USM US Cellular Corp

(Dollars in millions)

2015 Estimated Results

Actual Results for the Year Ended
December 31, 2014

Total operating revenues

$4,000-$4,200

$3,893

Operating cash flow (1)

$350-$450

$338

Adjusted EBITDA (1)

$530-$630

$480

Capital expenditures

$600

$558

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation below.  Operating cash flow and Adjusted EBITDA exclude these items in order to show operating results on a more comparable basis from period to period. From time to time, U.S. Cellular may exclude other items from Operating cash flow and/or Adjusted EBITDA if such items help reflect operating results on a more comparable basis. U.S. Cellular does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future.  Operating cash flow and Adjusted EBITDA 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 as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. U.S. Cellular believes Operating cash flow and Adjusted EBITDA are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as indicated below. The following tables provide a reconciliation to Operating cash flow and Adjusted EBITDA for 2015 estimated results and year ended December 31, 2014 actual results:

2015 Estimated Results (2)

Actual Results for the Year Ended
December 31, 2014

(Dollars in millions)

Net income (loss) (GAAP)

N/A

($47)

Add back:

Income tax expense (benefit)

N/A

($12)

Income (loss) before income taxes (GAAP)

($10)-$90

($59)

Add back:

Interest expense

$85

$57

Depreciation, amortization and accretion expense

$545

$606

EBITDA

$620-$720

$605

Add back:

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

($105)

($33)

(Gain) loss on license sales and exchanges

—

($113)

(Gain) loss on asset disposals, net

$15

$21

Adjusted EBITDA (3)

$530-$630

$480

Deduct:

Equity in earnings of unconsolidated entities

($130)

($130)

Interest and dividend income

($50)

($12)

Operating cash flow (4)

$350-$450

$338

(2)

In providing 2015 Estimated Results, U.S. Cellular has not completed the above reconciliation to net income because it does not provide guidance for income taxes. U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance. Accordingly, a reconciliation to net income is not available without unreasonable effort.

(3)

Adjusted EBITDA (new measure) equals adjusted income before income taxes (previous measure) excluding gain or loss on asset disposals, net. See Adjusted EBITDA reconciliation for full year 2014, 2013, and 2012 on the company's website at investors.uscellular.com.

(4)

A reconciliation of Operating cash flow (Non-GAAP) to operating income (GAAP) for full year 2014, 2013, and 2012 actual results can be found on the company's website at investors.uscellular.com.

United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)

As of or for the Quarter Ended

12/31/2014

9/30/2014

6/30/2014

3/31/2014

12/31/2013

Retail Customers

Postpaid

Total at end of period

4,298,000

4,200,000

4,148,000

4,174,000

4,267,000

Gross additions

302,000

251,000

190,000

197,000

176,000

Net additions (losses)

98,000

52,000

(26,000)

(93,000)

(71,000)

ARPU (1)

$

56.51

$

56.37

$

56.82

$

57.59

$

53.53

ARPA (2)

$

136.13

$

132.99

$

131.95

$

132.03

$

121.21

Churn rate (3)

1.6%

1.6%

1.7%

2.3%

1.9%

Smartphone penetration (4)

59.8%

57.9%

55.3%

53.1%

50.8%

Prepaid

Total at end of period

348,000

350,000

352,000

356,000

343,000

Gross additions

60,000

64,000

65,000

85,000

63,000

Net additions (losses)

(2,000)

(2,000)

(4,000)

13,000

(26,000)

ARPU (1)

$

35.33

$

34.40

$

34.02

$

32.22

$

31.66

Churn rate (3)

5.9%

6.3%

6.5%

6.9%

8.3%

Total customers at end of period

4,760,000

4,674,000

4,653,000

4,684,000

4,774,000

Billed ARPU (1)

$

53.63

$

53.24

$

53.36

$

53.93

$

50.25

Service revenue ARPU (1)

$

60.10

$

60.92

$

60.32

$

60.19

$

57.05

Smartphones sold as a percent of total handsets sold

86.5%

80.8%

79.0%

78.2%

84.5%

Total population

Consolidated markets (5)

50,906,000

54,817,000

54,817,000

54,817,000

58,013,000

Consolidated operating markets (5)

31,729,000

31,729,000

31,729,000

31,729,000

31,759,000

Market penetration at end of period

Consolidated markets (6)

9.4%

8.5%

8.5%

8.5%

8.2%

Consolidated operating markets (6)

15.0%

14.7%

14.7%

14.8%

15.0%

Capital expenditures (000s)

$

181,655

$

142,452

$

143,927

$

89,581

$

208,135

Total cell sites in service

6,220

6,209

6,183

6,165

6,975

Owned towers

4,281

4,487

4,457

4,448

4,448

*

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

Refer to U.S. Cellular's Form 8-K filed on February 26, 2014 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and twelve months ended December 31, 2013, as if the transactions had occurred at the beginning of the period.

United States Cellular Corporation

Core* Markets Summary Operating Data (Unaudited)

As of or for the Quarter Ended

12/31/2014

9/30/2014

6/30/2014

3/31/2014

12/31/2013

Retail Customers

Postpaid

Total at end of period

4,298,000

4,200,000

4,148,000

4,174,000

4,267,000

Gross additions

302,000

251,000

190,000

197,000

176,000

Net additions (losses)

98,000

52,000

(26,000)

(93,000)

(71,000)

ARPU (1)

$

56.51

$

56.37

$

56.82

$

57.59

$

53.53

ARPA (2)

$

136.13

$

132.99

$

131.95

$

132.03

$

121.21

Churn rate (3)

1.6%

1.6%

1.7%

2.3%

1.9%

Smartphone penetration (4)

59.8%

57.9%

55.3%

53.1%

50.8%

Prepaid

Total at end of period

348,000

350,000

352,000

356,000

343,000

Gross additions

60,000

64,000

65,000

85,000

63,000

Net additions (losses)

(2,000)

(2,000)

(4,000)

13,000

(26,000)

ARPU (1)

$

35.33

$

34.40

$

34.02

$

32.22

$

31.66

Churn rate (3)

5.9%

6.3%

6.5%

6.9%

8.3%

Total customers at end of period

4,760,000

4,674,000

4,653,000

4,684,000

4,774,000

Billed ARPU (1)

$

53.63

$

53.24

$

53.36

$

53.93

$

50.25

Service revenue ARPU (1)

$

60.10

$

60.92

$

60.32

$

60.19

$

57.05

Smartphones sold as a percent of total handsets sold

86.5%

80.8%

79.0%

78.2%

84.5%

Total population

Consolidated markets (5)

50,906,000

54,817,000

54,817,000

54,817,000

58,013,000

Consolidated operating markets (5)

31,729,000

31,729,000

31,729,000

31,729,000

31,759,000

Market penetration at end of period

Consolidated markets (6)

9.4%

8.5%

8.5%

8.5%

8.2%

Consolidated operating markets (6)

15.0%

14.7%

14.7%

14.8%

15.0%

Capital expenditures (000s)

$

181,655

$

142,452

$

143,927

$

89,581

$

211,247

Total cell sites in service

6,220

6,209

6,183

6,165

6,161

Owned towers

3,951

3,922

3,892

3,883

3,883

* 

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

Refer to U.S. Cellular's Form 8-K filed on February 26, 2014 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and twelve months ended December 31, 2013, as if the transactions had occurred at the beginning of the period.

(1)

Average Revenue Per User ("ARPU") metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period.  These revenue bases and customer populations are shown below:

a.

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

b.

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

c.

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

d.

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

(2)

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

(3)

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

(4)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(5)

The decrease in the population of consolidated markets is due primarily to the divestiture of the majority of the St. Louis area non-operating market license in March 2014, and certain non-operating licenses in North Carolina in December 2014. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (6) below.

(6)

Market penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas.  The increase in consolidated markets penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (5) above.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended December 31,

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

      Change

2014

2013

Amount

Percent

Operating revenues

Service

$

849,788

$

825,128

$

24,660

3%

Equipment sales

158,956

77,596

81,360

>100%

Total operating revenues

1,008,744

902,724

106,020

12%

Operating expenses

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

202,423

177,438

24,985

14%

Cost of equipment sold

342,355

346,847

(4,492)

(1%)

Selling, general and administrative

394,553

442,720

(48,167)

(11%)

Depreciation, amortization and accretion

140,955

210,371

(69,416)

(33%)

(Gain) loss on asset disposals, net

4,695

14,453

(9,758)

(68%)

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

(5,136)

(3,140)

(1,996)

(64%)

(Gain) loss on sale of license sales and exchanges

(21,547)

(255,479)

233,932

92%

Total operating expenses

1,058,298

933,210

125,088

13%

Operating loss

(49,554)

(30,486)

(19,068)

(63%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

23,598

32,152

(8,554)

(27%)

Interest and dividend income

6,119

994

5,125

>100%

Gain (loss) on investments

—

29

(29)

N/M

Interest expense

(14,674)

(11,570)

(3,104)

(27%)

Other, net

(121)

135

(256)

>(100%)

Total investment and other income (expense)

14,922

21,740

(6,818)

(31%)

Loss before income taxes

(34,632)

(8,746)

(25,886)

>(100%)

Income tax expense (benefit)

(12,528)

(8,484)

(4,044)

(48%)

Net loss

(22,104)

(262)

(21,842)

>(100%)

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

(764)

(1,854)

1,090

59%

Net income (loss) attributable to U.S. Cellular shareholders

$

(21,340)

$

1,592

$

(22,932)

>(100%)

Basic weighted average shares outstanding

84,066

84,181

(115)

—

Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.25)

$

0.02

$

(0.27)

>(100%)

Diluted weighted average shares outstanding

84,066

85,033

(967)

(1%)

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.25)

$

0.02

$

(0.27)

>(100%)

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Twelve Months Ended December 31,

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

      Change

2014

2013

Amount

Percent

Operating revenues

Service

$

3,397,937

$

3,594,773

$

(196,836)

(5%)

Equipment sales

494,810

324,063

170,747

53%

Total operating revenues

3,892,747

3,918,836

(26,089)

(1%)

Operating expenses

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

769,911

763,435

6,476

1%

Cost of equipment sold

1,192,669

999,000

193,669

19%

Selling, general and administrative

1,591,914

1,677,395

(85,481)

(5%)

Depreciation, amortization and accretion

605,997

803,781

(197,784)

(25%)

(Gain) loss on asset disposals, net

21,469

30,606

(9,137)

(30%)

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

(32,830)

(246,767)

213,937

87%

(Gain) loss on license sales and exchanges

(112,993)

(255,479)

142,486

56%

Total operating expenses

4,036,137

3,771,971

264,166

7%

Operating income (loss)

(143,390)

146,865

(290,255)

>(100%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

129,764

131,949

(2,185)

(2%)

Interest and dividend income

12,148

3,961

8,187

>100%

Gain (loss) on investments

—

18,556

(18,556)

N/M

Interest expense

(57,386)

(43,963)

(13,423)

(31%)

Other, net

160

288

(128)

(44%)

Total investment and other income (expense)

84,686

110,791

(26,105)

(24%)

Income (loss) before income taxes

(58,704)

257,656

(316,360)

>(100%)

Income tax expense (benefit)

(11,782)

113,134

(124,916)

>(100%)

Net income (loss)

(46,922)

144,522

(191,444)

>(100%)

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

(4,110)

4,484

(8,594)

>(100%)

Net income (loss) attributable to U.S. Cellular shareholders

$

(42,812)

$

140,038

$

(182,850)

>(100%)

Basic weighted average shares outstanding

84,213

83,968

245

—

Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.51)

$

1.67

$

(2.18)

>(100%)

Diluted weighted average shares outstanding

84,213

84,730

(517)

(1%)

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.51)

$

1.65

$

(2.16)

>(100%)

Special dividend per share to U.S. Cellular shareholders

$

—

$

5.75

$

(5.75)

N/M

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

December 31,

December 31,

2014

2013

Current assets

Cash and cash equivalents

$

211,513

$

342,065

Short-term investments

—

50,104

Accounts receivable from customers and others

556,958

586,595

Inventory, net

267,068

238,188

Prepaid expenses

59,744

65,596

Net deferred income tax asset

93,058

99,105

Other current assets

90,834

19,538

1,279,175

1,401,191

Assets held for sale

107,055

16,027

Investments

Licenses

1,443,438

1,401,126

Goodwill

370,151

387,524

Investments in unconsolidated entities

283,014

265,585

2,096,603

2,054,235

Property, plant and equipment

In service and under construction

7,458,740

7,717,512

Less: Accumulated depreciation

4,730,523

4,860,992

2,728,217

2,856,520

Other assets and deferred charges

276,218

117,735

Total assets

$

6,487,268

$

6,445,708

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

December 31,

December 31,

2014

2013

Current liabilities

Current portion of long-term debt

$

46

$

166

Accounts payable

Affiliated

9,774

11,243

Trade

306,845

405,583

Customer deposits and deferred revenues

287,562

256,740

Accrued taxes

36,652

73,820

Accrued compensation

66,162

66,566

Other current liabilities

149,853

192,055

856,894

1,006,173

Liabilities held for sale

20,934

—

Deferred liabilities and credits

Net deferred income tax liability

859,867

836,297

Other deferred liabilities and credits

284,002

315,073

Long-term debt

1,151,819

878,032

Noncontrolling interests with redemption features

1,150

536

Equity

U.S. Cellular shareholders' equity

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

88,074

88,074

Additional paid-in capital

1,472,558

1,424,729

Treasury shares

(169,139)

(164,692)

Retained earnings

1,910,498

2,043,095

Total U.S. Cellular shareholders' equity

3,301,991

3,391,206

Noncontrolling interests

10,611

18,391

Total equity

3,312,602

3,409,597

Total liabilities and equity

$

6,487,268

$

6,445,708

United States Cellular Corporation

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)

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

December 31,

December 31,

2014

2013

Cash and cash equivalents

$

211,513

$

342,065

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

U.S. Treasury Notes

—

50,104

Total cash and cash equivalents and investments

$

211,513

$

392,169

(1)

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

(2)

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

United States Cellular Corporation

Consolidated Statement of Cash Flows

Twelve Months Ended December 31,

(Unaudited, dollars in thousands)

2014

2013

Cash flows from operating activities

Net income (loss)

$

(46,922)

$

144,522

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

Depreciation, amortization and accretion

605,997

803,781

Bad debts expense

101,282

98,864

Stock-based compensation expense

22,383

15,844

Deferred income taxes, net

57,604

(75,348)

Equity in earnings of unconsolidated entities

(129,764)

(131,949)

Distributions from unconsolidated entities