usm8kex991.htm - Generated by SEC Publisher for SEC Filing

EX-99.1 2 usm8kex991.htm EX-99.1 usm8kex991.htm - Generated by SEC Publisher for SEC Filing

As previously announced, U.S. Cellular will hold a teleconference Nov. 7, 2012 at 7:30 a.m. CST. Interested parties may listen to the call live by accessing the Investor Relations page of www.uscellular.com or www.teldta.com.

Contact:

Jane W. McCahon, Vice President, Corporate Relations

(312) 592-5379; jane.mccahon@teldta.com

Julie D. Mathews, Manager, Investor Relations

(312) 592-5341; julie.mathews@teldta.com

FOR RELEASE: IMMEDIATE

U.S. cellular Reports third QUARTER 2012 RESULTS

Announces Transaction to Exit Certain Midwest Markets

Note: Comparisons are year over year unless otherwise noted.

3Q 2012 Highlights

§ Retail gross additions increased 23 percent resulting in a net gain of 19,000 retail customers, compared to a net loss of 23,000 retail customers.

§ Postpaid gross additions increased 7 percent and postpaid churn increased to 1.7 percent, resulting in a net loss of 38,000 postpaid customers in the quarter. Postpaid customers comprised 93 percent of retail customers.

§ Prepaid gross additions increased 71 percent, driven by the introduction of U Prepaid in select Walmart stores, and prepaid churn decreased to 5.9 percent, resulting in a net increase of 57,000 prepaid customers in the quarter.

§ Total revenues increased 3 percent; service revenues remained steady at $1,036.4 million.

§ Postpaid ARPU (average revenue per user) increased 4 percent to $54.34 from $52.41; total ARPU increased 3 percent to $59.57 from $58.09.

§ Postpaid smartphone customers increased to 38.6 percent of customers from 26.2 percent. Smartphones as a percent of total devices sold increased to 53.0 percent from 39.9 percent; 50 percent of smartphones sold were 4G.

§ Cell sites in service increased 2 percent to 7,984, of which 4,545 are owned towers.

§ 4G LTE network now covers 30 percent of customers; expect to reach 58 percent of customers by year end.

CHICAGO – Nov. 7, 2012 – United States Cellular Corporation [NYSE:USM] reported service revenues of $1,036.4 million for the third quarter of 2012 and $1,036.6 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $35.5 million and $0.42, respectively, for the third quarter of 2012, compared to $62.1 million and $0.73, respectively, in the comparable period one year ago.

“We achieved some positive milestones in the quarter, including retail customer growth driven by strong results in the prepaid segment of our business, and migration of customers to our 4G LTE network," said Mary N. Dillon, U.S. Cellular president and CEO, “though postpaid churn remained elevated and profitability was impacted by device subsidies and the expected decline in regulatory support.

“Sales of our U Prepaid service at Walmart drove prepaid net additions. We’re now leveraging this important distribution channel to offer postpaid service in more than 400 Walmart stores, and we’ll continue to explore new opportunities to bring our services and products to more customers.

“We increased gross postpaid customers seven percent through effective marketing and sales programs such as our new Hello Better advertising campaign and by offering high-demand devices like the Samsung Galaxy S® III, though our postpaid churn rate remained high. Profitability declined, however, as we incurred higher subsidies to encourage adoption of 4G LTE devices, which represented 50 percent of smartphone sales. While the cost to subsidize these devices has a short-term impact on profitability, we expect longer-term benefits as customers migrate to the more efficient 4G LTE network, including growth in ARPU and lower capital expenditures for our legacy networks.”

U.S. Cellular Strategic Actions

In a separate release, U.S. Cellular also announced today two strategic actions designed to increase focus on markets where it has strong positions and streamline operations to increase overall efficiency and effectiveness. The company has entered into a definitive agreement with Sprint, who will purchase its customers and PCS spectrum in certain Midwest markets. U.S. Cellular will also transition the operations of its Bolingbrook, Ill., customer care center to an existing vendor partner. Further information can be found on the U.S. Cellular Investor Relations website.

Guidance for year ending Dec. 31, 2012

Guidance for the year ending Dec. 31, 2012, as of Nov. 7, 2012, before effects of the Sprint Transaction is provided below, compared to the previous guidance provided on Aug. 3, 2012. U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from this guidance.

	2012 Estimated Results (1)	Previous Estimates (2)
Service revenues	$4,075-$4,125 million	$4,050-$4,150 million
Operating income (3)	$200-$250 million	$200-$300 million
Depreciation, amortization and accretion expenses, and impairment of assets and net gain or loss on asset disposals and exchanges (3)	Approx. $600 million	Unchanged
Adjusted OIBDA (3) (4)	$800-$850 million	$800-$900 million
Capital expenditures	Approx. $850 million	Unchanged

(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. These estimates are before the effects of the definitive agreement signed with Sprint, who will purchase U.S. Cellular customers and PCS Spectrum in certain Midwest markets. The Company expects to incur incremental operating expenses in the fourth quarter of 2012 in the range of $30 to $60 million for severance, incremental accelerated depreciation, asset write-downs and other costs related to this transaction, which will decrease Operating income, increase Depreciation, amortization and accretion expenses, and impairment of assets and net gain or loss on asset disposals and exchanges, and decrease OIBDA.

(2) The 2012 Estimated Results as disclosed in U.S. Cellular’s Quarterly Report on Form 10-Q for the period ended June 30, 2012.

(3) The 2012 Estimated Results do not include any estimate for unrecognized net gains or losses related to disposals and exchanges of assets or losses on impairment of assets (since such transactions and their effects are uncertain).

(4) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.

Adjusted OIBDA may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows.

Conference call information

U.S. Cellular will hold a conference call on Nov. 7, 2012 at 7:30 a.m. CST.

· Access the live call on the Investor Relations page of uscellular.com or at http://www.videonewswire.com/event.asp?id=90531

· Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

Before the call, certain financial and statistical information to be discussed during the call will be posted to the Investor Relations page of www.uscellular.com. The call will be archived on the Conference Calls page of www.uscellular.com.

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 approximately 5.8 million customers in 26 states. The Chicago-based company employed approximately 8,400 people as of Sept. 30, 2012. At the end of the third quarter of 2012, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular.

Visit www.uscellular.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates, and 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 the Sprint Transaction including, but not limited to, the ability to obtain regulatory approval, successfully complete the transaction and the financial impacts of such transaction; 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 our debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of handset devices, or 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 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
Summary Operating Data (Unaudited)

Quarter Ended		9/30/2012			6/30/2012			3/31/2012			12/31/2011			9/30/2011
Total population
	Consolidated markets (1)		92,996,000			92,684,000			92,684,000			91,965,000			91,965,000
	Consolidated operating markets (1)		46,966,000			46,966,000			46,966,000			46,888,000			46,888,000
Market penetration at end of period
	Consolidated markets (2)		6.2	%		6.3	%		6.3	%		6.4	%		6.5	%
	Consolidated operating markets (2)		12.4	%		12.3	%		12.4	%		12.6	%		12.7	%
All customers
	Total at end of period		5,808,000			5,799,000			5,837,000			5,891,000			5,932,000
	Gross additions		364,000			290,000			285,000			306,000			299,000
	Net additions (losses)		9,000			(38,000	)		(49,000	)		(41,000	)		(36,000	)
	Smartphones sold as a percent of total devices sold (3)		53.0	%		51.9	%		54.1	%		52.5	%		39.9	%
Retail customers
	Total at end of period		5,561,000			5,542,000			5,570,000			5,608,000			5,621,000
	Smartphone penetration (3) (4)		38.6	%		36.8	%		34.4	%		30.5	%		26.2	%
	Gross additions		350,000			277,000			273,000			298,000			284,000
	Net retail additions (losses) (5)		19,000			(28,000	)		(34,000	)		(13,000	)		(23,000	)
	Net postpaid additions (losses)		(38,000	)		(48,000	)		(38,000	)		(20,000	)		(34,000	)
	Net prepaid additions (losses)		57,000			20,000			4,000			7,000			11,000
Service revenue components (000s)
	Retail service	$	884,219		$	889,219		$	888,527		$	882,091		$	871,199
	Inbound roaming		106,132			86,363			80,132			93,353			107,810
	Other		46,019			54,160			55,161			54,601			57,600
Total service revenues (000s)		$	1,036,370		$	1,029,742		$	1,023,820		$	1,030,045		$	1,036,609
Total ARPU (6)		$	59.57		$	59.05		$	58.21		$	58.13		$	58.09
Billed ARPU (7)		$	50.83		$	50.99		$	50.52		$	49.78		$	48.82
Postpaid ARPU (8)		$	54.34		$	54.42		$	54.00		$	53.35		$	52.41
Postpaid churn rate (9)			1.7	%		1.6	%		1.6	%		1.6	%		1.5	%
Capital expenditures (000s)		$	199,100		$	183,200		$	201,300		$	276,400		$	248,000
Cell sites in service			7,984			7,932			7,875			7,882			7,828

(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 user 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 user 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 user 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.

United States Cellular Corporation Consolidated Statement of Operations Highlights Three Months Ended September 30, (Unaudited, dollars and shares in thousands, except per share amounts)


									Increase (Decrease)
			2012			2011			Amount			Percent
Operating revenues
	Service		$	1,036,370		$	1,036,609		$	(239	)		—
	Equipment sales			103,987			73,830			30,157			41	%
		Total operating revenues		1,140,357			1,110,439			29,918			3	%

Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			249,245			241,852			7,393			3	%
	Cost of equipment sold			248,029			196,229			51,800			26	%
	Selling, general and administrative			438,526			438,774			(248	)		—
	Depreciation, amortization and accretion			145,151			141,664			3,487			2	%
	(Gain) loss on asset disposals and exchanges, net			11,327			(9,700	)		21,027			>100	%
		Total operating expenses		1,092,278			1,008,819			83,459			8	%

Operating income				48,079			101,620			(53,541	)		(53	%)

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			24,816			21,929			2,887			13	%
	Interest and dividend income			935			869			66			8	%
	Interest expense			(9,501	)		(11,522	)		2,021			18	%
	Other, net			200			(97	)		297			>100	%
		Total investment and other income (expense)		16,450			11,179			5,271			47	%

Income before income taxes				64,529			112,799			(48,270	)		(43	%)
	Income tax expense			22,389			43,292			(20,903	)		(48	%)

Net income				42,140			69,507			(27,367	)		(39	%)
	Less: Net income attributable to noncontrolling interests, net of tax			(6,689	)		(7,367	)		678			9	%
Net income attributable to U.S. Cellular shareholders			$	35,451		$	62,140		$	(26,689	)		(43	%)

Basic weighted average shares outstanding				84,737			84,547			190			—
	Basic earnings per share attributable to U.S. Cellular shareholders		$	0.42		$	0.73		$	(0.31	)		(42	%)

Diluted weighted average shares outstanding				85,152			84,940			212			—
	Diluted earnings per share attributable to U.S. Cellular shareholders		$	0.42		$	0.73		$	(0.31	)		(42	%)

United States Cellular Corporation Consolidated Statement of Operations Highlights Nine Months Ended September 30, (Unaudited, dollars and shares in thousands, except per share amounts)



									Increase (Decrease)
			2012			2011			Amount			Percent
Operating revenues
	Service		$	3,089,932		$	3,023,752		$	66,180			2	%
	Equipment sales			246,946			219,961			26,985			12	%
		Total operating revenues		3,336,878			3,243,713			93,165			3	%

Operating expenses
	System operations (excluding Depreciation,
		amortization and accretion reported below)		725,636			687,256			38,380			6	%
	Cost of equipment sold			626,765			563,717			63,048			11	%
	Selling, general and administrative			1,315,823			1,302,436			13,387			1	%
	Depreciation, amortization and accretion			439,391			431,581			7,810			2	%
	(Gain) loss on asset disposals and exchanges, net			11,819			(5,741	)		17,560			>100	%
		Total operating expenses		3,119,434			2,979,249			140,185			5	%

Operating income				217,444			264,464			(47,020	)		(18	%)

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			71,584			65,289			6,295			10	%
	Interest and dividend income			2,823			2,466			357			14	%
	Gain ( loss) on investment			(3,728	)		13,373			(17,101	)		>(100	)%
	Interest expense			(35,272	)		(51,905	)		16,633			32	%
	Other, net			173			(47	)		220			>100	%
		Total investment and other income (expense)		35,580			29,176			6,404			22	%

Income before income taxes				253,024			293,640			(40,616	)		(14	%)
	Income tax expense			82,624			102,771			(20,147	)		(20	%)

Net income				170,400			190,869			(20,469	)		(11	%)
	Less: Net income attributable to noncontrolling interests, net of tax			(19,772	)		(18,629	)		(1,143	)		(6	%)
Net income attributable to U.S. Cellular shareholders			$	150,628		$	172,240		$	(21,612	)		(13	%)

Basic weighted average shares outstanding				84,671			84,984			(313	)		—
Basic earnings per share attributable to U.S. Cellular shareholders			$	1.78		$	2.03		$	(0.25	)		(12	%)

Diluted weighted average shares outstanding				85,090			85,448			(358	)		—
Diluted earnings per share attributable to U.S. Cellular shareholders			$	1.77		$	2.02		$	(0.25	)		(12	%)

United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands)


ASSETS

		September 30, 2012		December 31, 2011
		September 30, 2012		December 31, 2011
Current assets
	Cash and cash equivalents	$	409,579	$	424,155
	Short-term investments		140,494		127,039
	Accounts receivable from customers and others		463,785		441,821
	Inventory		196,523		127,056
	Income taxes receivable		2,280		74,791
	Prepaid expenses		60,631		55,980
	Net deferred income tax asset		37,868		31,905
	Other current assets		15,993		10,096
			1,327,153		1,292,843

Assets held for sale			—		49,647

Investments
	Licenses		1,531,873		1,470,769
	Goodwill		494,737		494,737
	Customer lists, net		135		314
	Investments in unconsolidated entities		162,012		138,096
	Notes and interest receivable – long-term		—		1,921
	Long-term investments		10,171		30,057
			2,198,928		2,135,894

Property, plant and equipment, net
	In service and under construction		7,341,632		7,008,449
	Less: accumulated depreciation		4,406,847		4,218,147
			2,934,785		2,790,302

Other assets and deferred charges			75,482		59,290

Total assets		$	6,536,348	$	6,327,976

United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands)


LIABILITIES AND EQUITY

			September 30, 2012			December 31, 2011
			September 30, 2012			December 31, 2011
Current liabilities
	Current portion of long-term debt		$	127		$	127
	Accounts payable
		Affiliated		7,398			12,183
		Trade		250,681			303,779
	Customer deposits and deferred revenues			208,042			181,355
	Accrued taxes			60,695			34,095
	Accrued compensation			52,200			69,551
	Other current liabilities			92,957			121,190
				672,100			722,280

Liabilities held for sale				—			1,051

Deferred liabilities and credits
	Net deferred income tax liability			861,709			799,190
	Other deferred liabilities and credits			259,499			248,213

Long-term debt				880,486			880,320

Noncontrolling interests with mandatory redemption features				759			1,005

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			1,406,617			1,387,341
	Treasury shares			(145,859	)		(152,817	)
	Retained earnings			2,438,760			2,297,363
		Total U.S. Cellular shareholders' equity		3,787,592			3,619,961

Noncontrolling interests				74,203			55,956

	Total equity			3,861,795			3,675,917

Total liabilities and equity			$	6,536,348		$	6,327,976

United States Cellular Corporation

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)

The following table presents U.S. Cellular’s cash and cash equivalents and investments at September 30, 2012 and December 31, 2011.

		September 30, 2012		December 31, 2011
		September 30, 2012		December 31, 2011

Cash and cash equivalents		$	409,579	$	424,155

Amounts included in short-term investments (1)(2)
	Government-backed securities (3)		140,494		127,039

Amounts included in long-term investments (1)(4)
	Government-backed securities (3)		10,171		30,057

Total cash and cash equivalents and investments		$	560,244	$	581,251

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

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

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

(4) At September 30, 2012, maturities range between 17 and 18 months from the balance sheet date.

United States Cellular Corporation Consolidated Statement of Cash Flows Nine Months Ended September 30, (Unaudited, dollars in thousands)



			2012			2011
Cash flows from operating activities
	Net income		$	170,400		$	190,869
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		439,391			431,581
		Bad debts expense		51,293			44,718
		Stock-based compensation expense		15,924			15,475
		Deferred income taxes, net		52,865			145,687
		Equity in earnings of unconsolidated entities		(71,584	)		(65,289	)
		Distributions from unconsolidated entities		45,211			52,037
		(Gain) loss on asset disposals and exchanges, net		11,819			(5,741	)
		(Gain) loss on investment		3,728			(13,373	)
		Noncash interest expense		1,331			9,582
		Other operating activities		863			1,143
	Changes in assets and liabilities from operations
		Accounts receivable		(67,302	)		(57,564	)
		Inventory		(69,423	)		(36,326	)
		Accounts payable - trade		(28,902	)		41,733
		Accounts payable - affiliate		(4,785	)		1,185
		Customer deposits and deferred revenues		26,687			30,695
		Accrued taxes		99,556			9,679
		Accrued interest		9,508			9,283
		Other assets and liabilities		(77,821	)		(66,553	)
				608,759			738,821

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(611,431	)		(462,327	)
	Cash paid for acquisitions and licenses			(57,957	)		(23,773	)
	Cash received for divestitures			49,932			—
	Cash paid for investments			(45,000	)		(50,000	)
	Cash received for investments			50,000			85,250
	Other investing activities			(5,030	)		(210	)
				(619,486	)		(451,060	)

Cash flows from financing activities
	Repayment of long-term debt			(343	)		(330,106	)
	Issuance of long-term debt			—			342,000
	Common shares reissued for benefit plans, net of tax payments			(2,299	)		1,755
	Common shares repurchased			—			(62,294	)
	Payment of debt issuance costs			—			(11,394	)
	Distributions to noncontrolling interests			(1,491	)		(1,176	)
	Other financing activities			284			169
				(3,849	)		(61,046	)

Cash classified as held for sale				—			(11,237	)

Net increase in cash and cash equivalents				(14,576	)		215,478

Cash and cash equivalents
	Beginning of period			424,155			276,915
	End of period		$	409,579		$	492,393

United States Cellular Corporation Financial Measures and Reconciliations (Unaudited, dollars in thousands)


			Three Months Ended September 30,						Six Months Ended September 30,
			2012			2011			2012			2011
Service revenues			$	1,036,370		$	1,036,609		$	3,089,932		$	3,023,752

Operating income				48,079			101,620			217,444			264,464
Add:
	Depreciation, amortization and accretion			145,151			141,664			439,391			431,581
	Loss on impairment of assets			—			—			—			—
	(Gain) loss on asset disposals and exchanges, net			11,327			(9,700	)		11,819			(5,741	)
		Adjusted OIBDA (1)	$	204,557		$	233,584		$	668,654		$	690,304

		Adjusted OIBDA margin (2)		19.7	%		22.5	%		21.6	%		22.8	%

			2012			2011			2012			2011
Cash flows from operating activities			$	196,522		$	300,721		$	608,759		$	738,821
Deduct:
Cash used for additions to property, plant and equipment				(181,206	)		(196,933	)		(611,431	)		(462,327	)
		Free cash flow (3)	$	(15,316	)	$	103,788		$	(2,672	)	$	276,494

(1) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur 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.