2012
99.2	Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement

EX-99.1

 

As previously announced, U.S Cellular will hold a teleconference Feb. 24, 2012 at 9:30 a.m. CST. Listen to the live call via the Conference Calls page of www.teldta.com or www.cellular.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 fourth QUARTER 2011 RESULTS AND 2012 FINANCIAL GUIDANCE

Strong smartphone sales drive higher revenues

Note: Comparisons are year over year unless otherwise noted.

Fourth Quarter Highlights

§Smartphones increased to 52.5 percent of total devices sold from 39.6 percent; smartphone customers increased to 30.5 percent of postpaid customers from 16.7 percent.

§Postpaid ARPU (average revenue per unit) increased 5 percent to $53.35 from $50.99.

§Service revenues increased 4 percent to $1,030.0 million.

§Operating income increased $20.4 million to $16.3 million.

§Net loss of 13,000 retail customers, reflecting loss of 20,000 postpaid customers and a gain of 7,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.

§Cell sites in service increased 3 percent to 7,882.

CHICAGO – Feb. 24, 2012 – United States Cellular Corporation [NYSE:USM] reported service revenues of $1,030.0 million for the fourth quarter of 2011, versus $991.9 million for the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $2.8 million and $0.03, respectively, for the fourth quarter of 2011, compared to $7.8 million and $0.09, respectively, for the comparable period in 2010. 

The fourth quarter of 2011 was impacted by a $6.1 million adjustment that increased tax expense related to prior periods.  In the fourth quarter of 2010, income tax expense was reduced by favorable settlements of certain state income tax audits.

For the twelve months ended Dec. 31, 2011, U.S. Cellular reported service revenues of $4,053.8 million, compared to $3,913.0 million in 2010.  Net income attributable to U.S. Cellular shareholders for 2011 and related diluted earnings per share were $175.0 million and $2.05, respectively.  In 2010, net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $136.1 million and $1.57, respectively.

“In a competitive environment, U.S. Cellular was able to increase revenues and improve operating income,” said Mary N. Dillon, U.S. Cellular president and CEO. “However, we fell short on customer growth, so improving our customer performance is our highest priority in 2012.”

 

“We nearly doubled the number of smartphone customers throughout the year, with the strongest increase in the fourth quarter. More than 30 percent of our postpaid customers now have smartphones, and smartphones were more than half of our total devices sold in the fourth quarter. As a result, we saw dramatic increases in data usage and revenues which, along with growth in inbound roaming revenues, helped us increase average total service revenue per customer by six percent for the year. And while we had an overall customer loss in 2011, we had a solid holiday sales season in terms of net retail customer additions. We also kept churn stable for the year, even as we faced significant competitive pressures, and were able to better control costs by balancing promotions and smartphone subsidies.

“We’re bringing even more outstanding experiences to our customers this year, rolling out 4G LTE service and devices to more than half of our subscribers by year end. And we’ll introduce more devices throughout the year, to provide a wide range of options to meet all of our customers’ needs.

“As I mentioned, our top priority is to achieve positive customer additions in 2012. We’re focused on attracting new customers through building awareness, increasing our focus on small-to-medium business customers, and looking to expand our points of distribution.  We’re also committed to cost-effectively managing the network demands caused by the explosive growth in data use, and improving our profitability through several operational initiatives.”

Guidance for year ending Dec. 31, 2012

This guidance represents the views of management as of Feb. 24, 2012, and should not be assumed to be current as of any other date.  There can be no assurance that final results will not differ materially from this guidance.  U.S. Cellular undertakes no legal duty to update such information, whether as a result of new information, future events, or otherwise.

	2012	2011
	Estimated Results (1)	Actual Results
Service revenues	$4,050 - $4,150 million	$4,053.8 million
Operating income	$200 - $300 million	$280.8 million
Depreciation, amortization and accretion expenses, and net gain or loss on asset disposals and exchanges
and loss on impairment of assets (2)	Approx. $600 million	$571.7 million
Adjusted OIBDA (3)	$800 - $900 million	$852.5 million
Capital expenditures	Approx. $850 million	$782.5 million

(1)These estimates are based on U.S. Cellular’s current plans, which include a multi-year deployment of 4G LTE technology which commenced in 2011. New developments or changing conditions (such as customer net growth, customer demand for data services or possible acquisitions, dispositions, or exchanges) could affect U.S. Cellular’s plans and, therefore, its 2012 estimated results.

(2)2011 Actual Results include gains on asset disposals and exchanges, net of $1.9 million. The 2012 Estimated Results include only Depreciation, amortization and accretion expenses; such estimated results do not include net gains or losses on disposals and exchanges of assets or losses on impairment of assets (since such transactions and their effects cannot be predicted).

(3)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 (if any) and loss on impairment of assets (if any), in order to show operating results on a more comparable basis from period to period.  TDS 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.  TDS believes this measure provides useful information to investors regarding TDS’ 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.

Conference call information

U.S. Cellular will hold a conference call on Feb. 24, 2012 at 9:30 a.m. CST.

§Listen to the live call online at http://www.videonewswire.com/event.asp?id=85230 or on the Conference Calls page of uscellular.com. 

§Listen to the call by phone at 877/869-3847 (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 Conference Calls page of uscellular.com. The call will be archived on the Conference Calls page of uscellular.com 

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About U.S. Cellular®

United States Cellular Corporation, the nation's seventh-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to 5.9 million customers in 26 states. The Chicago-based company had 8,700 full- and part-time associates as of Dec. 31, 2011. 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: The ability of the company to successfully grow its markets; changes in the overall economy, competition, the state and federal telecommunications regulatory environment, and the value of assets and investments; adverse changes in the ratings afforded the company’s debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; risks and uncertainties relating to possible future restatements; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; and changes in customer growth rates, average monthly revenue per unit, churn rates, roaming revenue and terms, the availability of handset devices and the mix of products and services offered by the company. 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.

For more information about U.S. Cellular, visit uscellular.com. 

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United States Cellular Corporation Summary Operating Data (Unaudited)
Quarter Ended		12/30/2011			9/30/2011			6/30/2011			3/31/2011			12/31/2010
Total population
	Consolidated markets (1)		91,965,000			91,965,000			91,204,000			91,090,000			90,468,000
	Consolidated operating markets (1)		46,888,000			46,888,000			46,888,000			46,774,000			46,546,000
Market penetration at end of period
	Consolidated markets (2)		6.4	%		6.5	%		6.5	%		6.6	%		6.7	%
	Consolidated operating markets (2)		12.6	%		12.7	%		12.7	%		12.9	%		13.0	%
All customers
	Total at end of period		5,891,000			5,932,000			5,968,000			6,033,000			6,072,000
	Gross additions		306,000			299,000			257,000			293,000			327,000
	Net additions (losses)		(41,000	)		(36,000	)		(70,000	)		(39,000	)		(31,000	)
	Smartphones sold as a percent of
	total devices sold (3)		52.5	%		39.9	%		39.6	%		42.5	%		39.6	%
Retail customers
	Total at end of period		5,608,000			5,621,000			5,644,000			5,698,000			5,729,000
	Smartphone penetration (3) (4)		30.5	%		26.2	%		23.1	%		20.3	%		16.7	%
	Gross additions		298,000			284,000			226,000			256,000			292,000
	Net retail additions (losses) (5)		(13,000	)		(23,000	)		(58,000	)		(31,000	)		(21,000	)
	Net postpaid additions (losses)		(20,000	)		(34,000	)		(41,000	)		(22,000	)		(10,000	)
	Net prepaid additions (losses)		7,000			11,000			(17,000	)		(9,000	)		(11,000	)
Service revenue components (000s)
	Retail service	$	882,091		$	871,199		$	868,630		$	864,602		$	864,905
	Inbound roaming		93,353			107,810			82,760			64,386			67,545
	Other		54,601			57,600			50,640			56,125			59,464
Total service revenues (000s)		$	1,030,045		$	1,036,609		$	1,002,030		$	985,113		$	991,914
Total ARPU (6)		$	58.13		$	58.09		$	55.69		$	54.29		$	54.37
Billed ARPU (7)		$	49.78		$	48.82		$	48.27		$	47.65		$	47.41
Postpaid ARPU (8)		$	53.35		$	52.41		$	51.84		$	51.21		$	50.99
Postpaid churn rate (9)			1.6	%		1.5	%		1.4	%		1.4	%		1.5	%
Capital expenditures (000s)		$	276,400		$	248,000		$	162,100		$	95,900		$	203,400
Cell sites in service			7,882			7,828			7,770			7,663			7,645

(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 an Android™, BlackBerry®, or Windows Mobile® operating system, excluding tablets.

(4)    Smartphone penetration is calculated by dividing postpaid smartphone customers 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 postpaid customer base that disconnects service each month. This amount represents the average postpaid churn rate for each respective quarterly period.

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United States Cellular Corporation Consolidated Statement of Operations Highlights Three Months Ended December 31, (Unaudited, dollars and shares in thousands, except per share amounts)
									Increase (Decrease)
			2011			2010			Amount			Percent
Operating revenues
	Service		$	1,030,045		$	991,914		$	38,131		4	%
	Equipment sales			69,588			71,236			(1,648	)	(2	%)
		Total operating revenues		1,099,633			1,063,150			36,483		3	%
Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			242,123			216,254			25,869		12	%
	Cost of equipment sold			225,835			230,620			(4,785	)	(2	%)
	Selling, general and administrative (1)(2)			469,515			474,904			(5,389	)	(1	%)
	Depreciation, amortization and accretion			141,976			143,124			(1,148	)	(1	%)
	Loss on asset disposals, net			3,868			2,310			1,558		67	%
		Total operating expenses		1,083,317			1,067,212			16,105		2	%
Operating income (loss)				16,316			(4,062	)		20,378		>100
Investment and other income (expense)
	Equity in earnings of unconsolidated entities			18,277			22,900			(4,623	)	(20	%)
	Interest and dividend income			929			824			105		13	%
	Loss on investment			(2,000	)		—			(2,000	)	N/M
	Interest expense (1)			(13,709	)		(12,637	)		(1,072	)	(8	%)
	Other, net			(631	)		285			(916	)	>100
		Total investment and other income (expense)		2,866			11,372			(8,506	)	(75	%)
Income before income taxes				19,182			7,310			11,872		>100
	Income tax (benefit) (2)			11,307			(6,698	)		18,005		>100
Net income				7,875			14,008			(6,133	)	(44	%)
	Less: Net income attributable to noncontrolling interests, net of tax			(5,074	)		(6,226	)		1,152		19	%
Net income attributable to U.S. Cellular shareholders			$	2,801		$	7,782		$	(4,981	)	(64	%)
Basic weighted average shares outstanding				84,559			85,668			(1,109	)	(1	%)
Basic earnings per share attributable to U.S. Cellular shareholders			$	0.03		$	0.09		$	(0.06	)	(67	%)
Diluted weighted average shares outstanding				85,005			86,190			(1,185	)	(1	%)
Diluted earnings per share attributable to U.S. Cellular shareholders			$	0.03		$	0.09		$	(0.06	)	(67	%)

(1)   During the quarter ended December 31, 2010, U.S. Cellular recorded adjustments to reduce its liability for transactional taxes in the amount of $5.8 million.  Of this amount, $2.7 million and $3.1 million reduced Selling, general and administration expenses and Interest expense, respectively, in the quarter ended December 31, 2010.  These transactional taxes related to periods from 2002 through the first quarter of 2010.  This adjustment reflects a change in U.S. Cellular’s estimate of its liability for transactional taxes and interest and the actual amounts due and settled with the taxing authorities of taxes and interest. 

(2)    During the quarter ended December 31, 2011, U.S. Cellular recorded an immaterial adjustment to correct its liabilities and prepaid expense related to property taxes for errors occurring primarily prior to 2009. This adjustment reduced Selling, general and administrative expenses by $5.4 million in the quarter.  U.S. Cellular also recorded an immaterial adjustment to correct its deferred tax balances related to a difference in the tax basis in certain partnerships for errors occurring prior to 2009. This adjustment increased Income tax expense by $6.1 million in the quarter. U.S. Cellular also recorded other immaterial adjustments to correct errors in prior periods which, together with the foregoing adjustments, reduced Net income attributable to U.S. Cellular shareholders by a net of $6.4 million. The correction of such errors in the fourth quarter of 2011 did not have a material effect on any prior periods, the full year ended December 31, 2011, or the trend in earnings.

N/M – Percentage change not meaningful 

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United States Cellular Corporation Consolidated Statement of Operations Highlights Twelve Months Ended December 31, (Unaudited, dollars and shares in thousands, except per share amounts)
									Increase (Decrease)
			2011			2010			Amount			Percent
Operating revenues
	Service		$	4,053,797		$	3,913,001		$	140,796		4	%
	Equipment sales			289,549			264,680			24,869		9	%
		Total operating revenues		4,343,346			4,177,681			165,665		4	%
Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			929,379			854,931			74,448
	Cost of equipment sold			782,300			742,981			39,319		5	%
	Selling, general and administrative			1,779,203			1,796,624			(17,421	)	(1	%)
	Depreciation, amortization and accretion			573,557			570,955			2,602		—
	(Gain) loss on asset disposals and exchanges, net			(1,873	)		10,717			(12,590	)	>100
		Total operating expenses		4,062,566			3,976,208			86,358		2	%
Operating income				280,780			201,473			79,307		39	%
Investment and other income (expense)
	Equity in earnings of unconsolidated entities			83,566			97,318			(13,752	)	(14	%)
	Interest and dividend income			3,395			3,808			(413	)	(11	%)
	Gain on investment			11,373			—			11,373		N/M
	Interest expense			(65,614	)		(61,555	)		(4,059	)	(7	%)
	Other, net			(678	)		72			(750	)	>100
		Total investment and other income (expense)		32,042			39,643			(7,601	)	(19	%)
Income before income taxes				312,822			241,116			71,706		30	%
	Income tax expense			114,078			81,958			32,120		39	%
Net income				198,744			159,158			39,586		25	%
	Less: Net income attributable to noncontrolling interests, net of tax			(23,703	)		(23,084	)		(619	)	(3	%)
Net income attributable to U.S. Cellular shareholders			$	175,041		$	136,074		$	38,967		29	%
Basic weighted average shares outstanding				84,877			86,128			(1,251	)	(1	%)
Basic earnings per share attributable to U.S. Cellular shareholders			$	2.06		$	1.58		$	0.48		30	%
Diluted weighted average shares outstanding				85,335			86,518			(1,183	)	(1	%)
Diluted earnings per share attributable to U.S. Cellular shareholders			$	2.05		$	1.57		$	0.48		31	%

N/M – Percentage change not meaningful

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United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands)
ASSETS
		December 31,		December 31,
		2011		2010 (1)
Current assets
	Cash and cash equivalents	$	424,155	$	276,915
	Short-term investments		127,039		146,586
	Accounts receivable from customers and other		441,821		424,019
	Inventory		127,056		112,279
	Income taxes receivable		74,791		41,397
	Prepaid expenses		55,980		53,356
	Net deferred income tax asset		31,905		26,757
	Other current assets		10,096		10,804
			1,292,843		1,092,113
Assets held for sale			49,647		—
Investments
	Licenses		1,470,769		1,452,101
	Goodwill		494,737		494,737
	Customer lists, net		314		759
	Investments in unconsolidated entities		138,096		160,847
	Notes and interest receivable – long-term		1,921		4,070
	Long-term investments		30,057		46,033
			2,135,894		2,158,547
Property, plant and equipment
	In service and under construction		7,008,449		6,340,537
	Less: accumulated depreciation		4,218,147		3,766,015
			2,790,302		2,574,522
Other assets and deferred charges			59,290		50,367
Total assets		$	6,327,976	$	5,875,549

(1)   Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

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United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands)
LIABILITIES AND EQUITY
			December 31			December 31,
			2011			2010 (1)
Current liabilities
	Current portion of long-term debt		$	127		$	101
	Accounts payable
		Affiliated		12,183			10,791
		Trade		303,779			264,090
	Customer deposits and deferred revenues			181,355			146,428
	Accrued taxes			34,095			39,299
	Accrued compensation			69,551			65,952
	Other current liabilities			121,190			121,823
				722,280			648,484
Liabilities held for sale				1,051			—
Deferred liabilities and credits
	Net deferred income tax liability			799,190			583,444
	Other deferred liabilities and credits			248,213			234,855
Long-term debt				880,320			867,941
Commitments and contingencies
Noncontrolling interests with redemption features				1,005			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			1,387,341			1,368,487
	Treasury shares			(152,817	)		(105,616	)
	Retained earnings			2,297,363			2,135,507
		Total U.S. Cellular shareholders’ equity		3,619,961			3,486,452
Noncontrolling interests				55,956			53,518
	Total equity			3,675,917			3,539,970
Total liabilities and equity			$	6,327,976		$	5,875,549

(1)   Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

8

 

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 December 31, 2011 and December 31, 2010.

		December 31,		December 31,
		2011		2010
Cash and cash equivalents (1)		$	424,155	$	276,915
Amounts included in short-term investments (2)(3)
	Government-backed securities (4)		127,039		146,336
	Certificates of deposit		—		250
		$	127,039	$	146,586
Amounts included in long-term investments (2)(5)
	Government-backed securities (4)	$	30,057	$	46,033

(1)    Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

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

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

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

(5)    At December 31, 2011, maturities range between 18 and 21 months from the balance sheet date.

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United States Cellular Corporation Consolidated Statement of Cash Flows Twelve Months Ended December 31, (Unaudited, dollars in thousands)
			2011			2010 (1)
Cash flows from operating activities
	Net income		$	198,744		$	159,158
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		573,557			570,955
		Bad debts expense		62,157			76,292
		Stock-based compensation expense		20,183			18,044
		Deferred income taxes, net		203,264			73,727
		Equity in earnings of unconsolidated entities		(83,566	)		(97,318	)
		Distributions from unconsolidated entities		91,768			100,359
		(Gain) loss on asset disposals and exchanges, net		(1,873	)		10,717
		Gain on investment		(11,373	)		—
		Noncash interest expense		10,040			2,540
		Other operating activities		102			(2,483	)
	Changes in assets and liabilities from operations
		Accounts receivable		(82,175	)		(75,252	)
		Inventory		(14,640	)		40,277
		Accounts payable - trade		28,410			(52,568	)
		Accounts payable - affiliate		1,392			(3,940	)
		Customer deposits and deferred revenues		34,927			6,180
		Accrued taxes		(39,984	)		(70,057	)
		Accrued interest		225			204
		Other assets and liabilities		(3,296	)		77,552
				987,862			834,387
Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(771,798	)		(569,323	)
	Cash paid for acquisitions and licenses			(23,773	)		(17,101	)
	Cash paid for investments			(110,000	)		(250,250	)
	Cash received for investments			145,250			60,330
	Other investing activities			718			(953	)
				(759,603	)		(777,297	)
Cash flows from financing activities
	Repayment of long-term debt			(330,338	)		(316	)
	Issuance of long-term debt			342,000			—
	Common shares reissued for benefit plans, net of tax payments			1,935			509
	Common shares repurchased			(62,294	)		(52,827	)
	Payment of debt issuance costs			(11,400	)		(2,229	)
	Distributions to noncontrolling interests			(21,094	)		(19,631	)
	Payments to acquire additional interest in subsidiaries			—			(8,786	)
	Other financing activities			172			114
				(81,019	)		(83,166	)
Net increase (decrease) in cash and cash equivalents				147,240			(26,076	)
Cash and cash equivalents
	Beginning of period			276,915			302,991
	End of period		$	424,155		$	276,915

(1)   Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

10

 

United States Cellular Corporation Financial Measures and Reconciliations
(Unaudited, dollars in thousands)
			Three Months Ended December 31,						Twelve Months Ended December 31,
			2011			2010			2011			2010
Service revenues			$	1,030,045		$	991,914		$	4,053,797		$	3,913,001
Operating income (loss)				16,316			(4,062	)		280,780			201,473
Add:
	Depreciation, amortization and accretion			141,976			143,124			573,557			570,955
	(Gain) loss on asset disposals			3,868			2,310			(1,873	)		10,717
		Adjusted OIBDA (1)	$	162,160		$	141,372		$	852,464		$	783,145
		Adjusted OIBDA margin (2)		15.7	%		14.3	%		21.0	%		20.0	%
			2011			2010 (4)			2011			2010 (4)
Cash flows from operating activities			$	249,041		$	244,229		$	987,862		$	834,387
Deduct:
Cash used for additions to property, plant and equipment				309,471			165,719			771,798			569,323
		Free cash flow (3)	$	(60,430	)	$	78,510		$	216,064		$	265,064

(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 less Cash used for additions to property, plant and equipment. 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.

11

   

REVISION OF PRIOR PERIOD AMOUNTS

In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, U.S. Cellular discovered certain errors related to classification of outstanding checks with the right of offset and related to the classification of Accounts payable for Additions to property, plant and equipment as non-cash investing activities for purposes of preparing the Consolidated Statement of Cash Flows.  These errors resulted in the misstatement of Cash and Accounts payable as of December 31, 2010 and each quarterly period in 2011, and the misstatement of Cash flows from operating activities and Cash flows from investing activities for the years ended December 31, 2010 and 2009 and each of the quarterly periods in 2011 and 2010.  In accordance with SEC 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 were not required.  However, in order to provide consistency in the Consolidated Statement of Cash Flows and as permitted by SAB 108, revisions for these immaterial amounts to previously reported annual amounts are reflected in the financial information herein and will be reflected in future containing such financial information as permitted by SAB 108.

In accordance with SAB 108, the Consolidated Balance Sheet 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
	Cash and cash equivalents	$	294,426		$	(17,511	)	$	276,915
	Total current assets		1,109,624			(17,511	)		1,092,113
	Total assets		5,893,060			(17,511	)		5,875,549
	Accounts payable		281,601			(17,511	)		264,090
	Total current liabilities		665,995			(17,511	)		648,484
	Total liabilities and equity		5,893,060			(17,511	)		5,875,549
Consolidated Statement of Cash Flows - Year Ended December 31, 2010
		As previously
	(Dollars in thousands)	reported (1)				Adjustment		Revised
	Change in Accounts payable - trade	$	(14,660	)	$	(37,908	)	$	(52,568	)
	Change in other assets and liabilities		79,546			(1,994	)		77,552
	Cash flows from operating activities		874,289			(39,902	)		834,387
	Cash used for additions to property, plant and equipment		(583,134	)		13,811			(569,323	)
	Cash flows used in investing activities		(791,108	)		13,811			(777,297	)
	Net increase (decrease) in cash and cash equivalents		15			(26,091	)		(26,076	)

(1)   In Current Report on Form 8-K filed on November 16, 2011.

12

EX-99.2

 

Exhibit 99.2

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

SAFE HARBOR CAUTIONARY STATEMENT

This Form 8-K and/or press release attached to this Form 8-K contain statements that are not based on historical fact and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, that address activities, events or developments that U.S. Cellular intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements.  The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward‑looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward‑looking statements.  Such risks, uncertainties and other factors include those set forth below, as more fully discussed under “Risk Factors” in the most recent filing of U.S. Cellular’s Form 10-K, as updated by any U.S. Cellular Form 10-Q filed subsequent to such Form 10-K.  However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document.  Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements.  U.S. Cellular undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.   You should carefully consider the Risk Factors in the most recent filing of U.S. Cellular’s Form 10-K, as updated by any U.S. Cellular Form 10-Q filed subsequent to such Form 10-K, the following factors and other information contained in, or incorporated by reference into, this Form 8-K and/or press release attached to this Form 8-K to understand the material risks relating to U.S. Cellular’s business.

·Intense competition in the markets in which U.S. Cellular operates could adversely affect U.S. Cellular's revenues or increase its costs to compete.

·A failure by U.S. Cellular to successfully execute its business strategy or allocate resources or capital could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·A failure by U.S. Cellular’s service offerings to meet customer expectations could limit U.S. Cellular’s ability to attract and retain customers and could have an adverse effect on U.S. Cellular’s operations.

·U.S. Cellular’s system infrastructure may not be capable of supporting changes in technologies and services expected by customers, which could result in lost customers and revenues.

·An inability to obtain or maintain roaming arrangements with other carriers on terms that are acceptable to U.S. Cellular could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·U.S. Cellular currently receives a significant amount of roaming revenues.  Further consolidation within the wireless industry and/or continued network build-outs by other wireless carriers could cause roaming revenues to decline from current levels, which would have an adverse effect on U.S. Cellular's business, financial condition and results of operations.

·A failure by U.S. Cellular to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on U.S. Cellular's business and operations.

·To the extent conducted by the Federal Communications Commission ("FCC"), U.S. Cellular is likely to participate in FCC auctions of additional spectrum in the future as an applicant or as a noncontrolling partner in another auction applicant and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on U.S. Cellular.

·Changes in the regulatory environment or a failure by U.S. Cellular to timely or fully comply with any applicable regulatory requirements could adversely affect U.S. Cellular’s financial condition, results of operations or ability to do business.

·Changes in Universal Service Fund ("USF") funding and/or intercarrier compensation could have an adverse impact on U.S. Cellular’s financial condition or results of operations.

·An inability to attract and/or retain highly competent management, technical, sales and other personnel could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·U.S. Cellular’s assets are concentrated in the U.S. wireless telecommunications industry. As a result, its results of operations may fluctuate based on factors related entirely to conditions in this industry.

·The completion of acquisitions by other companies has led to increased consolidation in the wireless telecommunications industry.  U.S. Cellular's lower scale relative to larger wireless carriers has in the past and could in the future prevent or delay its access to new products including wireless devices, new technology and/or new content and applications which could adversely affect U.S. Cellular's ability to attract and retain customers and, as a result, could adversely affect its business, financial condition or results of operations.

 

·U.S. Cellular's inability to manage its supply chain or inventory successfully could have an adverse effect on its business, financial condition or results of operations.

·Changes in general economic and business conditions, both nationally and in the markets in which U.S. Cellular operates, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·Changes in various business factors could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·Advances or changes in telecommunications technology, such as Voice over Internet Protocol ("VoIP"), High-Speed Packet Access ("HSPA"), WiMAX or Long-Term Evolution ("LTE"), could render certain technologies used by U.S. Cellular obsolete, could put U.S. Cellular at a competitive disadvantage, could reduce U.S. Cellular’s revenues or could increase its costs of doing business.

·Complexities associated with deploying new technologies, such as U.S. Cellular's ongoing upgrade to 4G LTE technology, present substantial risk.

·U.S. Cellular is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of these fees are subject to great uncertainty.

·Changes in U.S. Cellular’s enterprise value, changes in the market supply or demand for wireless licenses, adverse developments in the business or the industry in which U.S. Cellular is involved and/or other factors could require U.S. Cellular to recognize impairments in the carrying value of its license costs, goodwill and/or physical assets.

·Costs, integration problems or other factors associated with developing and enhancing business support systems, acquisitions/divestitures of properties or licenses and/or expansion of U.S. Cellular’s business could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·A significant portion of U.S. Cellular’s revenues is derived from customers who buy services through independent agents who market U.S. Cellular’s services on a commission basis. If U.S. Cellular’s relationships with these agents are seriously harmed, its business, financial condition or results of operations could be adversely affected.

·U.S. Cellular’s investments in technologies which are unproven may not produce the benefits that U.S. Cellular expects.

·A failure by U.S. Cellular to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network and support systems could have an adverse effect on its operations.

·Financial difficulties (including bankruptcy proceedings) or other operational difficulties of any of U.S. Cellular’s key suppliers or vendors, termination or impairment of U.S. Cellular’s relationships with such suppliers or vendors, or a failure by U.S. Cellular to manage its supply chain effectively could result in delays or termination of U.S. Cellular’s receipt of required equipment or services, or could result in excess quantities of required equipment or services, any of which could adversely affect U.S. Cellular’s business, financial condition or results of operations.

·U.S. Cellular has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on U.S. Cellular’s financial condition or results of operations.

·A failure by U.S. Cellular to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, including breaches of network or information technology security, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·Wars, conflicts, hostilities and/or terrorist attacks or equipment failures, power outages, natural disasters or other events could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·The market price of U.S. Cellular’s Common Shares is subject to fluctuations due to a variety of factors.

 

·Identification of errors in financial information or disclosures could require amendments to or restatements of financial information or disclosures included in this or prior filings with the Securities and Exchange Commission ("SEC"). Such amendments or restatements and related matters, including resulting delays in filing periodic reports with the SEC, could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.

·The existence of material weaknesses in the effectiveness of internal control over financial reporting could result in inaccurate financial statements or other disclosures or failure to prevent fraud, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·Changes in facts or circumstances, including new or additional information that affects the calculation of potential liabilities for contingent obligations under guarantees, indemnities, claims, litigation or otherwise, could require U.S. Cellular to record charges in excess of amounts accrued in the financial statements, if any, which could have an adverse effect on U.S. Cellular’s financial condition or results of operations.

·Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede U.S. Cellular's access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on U.S. Cellular's financial condition or results of operations.

·Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets, other changes in market conditions, changes in U.S. Cellular’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to U.S. Cellular, which could require U.S. Cellular to reduce its construction, development or acquisition programs.

·Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on U.S. Cellular’s financial condition, results of operations or ability to do business.

·The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.

·Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent U.S. Cellular from using necessary technology to provide services or subject U.S. Cellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.

·There are potential conflicts of interests between TDS and U.S. Cellular.

·Certain matters, such as control by TDS and provisions in the U.S. Cellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of U.S. Cellular.

·Any of the foregoing events or other events could cause customer net additions, revenues, operating income, capital expenditures and/or any other financial or statistical information to vary from U.S. Cellular’s forward-looking estimates by a material amount.

U.S. Cellular undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.  Readers should evaluate any statements in light of these important factors.