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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
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(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
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Common Shares, $1 par value 54,452,675 Shares
Series A Common Shares, $1 par value 33,005,877 Shares
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<PAGE>
UNITED STATES CELLULAR CORPORATION
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1ST QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-14
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and 1998 15
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 16
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 17-18
Notes to Consolidated Financial Statements 19-21
Part II. Other Information 22
Signatures 23
<PAGE>
PART I. FINANCIAL INFORMATION
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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Three Months Ended 3/31/99 Compared to Three Months Ended 3/31/98
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United States Cellular Corporation (the "Company" - AMEX symbol: USM) owns,
operates and invests in cellular markets throughout the United States. USM is an
80.9%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS").
USM owned either majority or minority cellular interests in 182 markets at March
31, 1999, representing 26,512,000 population equivalents ("pops"). USM included
the operations of 138 majority-owned and managed cellular markets, representing
23.7 million pops, in consolidated operations ("consolidated markets") as of
March 31, 1999. Minority interests in 38 markets, representing 2.5 million pops,
were accounted for using the equity method and were included in investment
income at that date. All other interests were accounted for using the cost
method. Following is a table of summarized operating data for USM's consolidated
operations.
<TABLE>
<CAPTION>
Three Months Ended
or At March 31,
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1998 1997
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<S> <C> <C>
Total market population (in thousands) (1) 24,683 24,034
Customers 2,270,000 1,817,000
Market penetration 9.20% 7.56%
Markets in operation 138 134
Total employees 4,800 4,600
Cell sites in service 2,106 1,786
Average monthly revenue per customer $ 47.18 $ 44.66
Churn rate per month 2.1% 1.7%
Marketing cost per gross customer addition $ 319 $ 313
</TABLE>
(1) Calculated using 1998 Claritas population estimates for each year.
The growth in the Company's operating income in the first three months of 1999,
which includes 100% of the revenues and expenses of its consolidated markets
plus its corporate office operations, primarily reflects improvements in the
Company's overall operations compared to the first three months of 1998. The
improvements resulted from growth in the Company's customer base and revenues
coupled with continuing economies of scale. Operating revenues, driven by a 25%
increase in customers served, rose $80.8 million, or 33%, in 1999. Cash
operating expenses rose $55.2 million, or 33%, in 1999. Operating cash flow
(operating income plus depreciation and amortization expense) increased $25.6
million, or 33%, in 1999. Depreciation and amortization expense
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<PAGE>
increased $6.6 million, or 15%, in 1999. Operating income increased $19.0
million, or 57%, in 1999.
Investment and other income decreased $185.3 million to $5.9 million in 1999,
due primarily to a decrease of $180.0 million in gains on the sales of cellular
interests in 1999, plus a $6.2 million, or 48%, reduction in investment income.
Gains on sales of cellular interests in 1998 primarily resulted from the sale of
certain minority interests to AirTouch Communications, Inc. ("AirTouch"); there
were no such sales in 1999. Investment income declined due both to a decrease in
1999 in the aggregate results of markets managed by others in which the Company
owned investment interests in both periods, and also related to the sale of
minority interests to AirTouch in 1998, which had generated investment income
until their disposition.
Net income totaled $27.8 million in 1999, a decrease of $101.9 million, or 79%,
from 1998. Diluted earnings per share totaled $0.32 in 1999, a decrease of
$1.17, or 79%, from 1998. Net income in 1998 was significantly affected by gains
on the sales of cellular interests. A summary of the after-tax effects of gains
on net income and diluted earnings per share in each period is shown below.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
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1999 1998
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(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Net income before after-tax effects of gains $ 27,826 $ 19,513
Add: After-tax effects of gains -- 110,239
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Net income as reported $ 27,826 $ 129,752
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Earnings per share before after-tax effects
of gains $ 0.32 $ 0.22
Add: After-tax effects of gains -- 1.27
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Diluted earnings per share $ 0.32 $ 1.49
=========== ==========
</TABLE>
Operating Revenues
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Operating revenues totaled $326.0 million in 1999, up $80.8 million, or 33%,
over 1998. Service revenues primarily consist of: (i) charges for access,
airtime and value-added services provided to the Company's local retail
customers who use the local systems operated by the Company ("local retail");
(ii) charges to customers of other systems who use the Company's cellular
systems when roaming ("inbound roaming"); and (iii) charges for long-distance
calls made on the Company's systems. Service revenues totaled $315.2 million in
1999, up $78.9 million, or 33%, over 1998. The increase was primarily due to the
growing number of local retail customers and also due to the increase in inbound
roaming minutes of use on the Company's systems.
Average monthly service revenue per customer increased 6% to $47.18 in 1999 from
$44.66 in 1998. The increases in average monthly service revenue per customer
resulted from increases in minutes of use on the Company's systems from both
local retail customers and inbound roamers. This effect was partially offset by
the continued decline
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in average revenue per minute of use from both local retail customers and
inbound roamers.
Monthly local retail minutes of use per customer increased to 101 in 1999 from
95 in 1998, resulting from the Company's focus on adding value to its services
for its customers in order to stimulate overall usage. Also, total inbound
roaming minutes used on the Company's systems increased 72% in 1999. This
increase was largely affected by the introduction of certain "one rate" programs
by other wireless companies in the second half of 1998. Wireless customers who
sign up for these programs are given price incentives to roam in other markets,
including the Company's markets, thus driving an increase in the Company's
inbound roaming minutes. Management anticipates that the increase in minutes of
use will be slower in the second half of 1999 as the effect of "one rate"
programs becomes present in both periods of comparison.
Competitive pressures and the Company's increasing use of pricing and other
incentive programs to stimulate overall usage resulted in decreases in average
local retail revenue per minute of use during 1999. The Company's average
inbound roaming revenue per minute of use also decreased during 1999, in line
with the ongoing trend toward reduced per minute prices for roaming negotiated
between the Company and other wireless operators. Management anticipates that
the Company's average revenue per minute of use for both local retail and
inbound roaming revenues will continue to decline in the future, reflecting the
continued effect of the previously mentioned factors.
Local retail revenue increased $43.4 million, or 26%, in 1999. Growth in the
Company's customer base was the primary reason for the increase in local retail
revenue. The number of customers increased 25% to 2,270,000 at March 31, 1999
from 1,817,000 at March 31, 1998. Management anticipates that overall growth in
the Company's customer base will be slower in the future, primarily as a result
of an increase in the number of competitors in its markets.
Average monthly local retail revenue per customer declined 1% to $31.96 in 1999
from $32.14 in 1998. Monthly local retail minutes of use per customer was 101 in
1999 and 95 in 1998. Average revenue per minute of use decreased as a result of
the pricing and other incentive programs stated previously, totaling $.32 in
1999 compared to $.34 in 1998. The increase in monthly local retail minutes of
use was driven by the Company's focus on adding value to its services for local
retail customers through incentive programs and rate plans which are designed to
stimulate overall usage. The decrease in average monthly local retail revenue
per minute primarily reflects the increasing level of competition for wireless
services.
Inbound roaming revenue increased $24.8 million, or 54%, in 1999. The growth in
inbound roaming revenue in 1999 was affected by an increase in roaming minutes
used on the Company's systems and a decrease in revenue per minute. The number
of minutes used by customers from other wireless systems when roaming in the
Company's service areas increased by 72% in 1999. The increase in minutes of use
was significantly affected by certain "one rate" programs offered by other
wireless companies beginning in the second half of 1998. Average inbound roaming
revenue per minute decreased 14% to $.59 in 1999 from $.69 in 1998, due to the
downward trend in negotiated rates. Monthly inbound
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roaming revenue per Company customer averaged $10.62 in 1999 and $8.73 in 1998.
The increase in monthly inbound roaming revenue per Company customer is
attributable to a larger increase in inbound roaming revenue than in the
Company's customer base.
Long-distance revenue increased $10.9 million, or 57%, in 1999 as the volume of
long-distance calls billed by the Company increased, primarily from inbound
roamers using the Company's systems to make long-distance calls. Monthly
long-distance revenue per customer averaged $4.49 in 1999 and $3.60 in 1998.
Equipment sales revenues increased $2.0 million, or 22%, in 1999. The increase
in equipment sales revenues reflects the 16% increase in the number of gross
customer activations, to 229,000 in 1999 from 198,000 in 1998, plus an increase
in the volume of accessories sold. Most of the gross customer activations were
produced by the Company's direct and retail distribution channels; activations
from these channels usually generate sales of cellular telephone units. The
increases in the volume of accessories sold in both years reflect an increased
emphasis on the sale of accessories at retail prices in the Company's retail
locations.
Operating Expenses
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Operating expenses totaled $273.9 million in 1999, up $61.9 million, or 29%,
over 1998. System operations expenses increased $21.7 million, or 59%, in 1999
as a result of increases in customer usage expenses and costs associated with
serving the Company's increased number of customers and the growing number of
cell sites within the Company's systems. In total, system operations costs are
expected to continue to increase as the number of customers using and the number
of cell sites within the Company's systems grows.
Customer usage expenses represent charges from other telecommunications service
providers for the Company's customers' use of their facilities as well as for
the Company's inbound roaming traffic on these facilities. Also included are
costs related to local interconnection to the landline network, toll charges and
expenses incurred by the Company when its customers use systems other than their
local systems ("outbound roaming"). These expenses are offset somewhat by
amounts the Company bills to its customers for outbound roaming.
Customer usage expenses increased $19.0 million, or 84%, in 1999. The increase
in 1999 is primarily due to the 164% increase in net outbound roaming expense,
which has resulted from the Company offering its customers increasingly larger
service footprints in which their calls are billed at local rates. In an
increasing number of cases, these service areas include other operators' service
areas. The Company pays roaming rates to the other carriers for calls the
Company's customers make in these areas, while charging those customers a local
rate which is usually lower than the roaming rate. Also contributing to the
increase in customer usage expenses in 1999 was a 19% rise in costs related to
the increase in minutes used on the Company's systems, partially offset by a 5%
reduction in costs related to fraudulent use of the Company's customers'
cellular
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<PAGE>
telephone numbers. Customer usage expenses represented 13% of service revenues
in 1999 and 10% in 1998.
Maintenance, utility and cell site expenses increased $2.8 million, or 20%, in
1999. The increase primarily reflects an increase in the number of cell sites in
the Company's systems, to 2,106 in 1999 from 1,786 in 1998.
Marketing and selling expenses increased $8.3 million, or 17%, in 1999.
Marketing and selling expenses primarily consist of salaries, commissions and
expenses of field sales and retail personnel and offices; agent expenses;
corporate marketing department salaries and expenses; local advertising; and
public relations expenses. The increase was primarily due to the 16% rise in the
number of gross customer activations. Marketing cost per gross customer
activation, which includes marketing and selling expenses and losses on
equipment sales, increased 2% to $319 in 1999 from $313 in 1998. The increase in
cost per gross customer activation was primarily driven by additional
advertising expenses incurred to promote the Company's brand and to distinguish
the Company's service offerings from those of its competitors. Also contributing
was an increase in losses on equipment sales in 1999, primarily driven by the
sale of more digital phone units, which on average generate greater equipment
losses than the sale of analog phone units.
Cost of equipment sold increased $4.7 million, or 23%, in 1999. The increase
reflects the growth in unit sales related to the 16% increase in gross customer
activations as well as the impact of selling more higher cost digital phone
units in 1999. Also contributing to the increase was a greater volume of sales
of accessories.
General and administrative expenses increased $20.5 million, or 35%, in 1999.
These expenses include the costs of operating the Company's local business
offices and its corporate expenses other than the corporate engineering and
marketing departments. The increase includes the effects of increases in
expenses required to serve the growing customer base in existing markets and an
expansion of both local administrative office and corporate staff, necessitated
by growth in the Company's business. Also, the Company incurred additional
start-up costs in 1999 related to its six Communications Centers, which were
created to centralize certain customer service functions; incurred costs, which
were no longer capitalizable beginning in January 1999, related to its
conversion to a new billing system; and incurred additional costs by providing
digital phone units to customers who migrated from analog to digital rate plans.
Employee-related expenses increased $7.0 million, or 25%, in 1999, primarily due
to increases in the number of customer service and administrative employees.
Monthly general and administrative expenses per customer increased 7% to $11.90
in 1999 from $11.16 in 1998. General and administrative expenses represented 25%
of service revenues in both 1999 and 1998.
Operating cash flow increased $25.6 million, or 33%, to $104.0 million in 1999.
The improvement was primarily due to substantial growth in customers and service
revenues and the effects of continued operational efficiencies on cash operating
expenses. Operating cash flow margins (as a percent of service revenues) were
33.0% in 1999 and 33.2% in 1998.
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Depreciation expense increased $5.7 million, or 16%, in 1999. The increase
reflects rising average fixed asset balances, which increased 16% in 1999.
Increased fixed asset balances in 1999 resulted from the addition of new cell
sites built to improve coverage and capacity in the Company's markets and from
upgrades to provide digital service in more of the Company's service areas.
Amortization of intangibles increased $952,000, or 10%, in 1999. The increase in
1999 primarily reflects a 9% increase in investment in licenses, related to
acquisitions completed during the last half of 1998.
Operating Income
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Operating income totaled $52.1 million in 1999, a 57% increase over 1998. The
operating income margin was 16.5% in 1999 and 14.0% in 1998. The improvements in
operating income and operating income margins in 1999 reflect increased revenues
resulting from growth in the number of customers served by the Company's systems
and the effect of continued operational efficiencies on total operating
expenses.
The Company expects service revenues to continue to grow during the remainder of
1999; however, management anticipates that average monthly revenue per customer
will decrease for the full year of 1999 compared to 1998, despite the increase
in the first quarter comparison, as local retail and inbound roaming revenue per
minute of use decline and as the Company further penetrates the consumer market.
Additionally, the Company expects expenses to increase during the remainder of
1999 as it incurs costs associated with both customer growth and fixed assets
added.
Although service revenues increased 33% and average monthly revenue per customer
increased 6% in the first quarter of 1999, management does not expect these
trends to continue throughout 1999 for the reasons stated previously. Management
continues to believe there exists a seasonality in both service revenues, which
tend to increase more slowly in the first and fourth quarters, and operating
expenses, which tend to be higher in the fourth quarter due to increased
marketing activities and customer growth, which may cause operating income to
vary from quarter to quarter. Additionally, competitors licensed to provide
personal communications services ("PCS") have initiated service in certain of
the Company's markets over the past three years. The Company expects PCS
operators to continue deployment of PCS in portions of all of the Company's
clusters throughout 1999. The Company has increased its advertising,
particularly brand advertising, since 1997 to promote its brand and distinguish
the Company's service from other wireless communications providers. The
Company's management continues to monitor other wireless communications
providers' strategies to determine how additional competition is affecting the
Company's results. While the effects of additional wireless competition have
slowed customer growth in certain of the Company's markets, the overall effect
on the Company's total customer growth to date has not been material. However,
management anticipates that customer growth will be lower in the future,
primarily as a result of the increase in the number of competitors in its
markets.
Investment and Other Income
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<PAGE>
Investment and other income totaled $5.9 million in 1999 and $191.2 million in
1998. There were no gains recorded in the first quarter of 1999. Gains totaling
$180.0 million were recorded in 1998 from sales of the Company's investment
interests in ten markets, and also related to amounts received from TDS pursuant
to an agreement between the Company and TDS.
Investment income was $6.6 million in 1999 compared to $12.8 million in 1998, a
48% decrease. Investment income primarily represents the Company's share of net
income from the markets managed by others that are accounted for by the equity
method. The aggregate income from the markets in which the Company had interests
in both 1998 and 1999 decreased significantly in 1999, reducing investment
income. Investment income in 1999 was also negatively impacted by the
divestitures of certain minority interests to AirTouch in the first half of
1998. See "Financial Resources and Liquidity - Acquisitions and Divestitures"
for further discussion of these transactions.
Interest and Income Taxes
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Interest expense totaled $9.2 million in 1999 compared to $10.1 million in 1998.
Interest expense in 1999 is primarily related to Liquid Yield Option Notes
("LYONs") ($4.3 million); the Company's 7.25% Notes (the "Notes") ($4.6
million); and the Company's revolving credit facility with a series of banks
("Revolving Credit Facility") ($199,000). Interest expense in 1998 was primarily
related to LYONs ($4.1 million), the Company's 7.25% Notes ($4.6 million) and
borrowings under the Revolving Credit Facility ($566,000).
The Company's $250 million principal amount of 7.25% Notes, issued under a shelf
registration statement, were priced to yield 7.33% to maturity. The Notes are
unsecured and become due in August 2007. Interest on the Notes is payable
semi-annually on February 15 and August 15 of each year.
The LYONs are zero coupon convertible debentures which accrete interest at 6%
annually, but do not require current cash payments of interest. All accreted
interest is added to the outstanding principal balance on June 15 and December
15 of each year.
The Revolving Credit Facility is a seven-year facility which was established in
1997. Borrowings under this facility accrue interest at the London InterBank
Offered Rate ("LIBOR") plus 26.5 basis points (for a rate of 5.2% at March 31,
1999). Interest and principal are due the last day of the borrowing period, as
selected by the borrower, of either seven days or one, two, three or six months;
any borrowings made under the facility are short-term in nature and
automatically renew until they are repaid. The Company pays facility and
administrative fees totaling $710,000 per year in addition to interest on any
borrowings; these fees are recorded as interest expense. Any borrowings
outstanding in August 2004, the termination date of the Revolving Credit
Facility, are due and payable at that time along with any accrued interest. The
Company borrowed and repaid amounts totaling $47 million during the first
quarter of 1998; no borrowings were made during the first quarter of 1999.
Income tax expense was $21.0 million in 1999 and $84.5 million in 1998. In 1998,
$69.8 million of income tax expense related to the gains on sales of cellular
interests. The
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effective tax rates were 43% in 1999 and 39% in 1998. The increase in 1999's
effective tax rate is primarily related to the nature of the gains on sales of
cellular interests in 1998, which have varying tax rates. The 1999 effective tax
rate approximates the normalized tax rate from operations.
TDS and the Company are parties to a Tax Allocation Agreement, pursuant to which
the Company is included in a consolidated federal income tax return with other
members of the TDS consolidated group. For financial reporting purposes, the
Company computes federal income taxes as if it were filing a separate return as
its own affiliated group and was not included in the TDS group.
Net Income
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Net income totaled $27.8 million in 1999 and $129.8 million in 1998. Diluted
earnings per share was $.32 in 1999 and $1.49 in 1998. Net income and earnings
per share in 1998 included significant after-tax gains on the sales of cellular
interests, representing $110.2 million and $1.27 per share. Excluding the
after-tax effect of these gains, net income would have been $19.5 million, or
$.22 per share, in 1998.
FINANCIAL RESOURCES AND LIQUIDITY
- ---------------------------------
The Company operates a capital and marketing-intensive business. In recent
years, the Company has generated operating cash flow and received cash proceeds
from divestitures to fund most of its construction costs and substantially all
of its operating expenses. The Company anticipates further increases in cellular
units in service, revenues, operating cash flow and cell sites as it continues
its growth strategy. Operating cash flow may fluctuate from quarter to quarter
depending on the seasonality of each of these growth factors.
Cash flows from operating activities provided $98.4 million in 1999 and $48.3
million in 1998. Operating cash flow provided $104.0 million in 1999 and $78.4
million in 1998. Cash flows from other operating activities (investment and
other income, interest expense, income taxes, changes in working capital and
changes in other assets and liabilities) required $5.6 million in 1999 and $30.1
million in 1998. Income taxes and interest paid totaled $13.7 million in 1999
and $37.8 million in 1998.
Cash flows from financing activities provided $891,000 in 1999 and $93,000 in
1998. There were no material financing transactions in either period.
Cash flows from investing activities required $85.0 million in 1999 and provided
$460,000 in 1998. Cash required for property, plant and equipment and system
development expenditures totaled $84.7 million in 1999 and $69.1 million in
1998. In 1999 and 1998, these expenditures were financed primarily with
internally generated cash. These expenditures primarily represent the
construction of 41 and 38 cell sites in 1999 and 1998, respectively, plus other
plant additions and costs related to the development of the Company's office
systems. In both periods, other plant additions included significant amounts
related to the replacement of retired assets and the changeout of analog radio
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equipment for digital radio equipment. Acquisitions required $8.1 million in
1999 and $48.9 million in 1998. The Company received net cash proceeds totaling
$118.9 million in 1998 related to sales of cellular interests. Cash
distributions from cellular entities in which the Company has an interest
provided $5.8 million in 1999 and $4.5 million in 1998.
Anticipated capital requirements for 1999 primarily reflect the Company's
construction and system expansion program. The Company's construction and system
expansion budget for 1999 is approximately $300 million, to expand and enhance
the Company's coverage in its service areas, including the addition of digital
service capabilities to its systems, and to enhance the Company's office
systems.
Acquisitions and Divestitures
- -----------------------------
The Company assesses its cellular holdings on an ongoing basis in order to
maximize the benefits derived from clustering its markets. As the Company's
clusters have grown, the Company's focus has shifted toward exchanges and
divestitures of managed and investment interests along with the outright
purchases of controlling interests which helped build the Company's clusters
since its inception. Over the past few years, the Company has completed
exchanges of controlling interests in its less strategic markets for controlling
interests in markets which better complement its clusters. The Company has also
completed outright sales of other less strategic markets, and has purchased
controlling interests in markets which enhance its clusters. The proceeds from
any sales have been used to further the Company's growth.
In the first three months of both 1999 and 1998, there were no completed
acquisitions or divestitures of majority interests. In the first three months of
1999, the Company acquired minority interests in several markets, representing
81,000 pops, for a total of $8.5 million in cash. In the first three months of
1998, the Company acquired minority interests in several markets, representing
225,000 pops, for a total of $42.0 million in cash, most of which was borrowed
under the Company's Revolving Credit Facility.
In the first quarter of 1998, the Company divested minority interests in ten
markets, representing approximately 872,000 pops. In exchange, the Company
received approximately 3.9 million shares of AirTouch stock and cash and
receivables totaling $120.4 million. Approximately $28.7 million, consisting of
cash and receivables, was received pursuant to a contract right termination
agreement entered into between the Company and TDS. This agreement was related
to two interests which were sold directly by TDS to AirTouch and which were to
be acquired by the Company as part of a June 1996 agreement between the Company
and TDS. The contract right termination agreement enabled the Company to receive
cash equal to the value of the gain the Company would have realized had it
purchased the interests from TDS and sold them to AirTouch under terms similar
to those in the agreement between TDS and AirTouch.
As of March 31, 1999, the Company had an agreement pending to divest a majority
interest in one market, representing 264,000 pops, for $39.4 million in cash.
The Company will not record a gain or loss on the sale transaction. The Company
completed this transaction in April 1999.
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Liquidity
- ---------
The Company anticipates that the aggregate resources required for the remainder
of 1999 will include approximately $215 million for capital spending. The
Company is generating substantial cash from its operations and anticipates
financing its capital spending for 1999 primarily with internally generated
cash, proceeds from the sales of cellular interests and short-term borrowings.
The Company had $66 million of cash and cash equivalents at March 31, 1999 and
received approximately $39 million from the divestiture completed in April 1999.
Additionally, the entire balance of $500 million under the Company's Revolving
Credit Facility is unused and remains available to meet any short-term borrowing
requirements.
Management believes that the Company's operating cash flows and sources of
external financing, including the above-referenced Revolving Credit Facility,
provide substantial financial flexibility for the Company to meet both its
short- and long-term needs. The Company also currently has access to public and
private capital markets to help meet its long-term financing needs. The Company
anticipates issuing debt and equity securities only when capital requirements
(including acquisitions), financial market conditions and other factors warrant.
Market Risk
- -----------
The Company is subject to market rate risks due to fluctuations in interest
rates and equity markets. All of the Company's current debt is in the form of
long-term fixed-rate notes with original maturities ranging from seven to 20
years. Accordingly, fluctuations in interest rates can lead to fluctuations in
the fair value of such instruments. The Company has not entered into financial
derivatives to reduce its exposure to interest rate risks. There have been no
material changes to the Company's outstanding debt instruments since December
31, 1998.
The Company maintains a portfolio of available for sale marketable equity
securities which resulted from acquisitions and the sale of non-strategic
investments. The market value of these investments, principally AirTouch common
shares, amounted to $400.9 million at March 31, 1999. A hypothetical 10%
decrease in the share prices of these investments would result in a $40.1
million decline in the market value of the investments.
Year 2000 Issue
- ---------------
The Year 2000 issue exists because many computer systems and applications
abbreviate dates using only two digits rather than four digits, e.g., "98"
rather than "1998". Unless corrected, this shortcut may cause problems when the
century date "2000" occurs. On that date, some computer operating systems and
applications and embedded technology may recognize the date as January 1, 1900
instead of January 1, 2000. If the Company fails to correct any critical Year
2000 processing problems prior to January 1, 2000, the affected systems may
either cease to function or produce erroneous data, which could have material
adverse operational and financial consequences.
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The Company's management has established a project team to address Year 2000
issues. The Company's plan to address the Year 2000 Issue consists of five
general phases: (i) Awareness, (ii) Assessment, (iii) Renovation, (iv)
Validation and (v) Implementation.
The awareness phase consisted of establishing a Year 2000 project team, that
reports periodically to the Company's Audit Committee, and developing an overall
strategy. TDS management has established a Year 2000 Program Office at the
corporate level to coordinate activities of the Year 2000 project team, to
monitor the current status of individual projects, to report periodically to the
TDS Audit Committee and to promote the exchange of information between all TDS
business units to share knowledge and solution techniques. Management has made
the Year 2000 Issue a top priority. The Year 2000 effort covers the network and
supporting infrastructure for the provision of cellular services; the
operational and financial information technology ("IT") systems and
applications, including computer systems that support key business functions
such as billing, finance, customer service, procurement and supply; and a review
of the Year 2000 compliance efforts of the Company's critical vendors.
The assessment phase included the identification of core business areas and
processes, analysis of systems and hardware supporting the core business areas
and the prioritization of renovation or replacement of the systems and hardware
that are not Year 2000 compliant. Included in the assessment phase is an
analysis of risk management factors such as contingency plans and legal matters.
Except for the contingency plans as discussed herein, the assessment phase was
completed in the first quarter of 1999.
The Year 2000 project team has identified those mission critical hardware,
systems and applications that are not Year 2000 compliant. These noncompliant
critical hardware, systems and applications have undergone renovation or are
currently in the renovation phase. The renovation phase consists of the
remediation or replacement of mission critical systems, applications and
hardware. The renovation of these mission critical hardware, systems and
applications is on schedule and should be substantially completed in the third
quarter of 1999.
The mission critical hardware, systems and applications that have been renovated
are undergoing Year 2000 validation testing. The validation phase includes
testing, verifying and validating the renovated or replaced platforms,
applications, databases and utilities. The validation phase consists of
independent verification testing of mission critical systems, applications and
hardware as well as network and system component upgrades received from
suppliers. In addition, selected Year 2000 upgrades are slated to undergo
testing in a controlled environment that replicates the current environment and
is equipped to simulate the turn of the century and leap year dates. The
Cellular Telecommunications Industry Association ("CTIA") has formed a working
group to coordinate efforts of various carriers and manufacturers to assist in
inter-network Year 2000 testing. Validation of mission critical hardware,
systems and applications is scheduled to be completed in the third quarter of
1999.
-12-
<PAGE>
The implementation phase involves migrating the converted, renovated and
validated mission critical systems, applications and hardware into production.
This phase is expected to be completed during the fourth quarter of 1999.
Management cannot provide assurance that its plan to achieve Year 2000
compliance will be successful as it is subject to various risks and
uncertainties. The Company's current schedule is subject to change depending on
developments that may arise through unforeseen circumstances in the renovation,
validation and implementation phases of the Company's compliance efforts. The
Company, like most other telecommunications operators, is highly dependent on
the telecommunications network vendors to provide compliant hardware, systems
and applications and on other third parties, including vendors, other
telecommunications service providers, government agencies and financial
institutions, to deliver reliable services. The Company is dependent on the
development of compliant hardware, systems and applications and upgrades by
experts, both internal and external, and the availability of critical resources
with the requisite skill sets. The Company's ability to meet its target dates is
dependent upon the timely provision of necessary upgrades and modifications by
its suppliers and internal resources. In addition, the Company cannot guarantee
that third parties on whom it depends for essential services (such as electric
utilities and other interconnected telecommunications operators) will convert
their critical systems and processes in a timely manner. Failure or delay by any
of these parties could significantly disrupt the Company's business, including
the provision of cellular service to customers, billing and collection processes
and other areas of the business, and cause a material adverse effect on the
Company's results of operations, financial position and cash flow. The Company
has contacted critical vendors requesting information about their Year 2000
readiness. The responses are being reviewed and used in developing the Company's
overall contingency plans.
The Company's Year 2000 worst case scenario may involve interruption of
telecommunications services and data processing service and/or interruption of
customer billing, operating and other information systems. As part of its Year
2000 initiative, the Company is evaluating these worst case scenarios and is in
the process of developing contingency and business plans tailored for adverse
Year 2000-related occurrences. The contingency and business continuity plans are
expected to assess the potential for business disruption in various scenarios,
and to provide key operational backup, recovery and restorational alternatives.
The Company's contingency plan initiatives will include the following:
reviewing, assessing and updating existing business recovery plans; identifying
teams who will be on call during the millennium change to monitor the network,
critical systems, operations centers and business processes to react immediately
to facilitate repairs; re-prioritization of mission critical work processes and
associated resources; developing alternate processes to support critical
customer functions in the event information systems or mechanized processes
experience Year 2000 disruptions; establishing replacement/repair parallel paths
to provide for repair and readiness of existing systems and components that are
scheduled for replacement by the Year 2000, in the event the replacement
schedules are not met; developing alternate plans for critical suppliers of
products and services that fail to meet Year 2000 compliance commitment
schedules; and developing data retention and recovery procedures to be in place
for customer and critical business data to provide
-13-
<PAGE>
pre-millennium backups with on-site as well as off-site data copies. The Company
anticipates having these contingency plans in place early in the fourth quarter
of 1999.
The Company estimates that the total direct costs related to the Year 2000
project will be approximately $3 million to $5 million. Through March 31, 1999,
the total direct costs associated with the Year 2000 Issue were approximately
$1.5 million. In recent years, the Company has made capital expenditures,
primarily related to the ongoing upgrade of its network to provide digital
capabilities as well as certain financial and customer information systems,
which are by design thought to be Year 2000 compliant. These expenditures are
not considered to be directly related to the Year 2000 project because they are
in conjunction with the Company's overall operating strategies to add digital
capabilities for competitive purposes and to improve financial systems and
customer service. However, these upgrades and financial systems will be tested
for Year 2000 compliance. The timing of the Company's expenditures may vary and
is not necessarily indicative of readiness efforts or progress to date. Though
Year 2000 project costs will directly impact the reported level of future net
income, the Company intends to manage its total cost structure, including
deferral of non-critical projects, in an effort to mitigate the impact of Year
2000 project costs.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT This Management's Discussion and Analysis of Results of Operations and
Financial Condition and other sections of this Quarterly Report on Form 10-Q
contain "forward-looking" statements as defined in the Private Securities
Litigation Reform Act of 1995, that are based on current expectations, estimates
and projections. Statements that are not historical facts, including statements
about the Company's beliefs and expectations, are forward-looking statements.
These statements contain potential risks and uncertainties; therefore, actual
results may differ materially. The Company undertakes no obligation to update
publicly any forward-looking statements whether as a result of new information,
future events or otherwise.
Important factors that may affect these projections or expectations include, but
are not limited to: changes in the overall economy; changes in competition in
markets in which the Company operates; advances in telecommunications
technology; changes in the telecommunications regulatory environment; pending
and future litigation; availability of future financing; start-up of PCS
operations; unanticipated changes in growth in cellular customers, penetration
rates, churn rates and the mix of products and services offered in the Company's
markets; and unanticipated problems with the Year 2000 Issue. Readers should
evaluate any statements in light of these important factors.
-14-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Unaudited
---------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
------ ------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
OPERATING REVENUES
Service $ 315,194 $ 236,344
Equipment sales 10,791 8,813
--------- ---------
Total Operating Revenues 325,985 245,157
--------- ---------
OPERATING EXPENSES
System operations 58,691 36,943
Marketing and selling 58,305 50,001
Cost of equipment sold 25,441 20,748
General and administrative 79,519 59,043
Depreciation 41,616 35,920
Amortization of intangibles 10,299 9,347
--------- ---------
Total Operating Expenses 273,871 212,002
--------- ---------
OPERATING INCOME 52,114 33,155
--------- ---------
INVESTMENT AND OTHER INCOME
Investment income 6,618 12,788
Amortization of licenses related to investments (307) (333)
Interest income 1,199 1,660
Other (expense), net (108) (1,727)
Minority share of income (1,483) (1,182)
Gain on sale of cellular and other investments -- 179,992
--------- ---------
Total Investment and Other Income 5,919 191,198
--------- ---------
INCOME BEFORE INTEREST AND INCOME TAXES 58,033 224,353
Interest expense 9,216 10,128
--------- ---------
INCOME BEFORE INCOME TAXES 48,817 214,225
Income tax expense 20,991 84,473
--------- ---------
NET INCOME $ 27,826 $ 129,752
========= =========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES (000s) 87,390 87,239
BASIC EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .32 $ 1.49
========= =========
DILUTED EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .32 $ 1.49
========= =========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-15-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
------ -----
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 27,826 $ 129,752
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 51,915 45,267
Deferred income tax provision 5,518 54,289
Investment income (6,618) (12,788)
Minority share of income 1,483 1,182
Gain on sale of cellular and other investments -- (179,992)
Other noncash expense 5,035 5,824
Change in accounts receivable 10,715 2,621
Change in accounts payable (10,393) 3,461
Change in accrued interest (4,700) (4,168)
Change in accrued taxes 14,752 3,431
Change in customer deposits and deferred revenue 213 1,350
Change in other assets and liabilities 2,684 (1,916)
--------- ---------
98,430 48,313
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Common Shares issued 2,244 1,050
Capital (distributions) to minority partners (1,353) (957)
--------- ---------
891 93
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (76,161) (56,479)
System development costs (8,527) (12,614)
Investments in and advances to minority interests
in cellular entities 1,633 (5,430)
Distributions from minority interests in cellular entities 5,775 4,454
Proceeds from sale of cellular and other investments -- 118,892
Acquisitions, excluding cash acquired (8,131) (48,900)
Other investing activities 150 306
Change in temporary investments and marketable
non-equitable securities 222 232
--------- ---------
(85,039) 461
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,282 48,867
CASH AND CASH EQUIVALENTS-
Beginning of period 51,975 13,851
--------- ---------
End of period $ 66,257 $ 62,718
========= =========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-16-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------ -------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents
General funds $ 13,400 $ 15,576
Affiliated cash equivalents 52,857 36,399
---------- ----------
66,257 51,975
Temporary investments 184 284
Accounts Receivable
Customers 81,058 99,931
Roaming 54,905 46,634
Affiliates 57 26
Other 13,766 13,671
Inventory 11,965 16,673
Prepaid expenses 11,963 10,506
Other current assets 3,231 3,105
---------- ----------
243,386 242,805
---------- ----------
INVESTMENTS
Licenses, net of accumulated amortization 1,198,340 1,200,653
Minority interests in cellular entities 136,439 140,286
Notes and interest receivable 11,433 11,530
Marketable equity securities 400,898 296,860
Marketable non-equity securities 214 336
---------- ----------
1,747,324 1,649,665
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
In service and under construction 1,466,732 1,400,597
Less accumulated depreciation 422,906 389,754
---------- ----------
1,043,826 1,010,843
---------- ----------
DEFERRED CHARGES
System development costs,
net of accumulated amortization 134,825 127,742
Other, net of accumulated amortization 13,291 16,581
---------- ----------
148,116 144,323
---------- ----------
Total Assets $3,182,652 $3,047,636
========== ==========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-17-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
----------- ------------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Affiliates $ 11,623 $ 11,508
Other 157,230 172,568
Customer deposits and deferred revenues 27,788 27,575
Accrued interest 2,369 7,069
Accrued taxes 28,680 13,928
Accrued compensation 11,147 13,263
Other current liabilities 13,773 12,362
---------- ----------
252,610 258,273
---------- ----------
LONG-TERM DEBT
6% zero coupon convertible debentures 285,693 281,487
7.25% unsecured notes 250,000 250,000
---------- ----------
535,693 531,487
---------- ----------
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability 304,737 258,123
Other 6,613 5,914
---------- ----------
311,350 264,037
---------- ----------
MINORITY INTEREST 41,100 43,609
---------- ----------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 54,449 54,365
Series A Common Shares, par value $1 per share 33,006 33,006
Additional paid-in capital 1,322,056 1,319,895
Accumulated other comprehensive income 131,062 69,465
Retained earnings 501,326 473,499
---------- ----------
2,041,899 1,950,230
---------- ----------
Total Liabilities and Shareholders' Equity $3,182,652 $3,047,636
========== ==========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-18-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of March 31, 1999 and December
31, 1998, and the results of operations and cash flows for the three
months ended March 31, 1999 and 1998. The results of operations for the
three months ended March 31, 1999 and 1998, are not necessarily indicative
of the results to be expected for the full year.
2. The amounts used in computing Earnings per Common Share and the effect on
income and the weighted average number of Common Series A Common Shares of
dilutive potential common stock are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
----- ------
(Dollars and Common
Shares in thousands)
<S> <C> <C>
Net Income used in Earnings Per
Share-Basic and Diluted $ 27,826 $129,752
======== ========
Basic Weighted average number of Common
Shares used in Earnings Per Share 87,390 87,239
Effect of Dilutive Securities:
Stock Options and Stock Appreciation
Rights 107 39
-------- --------
Diluted Weighted Average Number of Common
Shares used in Earnings Per Share 87,497 87,278
======== ========
</TABLE>
-19-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and interests during the
first three months of 1999 and 1998. In conjunction with these
acquisitions, the following assets were acquired, liabilities assumed and
Common Shares issued.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Cellular licenses $ 5,464 $34,080
Other investments -- 7,000
Minority interest 2,667 7,820
------- -------
Decrease in cash due to acquisitions $ 8,131 $48,900
======= =======
</TABLE>
The following summarizes certain noncash transactions, and interest and
income taxes paid.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Interest paid $ 9,332 $ 9,091
Income taxes paid 4,376 28,751
Noncash interest expense 4,416 4,987
</TABLE>
4. Gain on sale of cellular and other investments in 1998 primarily reflects
gains recorded on the sale of the Company's minority interests in ten
markets and on cash received from TDS pursuant to an agreement between
the Company and TDS.
5. Other Comprehensive Income
The Company's Comprehensive Income includes Net Income and Unrealized
Gains from Marketable Equity Securities that are classified as
"available-for-sale". The following table summarizes the Company's
Comprehensive Income.
-20-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Accumulated Other Comprehensive Income
Balance, beginning of period $ 69,465 $ --
Other Comprehensive Income -
Unrealized gains on securities 102,665 19,554
Income Tax effect (41,068) (6,844)
--------- ---------
Net unrealized gains included in
Comprehensive Income 61,597 12,710
--------- ---------
Balance, end of period $ 131,062 $ 12,710
========= =========
Comprehensive Income
Net Income $ 27,826 $ 129,752
Net unrealized gains on securities 61,597 12,710
--------- ---------
$ 89,423 $ 142,462
========= =========
</TABLE>
6. Marketable Equity Securities
Marketable equity securities include the Company's investments in equity
securities, primarily AirTouch Communications, Inc. ("AirTouch") common
shares. These securities are classified as available-for-sale and stated
at fair market value.
Information regarding the Company's marketable equity securities is
summarized below.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Available-for-sale Equity Securities
Aggregate Fair Value $ 400,898 $ 296,860
Original Cost 182,461 181,087
--------- ---------
Gross Unrealized Holding Gains 218,437 115,773
Tax Effect (87,375) (46,308)
--------- ---------
Net Unrealized Holding Gains, net of tax $ 131,062 $ 69,465
========= =========
</TABLE>
-21-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Statement regarding computation of per share earnings is
included herein as footnote 2 to the financial statements.
(b) Exhibit 12 - Statement regarding computation of ratios.
(c) Exhibit 27 - Financial Data Schedule.
(d) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES CELLULAR CORPORATION
----------------------------------
(Registrant)
/s/ H.Donald Nelson
Date May 14, 1999 ---------------------------------------------
------------ H. Donald Nelson
President
(Chief Executive Officer)
/s/ Kenneth R. Meyers
Date May 14, 1999 ---------------------------------------------
------------ Kenneth R. Meyers
Executive Vice President-Finance and Treasurer
(Chief Financial Officer)
/s/ John T. Quille
Date May 14, 1999 ---------------------------------------------
------------ John T. Quille
Vice President and Controller
(Principal Accounting Officer)
-23-
Exhibit 12
UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1999
---------------
(Dollars in thousands)
<S> <C>
EARNINGS
Income from Continuing Operations before
income taxes $ 48,817
Add (Deduct):
Minority Share of Cellular Losses (18)
Earnings on Equity Method (6,618)
Distributions from Minority Subsidiaries 5,775
--------
$ 47,956
Add fixed charges:
Consolidated interest expense 9,012
Amortization of debt expense and discount on indebtedness 204
Interest Portion (1/3) of Consolidated Rent Expense 2,019
--------
$ 59,191
========
FIXED CHARGES
Consolidated interest expense $ 9,012
Amortization of debt expense and discount on indebtedness 204
Interest Portion (1/3) of Consolidated Rent Expense 2,019
--------
$ 11,235
========
RATIO OF EARNINGS TO FIXED CHARGES 5.27
========
Tax-Effected Preferred Dividends $ 61
Fixed Charges 11,235
--------
Fixed Charges and Preferred Dividends $ 11,296
========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 5.25
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED STATES CELLULAR CORPORATION AS
OF MARCH 31, 1999, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 66,257
<SECURITIES> 401,112
<RECEIVABLES> 87,537
<ALLOWANCES> 6,479
<INVENTORY> 11,965
<CURRENT-ASSETS> 243,386
<PP&E> 1,466,732
<DEPRECIATION> 422,906
<TOTAL-ASSETS> 3,182,652
<CURRENT-LIABILITIES> 252,610
<BONDS> 535,693
0
0
<COMMON> 87,455
<OTHER-SE> 1,954,444
<TOTAL-LIABILITY-AND-EQUITY> 3,182,652
<SALES> 10,791
<TOTAL-REVENUES> 325,985
<CGS> 25,441
<TOTAL-COSTS> 273,871
<OTHER-EXPENSES> (5,919)
<LOSS-PROVISION> 6,055
<INTEREST-EXPENSE> 9,216
<INCOME-PRETAX> 48,817
<INCOME-TAX> 20,991
<INCOME-CONTINUING> 27,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,826
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
