UNITED STATES CELLULAR CORP - 10-Q Quarterly Report

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

September 30, 2004

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

For the transition period from

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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 September 30, 2004

	Common Shares, $1 par value Series A Common Shares, $1 par value		53,351,230 Shares 33,005,877 Shares

UNITED STATES CELLULAR CORPORATION

3RD QUARTER REPORT ON FORM 10-Q

INDEX

			Page No.

Part I. Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2004 and 2003			3

Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2004 and 2003			4

Consolidated Balance Sheets
September 30, 2004 and December 31, 2003			5-6

Notes to Consolidated Financial Statements			7-22

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition			23-26

Nine Months Ended September 30, 2004 and 2003			26-39
Three Months Ended September 30, 2004 and 2003			40-43
Recent Accounting Pronouncements			44
Financial Resources			44-45
Liquidity and Capital Resources			45-50
Application of Critical Accounting Policies and Estimates			50-55
Certain Relationships and Related Transactions			56
Safe Harbor Cautionary Statement			57-58

Item 3. Quantitative and Qualitative Disclosures About Market Risk			59-60

Item 4. Controls and Procedures			61

Part II. Other Information

Item 1. Legal Proceedings			62

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			62

Item 6. Exhibits			63

Signatures			64

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

Unaudited


	Three Months Ended September 30,						Nine Months Ended September 30,

	2004			2003 As Restated			2004			2003 As Restated

	(Dollars in thousands, except per share amounts)
OPERATING REVENUES
Service	$	691,964		$	628,440		$	1,974,004		$	1,803,150
Equipment sales		56,249			36,536			144,084			111,537

Total Operating Revenues		748,213			664,976			2,118,088			1,914,687

OPERATING EXPENSES
System operations (excluding Depreciation
shown separately below)		154,126			153,724			436,536			438,721
Cost of equipment sold		126,659			76,926			356,729			245,149
Selling, general and administrative		298,011			236,573			825,836			745,020
Depreciation		115,377			90,171			327,131			272,534
Amortization and accretion		12,031			13,463			36,420			45,371
Loss on impairment of intangible assets		--			--			--			49,595
(Gain) loss on assets of operations held for sale		--			(1,442	)		(725	)		23,619

Total Operating Expenses		706,204			569,415			1,981,927			1,820,009

OPERATING INCOME		42,009			95,561			136,161			94,678

INVESTMENT AND OTHER INCOME (EXPENSE)
Investment income		19,265			11,301			51,913			37,163
Interest and dividend income		687			437			3,183			2,894
Interest (expense)		(23,671	)		(15,615	)		(64,937	)		(47,513	)
Loss on investments		--			--			(1,830	)		(3,500	)
Other income (expense), net		(3,384	)		582			(2,719	)		(93	)

Total Investment and Other Income (Expense)		(7,103	)		(3,295	)		(14,390	)		(11,049	)

INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST		34,906			92,266			121,771			83,629
Income tax expense		11,646			36,047			46,401			37,725

INCOME BEFORE MINORITY INTEREST		23,260			56,219			75,370			45,904
Minority share of income		(1,951	)		(4,605	)		(6,845	)		(9,464	)

INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE		21,309			51,614			68,525			36,440
Cumulative effect of accounting change, net of tax		--			--			--			(14,346	)

NET INCOME	$	21,309		$	51,614		$	68,525		$	22,094

BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING (000s)		86,278			86,142			86,211			86,132
BASIC EARNINGS PER SHARE (Note 9)
Income Before Cumulative Effect of
Accounting Change	$	0.25		$	0.60		$	0.79		$	0.43
Cumulative Effect of Accounting Change		--			--			--			(0.17	)


Net Income	$	0.25		$	0.60		$	0.79		$	0.26

DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING (000s)		86,797			89,599			86,714			86,540
DILUTED EARNINGS PER SHARE (Note 9)
Income Before Cumulative Effect of
Accounting Change	$	0.25		$	0.59		$	0.79		$	0.43
Cumulative Effect of Accounting Change		--			--			--			(0.17	)

Net Income	$	0.25		$	0.59		$	0.79		$	0.26

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

UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited



	Nine Months Ended September 30,

	2004			2003 As Restated

	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	68,525		$	22,094
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, amortization and accretion		363,551			317,905
Deferred income taxes		46,546			26,607
Investment income		(51,913	)		(37,163	)
Minority share of income		6,845			9,464
Cumulative effect of accounting change		--			14,346
Loss on impairment of intangible assets		--			49,595
(Gain) loss on assets of operations held for sale		(725	)		23,619
Loss on investments		1,830			3,500
Other noncash expense		15,099			8,891
Changes in assets and liabilities
Change in accounts receivable		(34,961	)		31,142
Change in inventory		9,194			15,273
Change in accounts payable		(68,438	)		(116,114	)
Change in accrued interest		3,992			(4,093	)
Change in accrued taxes		(1,610	)		43,659
Change in customer deposits and deferred revenues		10,625			14,059
Change in other assets and liabilities		15,254			(732	)

		383,814			422,052

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(385,160	)		(420,788	)
System development costs		(9,602	)		(18,325	)
Cash received from sale of assets		96,932			--
Acquisitions, excluding cash acquired		(40,367	)		(1,251	)
Proceeds from exchange transaction		--			33,958
Distributions from unconsolidated entities		23,330			21,228
Other investing activities		(661	)		(1,091	)

		(315,528	)		(386,269	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable		355,000			279,278
Issuance of long-term debt		412,484			--
Repayment of notes payable		(300,000	)		(269,278	)
Repayment of long-term debt –affiliated		(105,000	)		--
Repayment of long-term debt		(413,288	)		(40,680	)
Capital (distributions) to minority partners		(832	)		(2,249	)
Other financing activities		4,219			4,227

		(47,417	)		(28,702	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		20,869			7,081
CASH AND CASH EQUIVALENTS-
Beginning of period		9,848			14,864

End of period	$	30,717		$	21,945

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

UNITED STATES CELLULAR CORPOR