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SECURITIES AND EXCHANGE
COMMISSION |
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FORM 10-Q |
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
March 31, 2005 |
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OR |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from |
to |
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Commission File Number 1-9712 |
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UNITED STATES CELLULAR CORPORATION |
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(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 |
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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. |
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Yes ý No ¨ |
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). |
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Yes ý No ¨ |
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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, 2005 | |||
| Common Shares, $1 par value Series A Common Shares, $1 par value |
53,604,615 Shares 33,005,877 Shares |
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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, 2005 and 2004 | 3 | ||||
| Consolidated Statements of Cash Flows | |||||
| Three Months Ended March 31, 2005 and 2004 | 4 | ||||
| Consolidated Balance Sheets | |||||
| March 31, 2005 and December 31, 2004 | 5-6 | ||||
| Notes to Consolidated Financial Statements | 7-15 | ||||
| Item 2. Management's Discussion and Analysis of | |||||
| Financial Condition and Results of Operations | 16 | ||||
| Three Months Ended March 31, 2005 and 2004 | 18 | ||||
| Recent Accounting Pronouncements | 27 | ||||
| Financial Resources | 27 | ||||
| Liquidity and Capital Resources | 28 | ||||
| Application of Critical Accounting Policies and Estimates | 32 | ||||
| Certain Relationships and Related Transactions | 37 | ||||
| Safe Harbor Cautionary Statement | 38 | ||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 40 | ||||
| Item 4. Controls and Procedures | 42 | ||||
| Part II. Other Information | |||||
| Item 1. Legal Proceedings | 43 | ||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 43 | ||||
| Item 5. Other Information | 44 | ||||
| Item 6. Exhibits | 44 | ||||
| Signatures |
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PART I. FINANCIAL
INFORMATION Unaudited |
| Three Months Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands, except per share amounts) | ||||||||
| OPERATING REVENUES | ||||||||
| Service | $ | 668,792 | $ | 619,382 | ||||
| Equipment sales | 39,643 | 38,268 | ||||||
| Total Operating Revenues | 708,435 | 657,650 | ||||||
| OPERATING EXPENSES | ||||||||
| System operations (excluding depreciation, amortization and accretion | ||||||||
| expense shown separately below) | 140,066 | 137,523 | ||||||
| Cost of equipment sold | 126,893 | 119,888 | ||||||
| Selling, general and administrative expense | 277,989 | 258,206 | ||||||
| Depreciation, amortization and accretion expense | 127,250 | 113,894 | ||||||
| Gain on assets held for sale | — | (143 | ) | |||||
| Total Operating Expenses | 672,198 | 629,368 | ||||||
| OPERATING INCOME | 36,237 | 28,282 | ||||||
| INVESTMENT AND OTHER INCOME (EXPENSE) | ||||||||
| Investment income | 13,919 | 14,287 | ||||||
| Interest and dividend income | 2,036 | 378 | ||||||
| Interest (expense) | (20,738 | ) | (20,315 | ) | ||||
| Gain on investments | 551 | — | ||||||
| Other income net | 200 | 373 | ||||||
| Total Investment and Other Income (Expense) | (4,032 | ) | (5,277 | ) | ||||
| INCOME BEFORE INCOME TAXES AND MINORITY INTEREST | 32,205 | 23,005 | ||||||
| Income tax expense | 12,803 | 11,661 | ||||||
| INCOME BEFORE MINORITY INTEREST | 19,402 | 11,344 | ||||||
| Minority share of income | (2,504 | ) | (2,112 | ) | ||||
| NET INCOME | $ | 16,898 | $ | 9,232 | ||||
| BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (000s) | 86,405 | 86,153 | ||||||
| BASIC EARNINGS PER SHARE (Note 4) | $ | 0.20 | $ | 0.11 | ||||
| DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (000s) | 87,125 | 86,704 | ||||||
| DILUTED EARNINGS PER SHARE (Note 4) | $ | 0.19 | $ | 0.11 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| 3 |
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited |
| Three Months Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 16,898 | $ | 9,232 | ||||
| Add (Deduct) adjustments to reconcile net income | ||||||||
| to net cash provided by operating activities | ||||||||
| Depreciation, amortization and accretion | 127,250 | 113,894 | ||||||
| Deferred income taxes | 10,374 | 9,991 | ||||||
| Investment income | (13,919 | ) | (14,287 | ) | ||||
| Minority share of income | 2,504 | 2,112 | ||||||
| Gain on assets held for sale | — | (143 | ) | |||||
| Gain on investments | (551 | ) | — | |||||
| Other noncash expense | 1,561 | 4,766 | ||||||
| Changes in assets and liabilities | ||||||||
| Change in accounts receivable | 12,700 | 11,796 | ||||||
| Change in inventory | 7,167 | 15,120 | ||||||
| Change in accounts payable | (57,062 | ) | (68,343 | ) | ||||
| Change in accrued interest | 8,678 | 2,919 | ||||||
| Change in accrued taxes | 8,475 | 5,632 | ||||||
| Change in customer deposits and deferred revenues | 3,331 | 6,730 | ||||||
| Change in other assets and liabilities | (16,468 | ) | (12,981 | ) | ||||
| 110,938 | 86,438 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property, plant and equipment | (112,243 | ) | (100,535 | ) | ||||
| Cash received from sale of assets | — | 96,932 | ||||||
| Acquisitions, excluding cash acquired | (120,924 | ) | (40,367 | ) | ||||
| Distributions from unconsolidated entities | 1,394 | 3,541 | ||||||
| Other investing activities | (1,052 | ) | (651 | ) | ||||
| (232,825 | ) | (41,080 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Issuance of notes payable | 165,000 | 230,000 | ||||||
| Repayment of notes payable | (60,000 | ) | (145,000 | ) | ||||
| Repayment of long-term debt - affiliated | — | (105,000 | ) | |||||
| Common shares reissued | 6,892 | 449 | ||||||
| Other financing activities | (61 | ) | (620 | ) | ||||
| 111,831 | (20,171 | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (10,056 | ) | 25,187 | |||||
| CASH AND CASH EQUIVALENTS- | ||||||||
| Beginning of period | 40,922 | 9,848 | ||||||
| End of period | $ | 30,866 | $ | 35,035 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| 4 |
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS Unaudited |
| March 31, 2005 | December 31, 2004 | |||||||
| (Dollars in thousands) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 30,866 | $ | 40,922 | ||||
| Accounts Receivable | ||||||||
| Customers, less allowance of $10,262 and $18,277, respectively | 245,840 | 251,943 | ||||||
| Roaming | 23,039 | 26,421 | ||||||
| Other | 40,269 | 39,285 | ||||||
| Inventory | 69,751 | 76,918 | ||||||
| Prepaid expenses | 32,938 | 31,507 | ||||||
| Deferred tax asset | 72,667 | 83,741 | ||||||
| Other current assets | 14,998 | 28,214 | ||||||
| 530,368 | 578,951 | |||||||
| INVESTMENTS | ||||||||
| Licenses | 1,358,725 | 1,228,801 | ||||||
| Goodwill | 425,908 | 425,918 | ||||||
| Customer lists, net of accumulated amortization of $36,930 and | ||||||||
| $34,630, respectively | 22,615 | 24,915 | ||||||
| Marketable equity securities | 274,079 | 282,829 | ||||||
| Investments in unconsolidated entities | 176,367 | 162,764 | ||||||
| Notes and interest receivable - long-term | 4,778 | 4,885 | ||||||
| 2,262,472 | 2,130,112 | |||||||
| PROPERTY, PLANT AND EQUIPMENT | ||||||||
| In service and under construction | 4,216,083 | 4,130,551 | ||||||
| Less accumulated depreciation | 1,787,613 | 1,690,832 | ||||||
| 2,428,470 | 2,439,719 | |||||||
| OTHER DEFERRED CHARGES | 31,954 | 33,145 | ||||||
| TOTAL ASSETS | $ | 5,253,264 | $ | 5,181,927 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| 5 |
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS’ EQUITY Unaudited |
| March 31, 2005 | December 31, 2004 | |||||||
| (Dollars in thousands) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Notes payable | $ | 135,000 | $ | 30,000 | ||||
| Accounts payable | ||||||||
| Affiliated | 5,412 | 5,314 | ||||||
| Trade | 197,766 | 254,926 | ||||||
| Customer deposits and deferred revenues | 107,909 | 104,578 | ||||||
| Accrued taxes | 86,833 | 78,624 | ||||||
| Accrued compensation | 25,921 | 49,116 | ||||||
| Other current liabilities | 35,045 | 24,308 | ||||||
| 593,886 | 546,866 | |||||||
| DEFERRED LIABILITIES AND CREDITS | ||||||||
| Net deferred income tax liability | 676,773 | 680,278 | ||||||
| Derivative liability | 66,800 | 70,796 | ||||||
| Other deferred liabilities and credits | 101,991 | 94,738 | ||||||
| 845,564 | ||||||||