U.S. Cellular Corp. (USM) Q2 2012 Earnings Call August 3, 2012 10:30 am ET Executives Jane McCahon - VP, Corporate Relations Ken Meyers - EVP and CFO, TDS Telecom Mary Dillon - President and CEO Steve Campbell, EVP and CFO Vicki Villacrez - VP of Finance and CFO, TDS Telecom, Kevin Hess, SVP, Government and Regulatory Affairs, TDS Telecom Analysts Simon Flannery - Morgan Stanley Ric Prentiss - Raymond James Sergey Dluzhevskiy - Gabelli & Company Philip Cusick - JPMorgan Sal Muoio - SM Investors Presentation Operator
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This call is being simultaneously webcast on the Investor Relation sections of both the TDS and US Cellular websites. Please see the websites for slides referred to on this call including non-GAAP reconciliations.The information set forth in the presentations and discussed during this call contains forward looking statements about expected future results and financial results that are forward looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph in our releases and the more extended versions that will be included in our SEC filings. Shortly after we released our earnings results this morning and before this call, TDS and US Cellular filed SEC Form 8-K reports, including the press releases we issued this morning. Both companies plan to file their SEC Form 10-Q later this afternoon. On September 27, 2012 the FCC plans to conduct auction 901, a single round field bid reverse auction to award up to $300 million in one time mobility fund Phase I support to successful bidders that commit to provide 3G or better wireless service in areas designated as under served by the FCC. US cellular has filed short form application through the FCC for each of the states in which we have ETC status, which preserves our ability to produce bid in the auction if we so choose. FCC anti-collision rules place certain restrictions on business communications and disclosure by participants in an FCC auction. So we will refrain from discussing any information or topics relative to that auction. Please keep in mind that keep in mind that TDS have an open-door policy. So if you are in the Chicago area and would like to meet with members of management from TDS Corporate, US Cellular or TDS Telecom, the Investor Relations team will try to accommodate you calendars permitting. Now, I'd like to turn the call over to Ken Meyers.
Ken MeyersThank you, Jane. Good morning everyone. As you are all from the team with mix quarter with some good progress on several fronts including the level of post paid and pre-paid gross adds and an another HMS acquisition. And there are some tough head winds we are faced -- we are working our way through. I will let team provide the details. I do want to point out three unusual items this quarter that affect comparisons. The first is related to interest expense which was down $22 million year-over-year as a result of a $15.4 million write off of unamortized debt issuance cost in the second quarter of last year. The second item on the gain/loss on investment line, where last year we had a $13.4 million gain on the sales of property and this year we had a $3.7 million loss producing a swing of $17.1 million. There is also a big change in taxes. TDS' overall affected tax rate was 39% this quarter compared to 9.5% of last year with income tax expense was reduced to $29 million primarily due to tax benefits from state tax law changes and street items. These three items which are all below the line significantly impact EPS comparisons. Staying with taxes for a moment, as you know, the bonus depreciation rate for federal income tax purposes is currently 50% and it is expected to expire at the end of this year. We expect federal income tax payment to substantially increase beginning in 2013 and remain at a higher level for several years as the amount of TDS' federal income tax depreciation deduction substantially decreases. By the way, for the full year, we are estimating an effective tax rated at TDS about 35%. Our balance sheet remained strong. We ended the second quarter with $820 million in cash, cash equivalents and short-term investments, as well as all of the $700 million on the revolving credit facilities. And I think it is always good to point out once in a while that we have no unfunded pension liabilities. Read the rest of this transcript for free on seekingalpha.com