Business context and reporting period
The supplied filing is United States Cellular Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011, filed August 8, 2011. This does not match the request metadata naming ARRAY DIGITAL INFRASTRUCTURE, INC.; the summary below reflects the filing text, which identifies U.S. Cellular, an 84%-owned subsidiary of Telephone and Data Systems, Inc. U.S. Cellular provides wireless service and reported approximately 6.0 million total customers across 26 states.
Financial and operating results
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Total revenue | $1,076.2 million | $2,133.3 million | $1,029.9 million and $2,053.8 million |
| Operating income | $102.4 million | $159.4 million | $63.5 million and $141.1 million |
| Net income attributable to U.S. Cellular shareholders | $73.9 million | $108.0 million | $40.8 million and $88.1 million |
| Diluted earnings per share | $0.87 | $1.26 | $0.47 and $1.01 |
For the six-month period, service revenue increased 3% to $1,987.1 million, while equipment revenue rose 26% to $146.1 million. Operating income increased 13%; management attributed the improvement principally to higher service revenue. The reported six-month effective tax rate was 32.8%, versus 38.4% in 2010, partly reflecting $4.8 million of tax benefits from statute-of-limitations expirations and other discrete items.
Six-month cash from operations was $423.4 million, capital expenditures were $258.0 million, and company-defined free cash flow was $165.4 million, a non-GAAP measure. Cash and cash equivalents were $428.6 million at June 30; cash plus short-term investments totaled $524.7 million, and cash plus short- and long-term investments totaled $565.0 million. Long-term debt on the balance sheet was $880.3 million, with $0.1 million current. No revolving-credit borrowings were outstanding; $299.8 million of the $300 million facility was available. The company reported investment-grade credit ratings and covenant compliance.
Material changes versus the prior comparable period
- Six-month operating revenue rose 4% and operating income rose 13%; shareholder-attributable net income increased 23% and diluted EPS increased $0.25.
- Service revenue growth included a $34.3 million increase in inbound roaming revenue and an $8.1 million increase in eligible telecommunications carrier revenue. Retail service revenue was nearly flat as higher ARPU was largely offset by a smaller average customer base.
- Retail customer net losses were 89,000 in the first half of 2011, compared with net additions of 31,000 in 2010. Postpaid churn remained 1.4%; smartphone-plan penetration increased to 23% from 10%.
- System operations expense increased 6% and equipment costs increased 12% for the six months, while selling, general and administrative expense declined 1%. Management cited higher data roaming/network costs and more expensive smartphone sales, partly offset by lower bad-debt and USF contribution expenses.
- Operating cash flow increased $19.7 million, but cash used in investing activities fell to $222.5 million from $439.6 million, mainly reflecting lower investment purchases. Share repurchases totaled $62.3 million, compared with $21.4 million.
Guidance, outlook, risks and unusual items
Management’s full-year 2011 estimates were service revenue of $4.0–$4.1 billion; operating income of $210–$285 million; adjusted OIBDA of $800–$875 million; depreciation, amortization, accretion and asset-disposal/impairment losses of approximately $590 million; and capital expenditures of $750–$800 million. Operating income and adjusted OIBDA ranges were raised at the lower end from the prior estimates. The estimates include a planned multi-year LTE deployment beginning in 2011 and are subject to change.
- Management cited intense wireless competition, customer losses, pricing pressure, changing postpaid/prepaid mix, economic uncertainty, and reliance on roaming and USF/ETC revenues as key risks. Data growth may require more network investment and increase operating and device-subsidy costs.
- U.S. Cellular issued $342 million of 6.95% senior notes due 2060 and redeemed $330 million of 7.5% notes. The redemption produced an $8.2 million write-off of deferred debt issuance costs; the weighted-average debt interest rate declined to 6.8% from 7.0%.
- A May acquisition of a previously 49%-owned wireless business generated a $13.4 million gain on remeasurement of the existing investment. U.S. Cellular is seeking to sell the business; $53.9 million of assets and $0.9 million of liabilities were classified as held for sale.
- The Amdocs billing and operational support system project is expected to continue through 2013, with estimated payments of approximately $122 million, subject to potential adjustments; $13.8 million had been paid by June 30, 2011.
- The company accrued $1.5 million for legal proceedings and unasserted claims and stated that excess contingent losses were not believed material, while noting outcomes could differ from accruals. Estimated settlement value of certain finite-lived noncontrolling interests was $185.1 million, compared with a $59.3 million carrying value; settlement estimates are subjective, and no early liquidation was planned.
- U.S. Cellular expected a federal net operating loss for 2011 due to bonus depreciation. Management anticipated substantially higher federal tax payments beginning in 2013 as accelerated depreciation benefits diminish, assuming no further applicable bonus-depreciation provisions.
Important facts for investors to verify
- Confirm the registrant: the supplied filing is for United States Cellular Corporation, not the company named in the request metadata.
- Track customer additions, churn, ARPU, and whether The Belief Project reverses first-half retail customer losses.
- Assess whether roaming and ETC revenue growth can persist and how competition affects service pricing and customer retention.
- Compare full-year guidance with results, particularly operating income, adjusted OIBDA, and $750–$800 million planned capital expenditures.
- Monitor LTE and B/OSS execution, project costs, and the planned sale of the acquired business classified as held for sale.
- Review the debt refinancing, future tax-payment profile, legal contingencies, and potential funding needs for consolidated spectrum-related entities.