AD

SEC Filing Summary: United States Cellular Corporation (10-Q)

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for United States Cellular Corporation (U.S. Cellular), an 81%-owned subsidiary of Telephone and Data Systems, Inc. (TDS). The report covers the quarterly and six-month periods ended June 30, 2009. U.S. Cellular provides wireless telecommunications services to approximately 6.2 million customers across 26 states.

Key Financial Metrics (Six Months Ended June 30, 2009)

Material Changes vs. Prior Period

• Profitability: Operating income increased 8% year-over-year, driven by higher retail service revenues and lower depreciation expenses due to the full depreciation of legacy TDMA and analog equipment in 2008.
• Revenue Mix: Service revenues grew slightly ($7.2 million) despite a 22% decline in inbound roaming revenues caused by the Verizon/Alltel merger. This was offset by a 2% increase in retail service revenues driven by data usage growth.
• Customer Base: Total customers decreased slightly to 6.155 million. Net retail customer additions were only 4,000 for the six months, a significant drop from 119,000 in 2008, attributed to a weak economy and increased competition from unlimited prepay providers.
• Liquidity: Cash and cash equivalents increased by $104.9 million to $275.9 million. The company replaced its $700 million revolving credit facility with a new $300 million facility on June 30, 2009, with no outstanding borrowings at period end.

Guidance, Outlook, and Risks

• 2009 Estimates: Management estimates full-year 2009 service revenues between $3.90 billion and $3.95 billion, and operating income between $300 million and $375 million. Capital expenditures are estimated at approximately $575 million.
• Withdrawn Guidance: U.S. Cellular has withdrawn its guidance for net retail customer additions for the remainder of 2009 due to economic uncertainty.
• Legal Proceedings: The Department of Justice (DOJ) is investigating U.S. Cellular's participation in FCC spectrum auctions (2005–2008) regarding the eligibility for 25% bid credits. A qui tam complaint seeks the return of approximately $165 million in credits plus treble damages. The company intends to vigorously defend itself.
• Supplier Risk: Key supplier Nortel Networks filed for bankruptcy protection in January 2009. While U.S. Cellular does not expect immediate operational disruption, it faces risks regarding future equipment costs, maintenance, and upgrades.
• Accounting Changes: The company adopted SFAS 160 (Noncontrolling Interests) and SFAS 141(R) (Business Combinations) effective January 1, 2009. It also shifted its annual goodwill impairment testing date from April 1 to November 1.

Investor Verification Checklist

• Customer Churn: Verify the sustainability of the 1.6% postpay churn rate and the impact of unlimited prepay competitors on future growth.
• Roaming Revenue Trajectory: Assess the long-term impact of the Verizon/Alltel merger on inbound roaming revenues, which are expected to continue declining.
• DOJ Investigation Outcome: Monitor the status of the DOJ investigation into FCC auction bid credits, as a negative outcome could result in significant financial penalties.
• Nortel Bankruptcy Impact: Evaluate the potential for increased capital costs or network maintenance issues resulting from Nortel's reorganization.
• Capital Allocation: Review the utilization of the new $300 million credit facility and the company's ability to fund the estimated $575 million in capital expenditures without further dilution or debt issuance.