CHICAGO, Nov. 6 /PRNewswire-FirstCall/ -- United States Cellular
Corporation (Amex: USM) today reported certain preliminary third quarter 2006
financial and operating data. At the same time, U.S. Cellular announced that
it will restate financial results for each of the years ended Dec. 31, 2002 -
2005, including quarterly information for 2004 and 2005, and the first and
second quarters of 2006, primarily to correct the accounting for prepaid
forward contracts under Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities. As a
result, previously issued financial statements for these periods should no
longer be relied upon. Additionally, the company updated its guidance for
2006.
Restatement of Financial Results
The restatement concerns certain variable prepaid forward contracts
entered into in 2002 related to U.S. Cellular's ownership of American
Depository Receipts (ADRs) of Vodafone Group Plc. In connection with its
review of the accounting for the Vodafone Special Distribution in the third
quarter of 2006 discussed below, U.S. Cellular determined that it did not meet
the requirements of SFAS 133 to continue hedge accounting for these forward
contracts following the receipt of dividends from Vodafone in 2002. U.S.
Cellular did not adequately test for hedge effectiveness after ceiling prices
were adjusted. As a result, U.S.Cellular will be required to recognize
changes in the fair values of the forward contracts in the statement of
operations in the periods in which they occurred, rather than record them in
accumulated other comprehensive income, which is a component of stockholders'
equity.
The company entered into prepaid forward contracts in 2002 to reduce the
risk levels of the marketable equity securities, establishing floor and
ceiling prices for the securities to limit exposure while at the same time
retaining the ability to capture a portion of potential appreciation. The
change in accounting does not affect the economics of the forward contracts.
U.S. Cellular intends to continue to maintain the forward contracts until they
mature because, economically, these transactions are satisfying their intended
results. However, U.S. Cellular will record changes in fair values of the
forward contracts as a component of the statement of operations until the
contracts mature.
The restatement and revised accounting treatment in future periods related
to the forward contracts will result in significant volatility in reported net
income and earnings per share. However, the changes will not have a material
effect on revenues, cash flows from operating activities or stockholders'
equity. U.S. Cellular will disclose information on the amounts when
available. Stockholders' equity at Sept. 30, 2006 is expected to be
approximately $2.9 billion, including the cumulative effects of the
restatement. This amount would be nearly the same in the absence of the
restatement.
The review of the accounting treatment for SFAS 133 will result in U.S.
Cellular being unable to file its Quarterly Report on Form 10-Q (Form 10-Q)
for the quarter ended Sept. 30, 2006 with the Securities and Exchange
Commission (SEC) on a timely basis. The restatement adjustments are not
expected to have any material impact on revenues, cash or cash flows from
operating activities. U.S. Cellular anticipates filing the restated financial
statements and its Form 10-Q for the quarter ended Sept. 30, 2006 in December.
U.S. Cellular will be filing with the SEC a Form 8-K with additional
information and will be filing a Form 12b-25 on or prior to Nov. 10, 2006,
providing notification of the expected late filing of Form 10-Q for the
quarter ended Sept. 30, 2006. As a result, U.S. Cellular will not be in
compliance with American Stock Exchange (AMEX) listing standards. U.S.
Cellular is seeking an extension to regain compliance with AMEX listing
standards.
In addition, U.S. Cellular has received waivers from its lenders under
credit agreements and from counterparties under certain forward contracts,
provided that it files its restated financial results and Form 10-Q for the
quarter ended Sept. 30, 2006 by Jan. 12, 2007.
Statement of Financial Accounting Standards (SFAS) 133
SFAS 133 requires that all forward contracts be carried on the balance
sheet at fair value, and that periodic changes in their fair value be recorded
currently in the statement of operations. However, if the forward contracts
and related accounting documentation meet certain criteria specified in SFAS
133, they may be eligible for cash flow hedge accounting. In this case, the
changes in value are recorded in accumulated other comprehensive income, which
is a component of shareholders' equity, and do not impact the current
statement of operations. Prior to its re-evaluation of this accounting
treatment, U.S. Cellular had believed that its forward contracts qualified for
cash flow hedge accounting treatment and that it had effectively recorded
changes in the fair values of the forward contracts, net of income tax
effects, through accumulated other comprehensive income. The changes in the
fair values of the marketable equity securities, which were hedged by the
forward contracts, were also recorded in other accumulated comprehensive
income, net of income tax effects. However, as a result of its re-evaluation
of this accounting treatment, U.S.Cellular determined that it did not meet the
requirements of SFAS 133 to continue cash flow hedge accounting for forward
contracts following the receipt of dividends from Vodafone in 2002.
The result of the restatement will be to recognize changes in fair values
of the forward contracts in the statement of operations in the periods in
which they occurred, rather than record them in accumulated other
comprehensive income. However, changes in the fair values of the underlying
hedged marketable equity securities will continue to be recorded through
accumulated other comprehensive income. As a result, the revised accounting
treatment will no longer reflect the offsetting effects in accumulated other
comprehensive income of the changes in values of forward contracts and the
underlying marketable equity securities. Although this will result in
substantial variability in net income, there will be no material effect on
stockholders' equity.
As a result of the restatement of prior period financial results relating
to SFAS 133, U.S.Cellular considered it appropriate to include adjustments in
the restatement for items representing out-of-period adjustments and
corrections of errors that were identified at various times during 2006.
Individually and collectively the adjustments are not material.
Summary of Third Quarter Operating Data
Below is a summary of the preliminary operating data and unaudited results
of certain key components of the third quarter statement of operations. There
can be no assurance that final results will not differ materially from these
preliminary results.
Three months ended Sept. 30
2005 Actual Range of Amounts
Currently Anticipated to be
Reported for 2006
Operating revenues $796 million $880 to $900 million
Operating income (1) $66 million $70 to $90 million
(1) Third quarter 2005 operating income will be adjusted, not materially,
for out-of-period adjustments identified in 2006.
U.S. Cellular
Summary Operating Data
Quarter Ended 9/30/2006 6/30/2006 3/31/2006 12/31/2005 9/30/2005
Consolidated:
All
customers -
Customer
units 5,729,000 5,704,000 5,633,000 5,482,000 5,303,000
Gross
customer
unit
activations 365,000 347,000 434,000 419,000 355,000
Net
customer
unit
activations 25,000 48,000 151,000 125,000 76,000
Retail
customers -
Customer
units 5,127,000 5,099,000 5,029,000 4,927,000 4,765,000
Gross
customer
unit
activations 352,000 332,000 380,000 392,000 346,000
Net
customer
unit
activations 28,000 50,000 122,000 130,000 77,000
Cell sites
in service 5,726 5,583 5,438 5,428 5,149
Minutes of use
(MOU) (1) 725 719 658 648 639
Postpay churn
rate per
month (2) 1.6% 1.5% 1.5% 1.6% 1.5%
(1) Average monthly local minutes of use per customer (without roaming).
(2) Postpay churn rate per month is calculated by dividing the average
monthly postpay customer disconnects during the quarter by the
average postpay customer base for the quarter.
Vodafone Special Distribution
At an Extraordinary General Meeting on July 28, 2006, Vodafone
shareholders approved a share consolidation and special distribution in which
8 ADRs were consolidated into 7 ADRs and a Return of Capital (special
distribution). U.S. Cellular received approximately $28.6 million. The
special distribution was recorded as a return of capital and is therefore an
investing item on the company's cash flow statement and had no effect on its
statement of operations.
Updated 2006 Guidance
U.S. Cellular's updated 2006 guidance as of Nov. 6, 2006 is as follows.
There can be no assurance that final results will not differ materially from
this guidance.
Net Retail Customer Additions 300,000 - 330,000
Service Revenues Approx. $3.2 billion
Operating Income $275 - 325 million
Depreciation, Amortization & Accretion Approx. $575 million
Capital Expenditures $580 - $610 million
The above forward-looking statements should not be assumed to be accurate
as of any future date. U.S. Cellular undertakes no duty to update such
information whether as a result of new information, future events or
otherwise.
About U.S. Cellular
As of Sept. 30, 2006, U.S. Cellular, the nation's sixth-largest wireless
service carrier, provided wireless service to 5.7 million customers in 26
states. The Chicago-based company operates on a customer satisfaction
strategy, meeting customer needs by providing a comprehensive range of
wireless products and services, superior customer support and a high-quality
network.
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, expectations and
assumptions. These statements are based on current estimates and projections,
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 the
operations of the Chicago MTA and newly launched markets; changes in
competition in the markets in which the company operates; changes in the
overall economy; changes due to industry consolidation; advances in
telecommunications technology; changes in the telecommunications regulatory
environment; changes in the value of assets; changes in the value of
investments, including variable prepaid forward contracts; an adverse change
in the ratings afforded the company's debt securities by accredited ratings
organizations; possible future restatements; pending and future litigation;
acquisitions/divestitures of properties and/or licenses; and changes in
customer growth rates, average monthly revenue per unit, churn rates, roaming
rates and the mix of products and services offered in the company's markets.
Investors are encouraged to consider these and other risks and uncertainties
that are discussed in the Form 8-K used by the company to furnish this press
release to the SEC, which are incorporated by reference herein.
For more information about U.S. Cellular, visit:
http://www.uscellular.com .
SOURCE United States Cellular Corporation
CONTACT:
Kenneth R. Meyers
Executive Vice President, Finance
U.S.
Cellular
773-399-8900
kmeyers@uscellular.com
or
Mark A. Steinkrauss
Vice President, Corporate Relations
TDS
312-592-5384
mark.steinkrauss@teldta.com