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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q



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

For the quarterly period ended

March 31, 2004

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, 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 ý   No ¨

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, 2004  
 
 
 
  Common Shares, $1 par value
Series A Common Shares, $1 par value		   53,172,610 Shares
33,005,877 Shares		  

UNITED STATES CELLULAR CORPORATION

1ST QUARTER REPORT ON FORM 10-Q

INDEX


Page No.
Part I. Financial Information  
 
       Item 1. Financial Statements (unaudited)
 
                 Consolidated Statements of Operations
                     Three Months Ended March 31, 2004 and 2003 3
 
                 Consolidated Statements of Cash Flows
                     Three Months Ended March 31, 2004 and 2003 4
 
                 Consolidated Balance Sheets
                     March 31, 2004 and December 31, 2003 5-6
 
                 Notes to Consolidated Financial Statements 7-19
 
       Item 2. Management's Discussion and Analysis of 20-22
                     Results of Operations and Financial Condition
 
                 Three Months Ended March 31, 2004 and 2003 22-33
                 Recent Accounting Pronouncements 33-34
                 Financial Resources 34-35
                 Liquidity and Capital Resources 35-38
                 Acquisitions, Exchanges and Divestitures 38-39
                 Application of Critical Accounting Policies and Estimates 39-42
                 Certain Relationships and Related Transactions 43
                 Safe Harbor Cautionary Statement 44-45
 
       Item 3. Quantitative and Qualitative Disclosures About Market Risk 46-47
 
       Item 4. Controls and Procedures 48
  
Part II. Other Information
 
       Item 1. Legal Proceedings 49
 
       Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
                    of Equity Securities 49-50
 
       Item 6. Exhibits and Reports on Form 8-K 50
 
Signatures 51

PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited


Three Months Ended
March 31,
2004 2003
As Restated
(Dollars in thousands,
except per share amounts)
 
OPERATING REVENUES            
  Service   $ 619,382   $ 564,601  
  Equipment sales    38,268    39,173  
    Total Operating Revenues    657,650    603,774  
OPERATING EXPENSES  
  System operations (excluding Depreciation shown separately below)    137,523    137,965  
  Cost of equipment sold    119,888    88,643  
  Selling, general and administrative    258,206    250,352  
  Depreciation    101,440    94,900  
  Amortization and accretion    12,454    14,677  
  (Gain) Loss on assets held for sale    (143 )  21,561  
    Total Operating Expenses    629,368    608,098  
OPERATING INCOME (LOSS)    28,282    (4,324 )
INVESTMENT AND OTHER INCOME (EXPENSE)  
  Investment income    14,287    12,378  
  Interest and dividend income    378    570  
  Other income (expense), net    373    (309 )
  Interest (expense)    (20,315 )  (15,454 )
  Loss on investments    —    (3,500 )
    Total Investment and Other Income (Expense)    (5,277 )  (6,315 )
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST    23,005    (10,639 )
Income tax expense (benefit)    11,661    (388 )
INCOME (LOSS) BEFORE MINORITY INTEREST    11,344    (10,251 )
Minority share of income    (2,112 )  (3,229 )
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE    9,232    (13,480 )
   Cumulative effect of accounting change, net of tax    —    (14,346 )
NET INCOME (LOSS)   $ 9,232   $ (27,826 )

  
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (000s)    86,153    86,121  
BASIC EARNINGS (LOSS) PER SHARE (Note 8)  
    Income (Loss) Before Cumulative Effect of Accounting Change   $ 0.11   $ (0.15 )
    Cumulative Effect of Accounting Change    —    (0.17 )
    Net Income (Loss)   $ 0.11   $ (0.32 )

  
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (000s)    86,704    86,121  
DILUTED EARNINGS (LOSS) PER SHARE (Note 8)  
    Income (Loss) Before Cumulative Effect of Accounting Change   $ 0.11   $ (0.15 )
    Cumulative Effect of Accounting Change    —    (0.17 )
    Net Income (Loss)   $ 0.11   $ (0.32 )

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

-3-


UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


Three Months Ended
March 31,
2004 2003
As Restated
(Dollars in thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES            
  Net income (loss)   $ 9,232   $ (27,826 )
  Add (Deduct) adjustments to reconcile net income (loss)  
    to net cash provided by operating activities  
      Depreciation, amortization and accretion    113,894    109,577  
      Deferred income tax provision    9,991    (866 )
      Investment income    (14,287 )  (12,378 )
      Minority share of income    2,112    3,229  
      Cumulative effect of accounting change    —    14,346  
      (Gain) Loss on assets held for sale    (143 )  21,561  
      Loss on investments    —    3,500  
      Other noncash expense    4,766    2,813  
  Changes in assets and liabilities  
      Change in accounts receivable    11,796    57,527  
      Change in inventory    15,120    (22,057 )
      Change in accounts payable    (68,343 )  (53,819 )
      Change in accrued interest    2,919    (2,266 )
      Change in accrued taxes    5,632    12,700  
      Change in customer deposits and deferred revenues    6,730    6,783  
      Change in other assets and liabilities    (12,981 )  (10,919 )
     86,438    101,905  
CASH FLOWS FROM INVESTING ACTIVITIES  
  Additions to property, plant and equipment    (99,579 )  (138,837 )
  System development costs    (956 )  (2,089 )
  Cash received from sale of assets    96,932    —  
  Acquisitions, excluding cash acquired    (40,367 )  —  
  Distributions from unconsolidated entities    3,541    13,615  
  Other investing activities    (651 )  (2,744 )
     (41,080 )  (130,055 )
CASH FLOWS FROM FINANCING ACTIVITIES  
  Increase in notes payable    230,000    120,000  
  Repayment of notes payable    (145,000 )  (48,000 )
  Repayment of long-term debt - affiliated    (105,000 )  —  
  Repurchase of long-term debt    —    (40,680 )
  Capital (distributions) to minority partners    (438 )  (316 )
  Other financing activities    267    170  
     (20,171 )  31,174  
NET INCREASE IN CASH AND CASH EQUIVALENTS    25,187    3,024  
   
CASH AND CASH EQUIVALENTS-  
  Beginning of period    9,848    14,864  
  End of period   $ 35,035   $ 17,888  

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

-4-


UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

Unaudited
March 31,
2004		 December 31,
2003
As Restated
(Dollars in thousands)
 
CURRENT ASSETS            
  Cash and cash equivalents  
    General funds   $ 35,005   $ 9,822  
    Affiliated cash equivalents    30    26  
     35,035    9,848  
   
  Accounts Receivable  
    Customers, less allowance of $16,694 and $13,786, respectively    227,740    227,651  
    Roaming    33,194    35,362  
    Other    18,375    23,967  
  Inventory    55,978    70,963  
  Prepaid expenses    26,045    22,396  
  Prepaid income taxes    2,008    2,407  
  Other current assets    30,203    31,511  
     428,578    424,105  
INVESTMENTS  
  Licenses    1,192,302    1,189,326  
  License rights    42,037    42,037  
  Goodwill    433,250    430,256  
  Customer lists, net of accumulated amortization of $25,258  
     and $22,206, respectively    34,287    24,448  
  Marketable equity securities    248,403    260,188  
  Investments in unconsolidated entities    174,297    170,569  
  Notes and interest receivable - long-term    5,400    6,476  
     2,129,976    2,123,300  
PROPERTY, PLANT AND EQUIPMENT  
  In service and under construction    3,549,751    3,441,177  
  Less accumulated depreciation    1,370,131    1,267,293  
     2,179,620    2,173,884  
DEFERRED CHARGES  
  System development costs, net of accumulated amortization of  
      $124,097 and $114,673, respectively  
     84,291    97,370  
  Other, net of accumulated amortization of $6,172 and $5,815,  
    respectively    26,492    26,565  
     110,783    123,935  
   
ASSETS OF OPERATIONS HELD FOR SALE    —    100,523  
   
  Total Assets   $ 4,848,957   $ 4,945,747  

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

-5-


UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY

Unaudited

March 31,
2004		 December 31,
2003
As Restated
(Dollars in thousands)
 
CURRENT LIABILITIES            
  Current portion of long-term debt   $ 3,000   $ 3,000  
  Current portion of long-term debt - affiliated    —    105,000  
  Notes payable    85,000    —  
  Accounts payable  
    Affiliated    3,938    4,252  
    Trade