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United States Cellular 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
usm10q.htm - Generated by SEC Publisher for SEC Filing

 

Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

¨            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to


Commission File Number 1-9712

 

UNITED STATES CELLULAR CORPORATION
(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of

incorporation or organization)


62-1147325
(I.R.S. Employer Identification No.)

 

 

 

 

8410 West Bryn Mawr, Suite 700, Chicago, Illinois  60631
(Address of principal executive offices)  (Zip Code)

 

 

 

 

Registrant's telephone number, including area code: (773) 399-8900

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer  x

 

Accelerated filer  ¨

 

 

 

Non-accelerated filer  ¨

(Do not check if a smaller reporting company)

 

Smaller reporting company  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at June 30, 2010

 

Common Shares, $1 par value

 

53,155,606 Shares

 

Series A Common Shares, $1 par value

 

33,005,877 Shares

 



 


 

 

 

Table of Contents

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2010

 

 

 

 

 

 

 

 

 

Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page No.

Part I.

Financial Information 

 

 

 

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Operations Three and Six Months Ended June 30, 2010 and 2009

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows Six Months Ended June 30, 2010 and 2009

4

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet June 30, 2010 and December 31, 2009

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity Six Months Ended June 30, 2010 and 2009

7

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

9

 

 

 

 

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

 

 

 

 

 

 

 

 

Overview

19

 

 

Results of Operations

 

 

 

22

 

 

Recent Accounting Pronouncements

29

 

 

Financial Resources

29

 

 

Liquidity and Capital Resources

31

 

 

Application of Critical Accounting Policies and Estimates

33

 

 

Safe Harbor Cautionary Statement

34

 

 

 

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

 

 

 

 

 

 

Part II.

Other Information

39

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

 

 

 

 

 

 

 

Item 1A.

Risk Factors

39

 

 

 

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

 

 

 

 

 

 

 

Item 5.

Other Information

40

 

 

 

 

 

 

 

 

 

 

Item 6.

Exhibits

41

 

 

 

 

 

 

 

 

 

Signatures

 

 

 

 

 

 

42

 


Part I.  Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

(Dollars and shares in thousands, except per share amounts)

2010 

 

2009 

 

2010 

 

2009 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

$

972,576

 

 

$

974,348

 

 

$

1,937,584

 

 

$

1,957,802

 

 

Equipment sales

 

57,317

 

 

 

67,795

 

 

 

116,166

 

 

 

138,685

 

 

 

Total operating revenues

 

1,029,893

 

 

 

1,042,143

 

 

 

2,053,750

 

 

 

2,096,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

213,542

 

 

 

194,709

 

 

 

420,656

 

 

 

394,697

 

 

Cost of equipment sold

 

161,965

 

 

 

156,055

 

 

 

323,070

 

 

 

341,756

 

 

Selling, general and administrative (including charges from affiliates of $26.4 million and $26.2 million, respectively, for the three months, and $54.1 million and $54.9 million, respectively, for the six months)

 

445,177

 

 

 

411,153

 

 

 

874,782

 

 

 

819,616

 

 

Depreciation, amortization and accretion

 

144,455

 

 

 

138,777

 

 

 

287,688

 

 

 

276,655

 

 

Loss on asset disposals, net

 

1,250

 

 

 

2,611

 

 

 

6,426

 

 

 

6,556

 

 

 

Total operating expenses

 

966,389

 

 

 

903,305

 

 

 

1,912,622

 

 

 

1,839,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

63,504

 

 

 

138,838

 

 

 

141,128

 

 

 

257,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

25,753

 

 

 

24,794

 

 

 

50,447

 

 

 

50,121

 

 

Interest and dividend income

 

862

 

 

 

751

 

 

 

1,883

 

 

 

1,228

 

 

Interest expense

 

(16,438

)

 

 

(19,856

)

 

 

(32,962

)

 

 

(39,283

)

 

Other, net

 

472

 

 

 

(2

)

 

 

407

 

 

 

278

 

 

 

Total investment and other income (expense)

 

10,649

 

 

 

5,687

 

 

 

19,775

 

 

 

12,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

74,153

 

 

 

144,525

 

 

 

160,903

 

 

 

269,551

 

 

Income tax expense

 

28,181

 

 

 

56,788

 

 

 

61,843

 

 

 

91,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

45,972

 

 

 

87,737

 

 

 

99,060

 

 

 

177,804

 

 

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

 

(5,219

)

 

 

(5,969

)

 

 

(10,938

)

 

 

(11,977

)

Net income attributable to U.S. Cellular shareholders

$

40,753

 

 

$

81,768

 

 

$

88,122

 

 

$

165,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

86,425

 

 

 

86,992

 

 

 

86,500

 

 

 

87,093

 

Basic earnings per share attributable to U.S. Cellular shareholders

$

0.47

 

 

$

0.94

 

 

$

1.02

 

 

$

1.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

86,787

 

 

 

87,177

 

 

 

86,873

 

 

 

87,308 

 

Diluted earnings per share attributable to U.S. Cellular shareholders

$

0.47

 

 

$

0.94

 

 

$

1.01

 

 

$

1.90 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

(Dollars in thousands)

2010 

 

2009 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

$

99,060

 

 

$

177,804

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

287,688

 

 

 

276,655

 

 

 

 

Bad debts expense

 

36,605

 

 

 

39,028

 

 

 

 

Stock-based compensation expense

 

9,012

 

 

 

7,974

 

 

 

 

Deferred income taxes, net

 

(9,935

)

 

 

19,084

 

 

 

 

Equity in earnings of unconsolidated entities

 

(50,447

)

 

 

(50,121

)

 

 

 

Distributions from unconsolidated entities

 

48,491

 

 

 

12,997

 

 

 

 

Loss on asset disposals, net

 

6,426

 

 

 

6,556

 

 

 

 

Other operating activities

 

(464

)

 

 

1,209

 

 

Changes in assets and liabilities from operations

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(22,995

)

 

 

(68,923

)

 

 

 

Inventory

 

32,252

 

 

 

(10,391

)

 

 

 

Accounts payable - trade

 

(34,009

)

 

 

(41,378

)

 

 

 

Accounts payable - affiliate

 

(3,017

)

 

 

4,137

 

 

 

 

Customer deposits and deferred revenues

 

3,854

 

 

 

(5,699

)

 

 

 

Accrued taxes

 

27,744

 

 

 

71,041

 

 

 

 

Accrued interest

 

121

 

 

 

450

 

 

 

 

Other assets and liabilities

 

(26,680

)

 

 

(67,300

)

 

 

 

 

 

 

403,706

 

 

 

373,123

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

(255,004

)

 

 

(228,902

)

 

Cash paid for acquisitions and licenses

 

(10,501

)

 

 

(12,327

)

 

Cash paid for investments

 

(175,000

)

 

 

(275

)

 

Other investing activities

 

889

 

 

 

1,432

 

 

 

 

 

 

 

(439,616

)

 

 

(240,072

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Common shares reissued for benefit plans, net of tax payments

 

144

 

 

 

(405

)

 

Common shares repurchased

 

(21,423

)

 

 

(19,332

)

 

Payment of debt issuance costs

 

 —

 

 

 

(4,309

)

 

Distributions to noncontrolling interests

 

(4,314

)

 

 

(4,060

)

 

Other financing activities

 

(55

)

 

 

(21

)

 

 

 

 

 

 

(25,648

)

 

 

(28,127

)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(61,558

)

 

 

104,924

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

294,411

 

 

 

170,996

 

 

End of period

$

232,853

 

 

$

275,920

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet — Assets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(Dollars in thousands)

2010 

 

2009 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

232,853

 

$

294,411

 

Short-term investments

 

135,798

 

 

330

 

Accounts receivable

 

 

 

 

 

 

 

Customers, less allowances of $25,265 and $26,260, respectively

 

310,062

 

 

339,825

 

 

Roaming 

 

34,738

 

 

28,450

 

 

Affiliated

 

28

 

 

135

 

 

Other, less allowances of $967 and $364, respectively

 

66,622

 

 

56,647

 

Inventory

 

120,304

 

 

152,556

 

Prepaid income taxes

 

 —

 

 

717

 

Prepaid expenses 

 

65,219

 

 

63,463

 

Net deferred income tax asset

 

21,570

 

 

21,570

 

Other current assets

 

48,662

 

 

51,013

 

 

 

 

 

1,035,856

 

 

1,009,117

Investments

 

 

 

 

 

 

Licenses

 

1,445,501

 

 

1,435,000

 

Goodwill

 

494,737

 

 

494,737

 

Customer lists, net of accumulated amortization of $95,211 and $92,829, respectively

 

1,701

 

 

4,083

 

Investments in unconsolidated entities

 

163,518

 

 

161,481

 

Notes and interest receivable — long-term

 

4,143

 

 

4,214

 

Long-term investments

 

40,987

 

 

 —

 

 

 

 

 

2,150,587

 

 

2,099,515

Property, plant and equipment

 

 

 

 

 

 

In service and under construction

 

6,096,533

 

 

5,884,307

 

Less: Accumulated depreciation

 

3,525,193

 

 

3,282,969

 

 

 

 

 

2,571,340

 

 

2,601,338

 

 

 

 

 

 

 

 

 

Other assets and deferred charges

 

37,865

 

 

38,776

 

 

 

 

 

 

 

 

 

Total assets

$

5,795,648

 

$

5,748,746

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2010

 

December 31,
2009

(Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

86

 

 

$

76

 

 

Accounts payable

 

 

 

 

 

 

 

 

 

Affiliated

 

11,714

 

 

 

14,732

 

 

 

Trade

 

262,279

 

 

 

296,288

 

 

Customer deposits and deferred revenues

 

144,101

 

 

 

140,248

 

 

Accrued taxes

 

90,802

 

 

 

57,507

 

 

Accrued compensation

 

45,086

 

 

 

62,242

 

 

Other current liabilities

 

80,322

 

 

 

92,884

 

 

 

 

 

 

 

 

634,390

 

 

 

663,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred liabilities and credits

 

 

 

 

 

 

 

 

Net deferred income tax liability

 

497,797

 

 

 

513,994

 

 

Other deferred liabilities and credits

 

273,467

 

 

 

262,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

867,880

 

 

 

867,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests with redemption features

 

746

 

 

 

727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

U.S. Cellular shareholders' equity

 

 

 

 

 

 

 

 

 

Series A Common and Common Shares

 

 

 

 

 

 

 

 

 

 

Authorized 190,000 shares (50,000 Series A Common and 140,000 Common Shares)

 

 

 

 

 

 

 

 

 

 

Issued 88,074 shares (33,006 Series A Common and 55,068 Common Shares)

 

 

 

 

 

 

 

 

 

 

Outstanding 86,161 shares (33,006 Series A Common and 53,155 Common Shares) and 86,540 shares (33,006 Series A Common and 53,534 Common Shares), respectively

 

 

 

 

 

 

 

 

 

 

Par Value ($1 per share) ($33,006 Series A Common and $55,068 Common Shares)

 

88,074

 

 

 

88,074

 

 

 

Additional paid-in capital

 

1,364,129

 

 

 

1,356,322

 

 

 

Treasury shares, at cost, 1,913 and 1,534 Common Shares, respectively

 

(80,107

)

 

 

(69,616

)

 

 

Retained earnings

 

2,090,966

 

 

 

2,013,633

 

 

 

 

Total U.S. Cellular shareholders' equity

 

3,463,062

 

 

 

3,388,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

58,306

 

 

 

51,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

3,521,368

 

 

 

3,440,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

$

5,795,648

 

 

$

5,748,746

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents 

 

United States Cellular Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Cellular Shareholders

 

 

 

 

 

 

 

 

(Dollars in thousands)

Series A Common and Common Shares

 

Additional

Paid-In

Capital

 

Treasury Shares

 

Retained Earnings

 

Total

U.S. Cellular

Shareholders'

Equity

 

Noncontrolling Interests

 

Total Equity

Balance, December 31, 2009

 

$

88,074

 

 

$

1,356,322

 

 

$

(69,616

)

 

$

2,013,633

 

 

$

3,388,413

 

 

$

51,701

 

 

$

3,440,114

 

Add (Deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to U.S. Cellular shareholders
 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

88,122

 

 

 

88,122

 

 

 

 —

 

 

 

88,122

 

Net income attributable to noncontrolling interests classified as equity
 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

10,919

 

 

 

10,919

 

Repurchase of Common Shares

 

 

 —

 

 

 

 —

 

 

 

(21,423

)

 

 

 —

 

 

 

(21,423

)

 

 

 —

 

 

 

(21,423

)

Incentive and compensation plans

 

 

 —

 

 

 

605

 

 

 

10,932

 

 

 

(10,789

)

 

 

748

 

 

 

 —

 

 

 

748

 

Stock-based compensation awards

 

 

 —

 

 

 

9,012