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United States Cellular 10-Q 2012

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
form10q.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 March 31, 2012

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

 

62-1147325

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

8410 West Bryn Mawr, 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 March 31, 2012

Common Shares, $1 par value

 

51,568,235 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 March 31, 2012

  

Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page No.

Part I.  

Financial Information

 

 

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

Consolidated Statement of Operations

Three Months Ended March 31, 2012 and 2011

3

Consolidated Statement of Cash Flows

Three Months Ended March 31, 2012 and 2011

4

Consolidated Balance Sheet

March 31, 2012 and December 31, 2011

5

Consolidated Statement of Changes in Equity

Three Months Ended March 31, 2012 and 2011

7

Notes to Consolidated Financial Statements

9

Item 2.

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

17

Overview

17

Results of Operations

20

Recent Accounting Pronouncements

25

Financial Resources

25

Liquidity and Capital Resources

27

Application of Critical Accounting Policies and Estimates

30

Safe Harbor Cautionary Statement

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

Part II.

Other Information

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures    

 


 
 

Part I. Financial Information

Item 1. Financial Statements

United States Cellular Corporation

Consolidated Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31,

 

 

 

 

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

2012 

 

2011 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

Service

$

1,023,820

 

 

$

985,113

 

 

Equipment sales

  

68,301

 

 

 

71,979

 

 

 

Total operating revenues

  

1,092,121

 

 

 

1,057,092

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

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

 

233,164

 

 

 

217,603

 

 

Cost of equipment sold

 

187,036

 

 

 

194,360

 

 

Selling, general and administrative (including charges from affiliates of $26.0 million and $26.2 million, respectively)

 

442,244

 

 

 

442,004

 

 

Depreciation, amortization and accretion

 

146,685

 

 

 

143,340

 

 

(Gain) loss on asset disposals, net

 

(2,210

)

 

 

1,037

 

 

 

Total operating expenses

 

1,006,919

 

 

 

998,344

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

85,202

 

 

 

 58,748

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

21,614

 

  

 

20,891

 

 

Interest and dividend income

 

1,043

 

  

 

849

 

 

Interest expense

 

(13,411

)

 

 

(15,186

)

 

Other, net

 

202

 

 

 

(125

)

 

 

Total investment and other income (expense)

 

9,448

 

 

 

6,429

 

 

 

 

 

 

 

 

  

 

 

 

Income before income taxes

 

94,650

 

 

 

65,177

 

 

Income tax expense

 

25,638

  

 

 

24,747

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

69,012

 

 

 

40,430

 

 

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

 

(6,520

)

 

 

(5,269

)

Net income attributable to U.S. Cellular shareholders

$

62,492

 

 

$

35,161

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

84,570

 

 

 

85,484

 

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

$

0.74

 

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

85,133

 

 

 

86,101

 

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

$

0.73

 

 

$

0.41

 

 

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

 

3


 
 

 

United States Cellular Corporation

 

Consolidated Statement of Cash Flows  

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31,

 

 

 

 

 

(Dollars in thousands)

2012 

 

2011 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

$

69,012

 

 

$

40,430

 

 

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

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

146,685

 

 

 

143,340

 

 

 

 

Bad debts expense

 

13,850

 

 

 

13,507

 

 

 

 

Stock-based compensation expense

 

5,391

 

 

 

5,792

 

 

 

 

Deferred income taxes, net

 

6,283

 

 

 

44,413

 

 

 

 

Equity in earnings of unconsolidated entities

 

(21,614

)

 

 

(20,891

)

 

 

 

Distributions from unconsolidated entities

 

2,822

 

 

 

8,323

 

 

 

 

(Gain) loss on asset disposals, net

 

(2,210

)

 

 

1,037

 

 

 

 

Noncash interest expense

 

451

 

 

 

463

 

 

 

 

Other operating activities

 

449

 

 

 

601

 

 

Changes in assets and liabilities from operations

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

36,621

 

 

 

4,950

 

 

 

 

Inventory

 

(4,410

)

 

 

3,461

 

 

 

 

Accounts payable - trade

 

(17,689

)

 

 

53,713

 

 

 

 

Accounts payable - affiliate

 

2,989

 

 

 

(2,041

)

 

 

 

Customer deposits and deferred revenues

 

9,512

 

 

 

10,245

 

 

 

 

Accrued taxes

 

79,765

 

 

 

11,829

 

 

 

 

Accrued interest

 

9,167

 

 

 

9,205

 

 

 

 

Other assets and liabilities

  

(80,107

)

 

 

(70,669

)

 

 

 

 

  

 

256,967

 

 

 

257,708

 

   

    

   

    

     

   

   

  

   

  

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Cash used for additions to property, plant and equipment

 

(209,160

)

 

 

(121,041

)

 

Cash paid for acquisitions and licenses

 

(11,096

)

 

 

 

 

Cash received from divestitures

 

49,786

 

 

 

 

 

Cash paid for investments

 

(10,000

)

 

 

 

 

Cash received for investments

 

10,000

 

 

 

35,000

 

 

Other investing activities

 

296

 

 

 

2,200

 

 

 

 

 

 

 

(170,174

)

 

 

(83,841

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Common shares reissued for benefit plans, net of tax payments

 

357

 

 

 

1,305

 

 

Common shares repurchased

 

 

 

 

(17,357

)

 

Distributions to noncontrolling interests

 

(218

)

 

 

(186

)

 

Other financing activities

 

(9

)

 

 

17

 

 

 

 

 

 

 

130

 

 

 

(16,221

)

 

 

 

 

 

 

 

 

 

 

  

 

Net increase in cash and cash equivalents

 

86,923

 

 

 

157,646

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

424,155

 

 

 

276,915

   

   

End of period

$

511,078

   

 

$

434,561

 

 

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

 

 

4


 
 

 

United States Cellular Corporation

 

Consolidated Balance Sheet — Assets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

2012 

 

December 31,

2011 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

511,078

 

$

424,155

 

Short-term investments

 

116,368

 

 

127,039

 

Accounts receivable

 

 

 

 

 

 

 

Customers and agents, less allowances of $20,611 and $21,337, respectively

 

298,460

 

 

341,439

 

 

Roaming

 

34,816

 

 

36,557

 

 

Affiliated

 

9

 

 

621

 

 

Other, less allowances of $2,131 and $2,200, respectively

 

64,282

 

 

63,204

 

Inventory

 

131,510

 

 

127,056

 

Income taxes receivable

 

70

 

 

74,791

 

Prepaid expenses

 

57,655

 

 

55,980

 

Net deferred income tax asset

 

31,905

 

 

31,905

 

Other current assets

 

11,149

 

 

10,096

 

 

 

 

 

1,257,302

 

 

1,292,843

 

 

 

 

 

 

 

 

 

Assets held for sale

 

 

 

49,647

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

Licenses

 

1,481,865

 

 

1,470,769

 

Goodwill

 

494,737

 

 

494,737

 

Customer lists, net of accumulated amortization of $96,689 and $96,597, respectively

 

223

 

 

314

 

Investments in unconsolidated entities

 

154,431

 

 

138,096

 

Notes and interest receivable — long-term

 

81

 

 

1,921

 

Long-term investments

 

40,276

 

 

30,057

 

 

 

 

 

2,171,613

 

 

2,135,894

Property, plant and equipment

 

 

 

 

 

 

In service and under construction

 

7,126,220

 

 

7,008,449

 

Less: Accumulated depreciation

 

4,278,794

 

 

4,218,147

 

 

 

 

 

2,847,426

 

 

2,790,302

 

 

 

 

 

 

 

 

 

Other assets and deferred charges

 

65,094

 

 

59,290

 

 

 

 

 

 

 

 

 

Total assets

$

6,341,435

 

$

6,327,976

 

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

 

5


 
 

 

United States Cellular Corporation

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

2012 

 

December 31,

2011 

(Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

  

 

Current portion of long-term debt

$

127

 

 

$

127

 

 

Accounts payable

 

 

 

 

 

 

 

 

 

Affiliated

 

15,172

 

 

 

12,183

 

 

 

Trade

 

280,433

 

 

 

303,779

 

 

Customer deposits and deferred revenues

 

190,866

 

 

 

181,355

 

 

Accrued taxes

 

38,999

 

 

 

34,095

 

 

Accrued compensation

 

33,374

 

 

 

69,551

 

 

Other current liabilities

  

87,322

  

 

  

121,190

  

 

 

 

 

 

 

 

646,293

 

 

 

722,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities held for sale

 

 

 

 

1,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred liabilities and credits

 

 

 

 

 

 

 

 

Net deferred income tax liability

 

812,929

 

 

 

799,190

 

 

Other deferred liabilities and credits

 

250,177

 

 

 

248,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

880,486

 

 

 

880,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Noncontrolling interests with redemption features

 

1,064

 

 

 

1,005

 

 

 

 

 

 

 

 

 

 

 

 

  

 

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 84,574 shares (33,006 Series A Common and 51,568 Common Shares) and 84,557 shares (33,006 Series

 

 

 

 

 

 

 

 

 

 

 

A Common and 51,551 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

 

1,392,845

 

 

 

1,387,341

 

 

 

Treasury shares, at cost, 3,500 and 3,517 Common Shares, respectively

 

(152,220

)

 

 

(152,817

)

 

 

Retained earnings

 

2,359,589

 

 

 

2,297,363

 

 

 

 

Total U.S. Cellular shareholders' equity

 

3,688,288

 

 

 

3,619,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests

  

62,198

 

 

   

55,956

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

3,750,486

 

 

 

3,675,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

$

6,341,435

 

 

$

6,327,976

 

 

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

 

6


 
 

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, 2011

$

88,074

 

 

$

1,387,341

 

 

$

(152,817

)

 

$

2,297,363

 

 

$

3,619,961

 

 

$

55,956

 

 

$

3,675,917

 

Add (Deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to U.S. Cellular shareholders

 

 

 

 

 

 

 

 

 

 

62,492

 

 

 

62,492

 

 

 

 

 

 

62,492

 

Net income attributable to noncontrolling interests classified as equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,460

 

 

 

6,460

 

Incentive and compensation plans

 

 

 

 

189

 

 

 

597

 

 

 

(266

)

 

 

520

 

 

 

 

 

 

520

 

Stock-based compensation awards

 

 

 

 

5,344

 

 

 

 

 

 

 

 

 

5,344

 

 

 

 

 

 

5,344

 

Tax windfall (shortfall) from stock awards

 

 

 

 

(29

)

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(29

)

Distributions to noncontrolling interests

 

 

 

 

 

  

 

  

 

 

 

  

 

 

  

 

(218

)

  

 

(218

)

Balance, March 31, 2012

$

88,074

 

 

$

1,392,845

 

 

$

(152,220

)

 

$

2,359,589

  

 

$

3,688,288

 

 

$

62,198

 

 

$

3,750,486

 

 

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

 

7


 
 

 

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, 2010

$

88,074

 

 

$

1,368,487

 

 

$

(105,616

)

 

$

2,135,507

 

 

$

3,486,452

 

 

$

53,518

 

 

$

3,539,970

 

Add (Deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to U.S. Cellular shareholders

 

 

 

 

 

 

 

 

 

 

35,161

 

 

 

35,161

 

 

 

 

 

 

35,161

 

Net income attributable to noncontrolling interests classified as equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,230

 

 

 

5,230

 

Repurchase of Common Shares

 

 

 

 

 

 

 

(17,357

)

 

 

 

 

 

(17,357

)

 

 

 

 

 

(17,357

)

Incentive and compensation plans

 

 

 

 

32

 

 

 

2,498

 

 

 

(1,193

)

 

 

1,337

 

 

 

 

 

 

1,337

 

Stock-based compensation awards

 

 

 

 

5,792

 

 

 

 

 

 

 

 

 

5,792

 

 

 

 

 

 

5,792

 

Tax windfall (shortfall) from stock awards

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

(186

)

 

 

(186

)

Balance, March 31, 2011

$

88,074

 

 

$

1,374,323

  

  

$

(120,475

)

  

$

2,169,475

  

 

$

3,511,397

 

 

$

58,562

 

 

$

3,569,959

  

 

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

 

8


 
 

United States Cellular Corporation

 

Notes to Consolidated Financial Statements

 

1.   Basis of Presentation

 

United States Cellular Corporation (“U.S. Cellular”), a Delaware Corporation, is an 84%-owned subsidiary of Telephone and Data Systems, Inc. (“TDS”).

 

The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of U.S. Cellular, its majority-owned subsidiaries, general partnerships in which U.S. Cellular has a majority partnership interest and certain entities in which U.S. Cellular has a variable interest that require consolidation under GAAP.  All material intercompany accounts and transactions have been eliminated. 

 

The consolidated financial statements included herein have been prepared by U.S. Cellular, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, U.S. Cellular believes that the disclosures included herein are adequate to make the information presented not misleading.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in U.S. Cellular’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2011.

 

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of March 31, 2012 and December 31, 2011, and the results of operations, cash flows and changes in equity for the three months ended March 31, 2012 and 2011.  The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three months ended March 31, 2012 and 2011 equaled net income.  The results of operations, cash flows and changes in equity for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

 

Recent Accounting Pronouncements

 

As of March 31, 2012, there are no recent accounting pronouncements that are expected to have a material impact on U.S. Cellular’s financial position or results of operations.

 

Agent Liabilities

 

U.S. Cellular has relationships with agents, which are independent businesses that obtain customers for U.S. Cellular.  At March 31, 2012 and December 31, 2011, U.S. Cellular had accrued $43.8 million and $75.3 million, respectively, for amounts due to agents, including rebates and commissions.  These amounts are included in Other current liabilities in the Consolidated Balance Sheet.

 

Amounts Collected from Customers and Remitted to Governmental Authorities

 

If a tax is assessed upon the customer and U.S. Cellular merely acts as an agent in collecting the tax on behalf of the imposing governmental authority, then amounts collected from customers and remitted to governmental authorities are recorded on a net basis within a tax liability account in the Consolidated Balance Sheet.   If the tax is assessed upon U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $35.3 million for the three months ended March 31, 2012 and $31.4 million for the three months ended March 31, 2011.