Edgar Filing: UNITED STATES CELLULAR CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

¨ 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, 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ No x

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 June 30, 2012
Common Shares, $1 par value		51,723,966 Shares
Series A Common Shares, $1 par value		33,005,877 Shares

United States Cellular Corporation

Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2012

Index

			Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)

		Consolidated Statement of Operations Three and Six Months Ended June 30, 2012 and 2011	3

		Consolidated Statement of Cash Flows Six Months Ended June 30, 2012 and 2011	4

		Consolidated Balance Sheet June 30, 2012 and December 31, 2011	5

		Consolidated Statement of Changes in Equity Six Months Ended June 30, 2012 and 2011	7

		Notes to Consolidated Financial Statements	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

		Overview	20
		Results of Operations	23
		Recent Accounting Pronouncements	32
		Financial Resources	32
		Liquidity and Capital Resources	35
		Application of Critical Accounting Policies and Estimates	38
		Certain Relationships and Related Transactions	41
		Safe Harbor Cautionary Statement	42

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

	Item 4.	Controls and Procedures	46

Part II.	Other Information		47

	Item 1.	Legal Proceedings	47

	Item 1A.	Risk Factors	47

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

	Item 5.	Other Information	48

	Item 6.	Exhibits	49

Signatures

Part I. Financial Information
Item 1. Financial Statements

United States Cellular Corporation

Consolidated Statement of Operations (Unaudited)

			Three Months Ended						Six Months Ended
			June 30,						June 30,
(Dollars and shares in thousands, except per share amounts)			2012			2011			2012			2011

Operating revenues
	Service		$	1,029,742		$	1,002,030		$	2,053,562		$	1,987,143
	Equipment sales			74,658			74,152			142,959			146,131
		Total operating revenues		1,104,400			1,076,182			2,196,521			2,133,274

Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			243,227			227,801			476,391			445,404
	Cost of equipment sold			191,700			170,833			378,736			367,488
	Selling, general and administrative (including charges from affiliates of $25.9 million and $25.8 million, respectively, for the three months, and $51.9 million and $51.9 million, respectively, for the six months)			435,053			423,953			877,297			863,662
	Depreciation, amortization and accretion			147,555			146,577			294,240			289,917
	Loss on asset disposals, net			2,702			2,922			492			3,959
		Total operating expenses		1,020,237			972,086			2,027,156			1,970,430

Operating income				84,163			104,096			169,365			162,844

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			25,154			22,469			46,768			43,360
	Interest and dividend income			845			748			1,888			1,597
	Gain (loss) on investment			(3,728	)		13,373			(3,728	)		13,373
	Interest expense			(12,360	)		(25,197	)		(25,771	)		(40,383	)
	Other, net			(229	)		175			(27	)		50
		Total investment and other income (expense)		9,682			11,568			19,130			17,997

Income before income taxes				93,845			115,664			188,495			180,841
	Income tax expense			34,597			34,732			60,235			59,479

Net income				59,248			80,932			128,260			121,362
	Less: Net income attributable to noncontrolling interests, net of tax			(6,563	)		(5,993	)		(13,083	)		(11,262	)
Net income attributable to U.S. Cellular shareholders			$	52,685		$	74,939		$	115,177		$	110,100

Basic weighted average shares outstanding				84,707			84,930			84,638			85,206
Basic earnings per share attributable to U.S. Cellular shareholders			$	0.62		$	0.88		$	1.36		$	1.29

Diluted weighted average shares outstanding				85,061			85,397			85,076			85,739
Diluted earnings per share attributable to U.S. Cellular shareholders				0.62		$	0.88		$	1.35		$	1.28

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

United States Cellular Corporation

Consolidated Statement of Cash Flows (Unaudited)

			Six Months Ended
			June 30,
(Dollars in thousands)			2012			2011


Cash flows from operating activities
	Net income		$	128,260		$	121,362
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		294,240			289,917
		Bad debts expense		30,659			27,677
		Stock-based compensation expense		11,057			10,798
		Deferred income taxes, net		30,479			80,371
		Equity in earnings of unconsolidated entities		(46,768	)		(43,360	)
		Distributions from unconsolidated entities		6,743			47,143
		Loss on asset disposals, net		492			3,959
		(Gain) loss on investment		3,728			(13,373	)
		Noncash interest expense		902			9,152
		Other operating activities		321			1,044
	Changes in assets and liabilities from operations
		Accounts receivable		(13,383	)		(35,907	)
		Inventory		(56,039	)		(48,504	)
		Accounts payable - trade		(20,987	)		23,835
		Accounts payable - affiliate		3,129			5,102
		Customer deposits and deferred revenues		21,131			22,376
		Accrued taxes		85,327			11,525
		Accrued interest		149			111
		Other assets and liabilities		(67,203	)		(75,128	)
				412,237			438,100

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(430,225	)		(265,394	)
	Cash paid for acquisitions and licenses			(12,647	)		(22,167	)
	Cash received from divestitures			49,786			—
	Cash paid for investments			(45,000	)		(20,000	)
	Cash received for investments			45,000			75,000
	Other investing activities			(3,097	)		2,691
				(396,183	)		(229,870	)

Cash flows from financing activities
	Repayment of long-term debt			(45	)		(330,043	)
	Issuance of long-term debt			—			342,000
	Common shares reissued for benefit plans, net of tax payments			(2,465	)		1,264
	Common shares repurchased			—			(62,308	)
	Payment of debt issuance costs			—			(11,229	)
	Distributions to noncontrolling interests			(643	)		(877	)
	Other financing activities			568			163
				(2,585	)		(61,030	)

Cash classified as held for sale				—			(5,687	)

Net increase in cash and cash equivalents				13,469			141,513

Cash and cash equivalents
	Beginning of period			424,155			276,915
	End of period		$	437,624		$	418,428

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

United States Cellular Corporation

Consolidated Balance Sheet — Assets (Unaudited)

			June 30,		December 31,
(Dollars in thousands)			2012		2011


Current assets
	Cash and cash equivalents		$	437,624	$	424,155
	Short-term investments			100,738		127,039
	Accounts receivable
		Customers and agents, less allowances of $21,953 and $21,337, respectively		316,933		341,439
		Roaming		42,146		36,557
		Affiliated		32		621
		Other, less allowances of $2,358 and $2,200, respectively		71,650		63,204
	Inventory			183,139		127,056
	Income taxes receivable			324		74,791
	Prepaid expenses			61,194		55,980
	Net deferred income tax asset			35,641		31,905
	Other current assets			11,197		10,096
				1,260,618		1,292,843

Assets held for sale				—		49,647

Investments
	Licenses			1,484,202		1,470,769
	Goodwill			494,737		494,737
	Customer lists, net of accumulated amortization of $96,742 and $96,597, respectively			170		314
	Investments in unconsolidated entities			175,663		138,096
	Notes and interest receivable — long-term			82		1,921
	Long-term investments			55,468		30,057
				2,210,322		2,135,894
Property, plant and equipment
	In service and under construction			7,232,771		7,008,449
	Less: Accumulated depreciation			4,349,653		4,218,147
				2,883,118		2,790,302

Other assets and deferred charges				71,194		59,290

Total assets			$	6,425,252	$	6,327,976

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

United States Cellular Corporation

Consolidated Balance Sheet — Liabilities and Equity (Unaudited)

				June 30,			December 31,
(Dollars and shares in thousands)				2012			2011

Current liabilities
	Current portion of long-term debt			$	127		$	127
	Accounts payable
		Affiliated			15,312			12,183
		Trade			239,950			303,779
	Customer deposits and deferred revenues				202,485			181,355
	Accrued taxes				44,250			34,095
	Accrued compensation				51,305			69,551
	Other current liabilities				89,284			121,190
					642,713			722,280

Liabilities held for sale					—			1,051

Deferred liabilities and credits
	Net deferred income tax liability				840,484			799,190
	Other deferred liabilities and credits				247,692			248,213

Long-term debt					880,623			880,320

Commitments and contingencies					—			—

Noncontrolling interests with redemption features					1,050			1,005

Equity
	U.S. Cellular shareholders’ equity
		Series A Common and Common Shares
			Authorized 190,000 shares (50,000 Series A Common and 140,000 Common Shares) Issued 88,074 shares (33,006 Series A Common and 55,068 Common Shares) Outstanding 84,730 shares (33,006 Series A Common and 51,724 Common Shares) and 84,557 shares (33,006 Series A Common and 51,551 Common Shares), respectively
			Par Value ($1 per share) ($33,006 Series A Common and $55,068 Common Shares)		88,074			88,074
		Additional paid-in capital			1,399,010			1,387,341
		Treasury shares, at cost, 3,344 and 3,517 Common Shares, respectively			(146,057	)		(152,817	)
		Retained earnings			2,403,312			2,297,363
			Total U.S. Cellular shareholders’ equity		3,744,339			3,619,961

	Noncontrolling interests				68,351			55,956

			Total equity		3,812,690			3,675,917

Total liabilities and equity				$	6,425,252		$	6,327,976

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

United States Cellular Corporation

Consolidated Statement of Changes in Equity (Unaudited)

	U.S. Cellular Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Additional Paid-In Capital		Treasury Shares			Retained Earnings			Total U.S. Cellular Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2011	$	88,074	$	1,387,341	$	(152,817	)	$	2,297,363		$	3,619,961		$	55,956		$	3,675,917
Add (Deduct)
Net income attributable to U.S. Cellular shareholders		—		—		—			115,177			115,177			—			115,177
Net income attributable to noncontrolling interests classified as equity		—		—		—			—			—			13,038			13,038
Incentive and compensation plans		—		165		6,760			(9,228	)		(2,303	)		—			(2,303	)
Stock-based compensation awards		—		10,960		—			—			10,960			—			10,960
Tax windfall (shortfall) from stock awards		—		544		—			—			544			—			544
Distributions to noncontrolling interests		—		—		—			—			—			(643	)		(643	)
Balance, June 30, 2012	$	88,074	$	1,399,010	$	(146,057	)	$	2,403,312		$	3,744,339		$	68,351		$	3,812,690

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

United States Cellular Corporation

Consolidated Statement of Changes in Equity (Unaudited)

	U.S. Cellular Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Additional Paid-In Capital			Treasury Shares			Retained Earnings			Total U.S. Cellular Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2010	$	88,074	$	1,368,487		$	(105,616	)	$	2,135,507		$	3,486,452		$	53,518		$	3,539,970
Add (Deduct)
Net income attributable to U.S. Cellular shareholders		—		—			—			110,100			110,100			—			110,100
Net income attributable to noncontrolling interests classified as equity		—		—			—			—			—			11,254			11,254
Repurchase of Common Shares		—		—			(62,308	)		—			(62,308	)		—			(62,308	)
Incentive and compensation plans		—		79			14,399			(13,184	)		1,294			—			1,294
Stock-based compensation awards		—		10,798			—			—			10,798			—			10,798
Tax windfall (shortfall) from stock awards		—		(1,198	)		—			—			(1,198	)		—			(1,198	)
Distributions to noncontrolling interests		—		—			—			—			—			(877	)		(877	)
Balance, June 30, 2011	$	88,074	$	1,378,166		$	(153,525	)	$	2,232,423		$	3,545,138		$	63,895		$	3,609,033

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

United States Cellular Corporation

Notes to Consolidated Financial Statements

1. Basis of Presentation

United States Cellular Corporation (“U.S. Cellular”), a Delaware Corporation, is an 84%-owned subsidiary of Telephone and Data Systems, Inc. (“TDS”).

The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of U.S. Cellular, its majority-owned subsidiaries, general partnerships in which U.S. Cellular has a majority partnership interest and certain entities in which U.S. Cellular has a variable interest that require consolidation under GAAP. All material intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the 2012 presentation.

The consolidated financial statements included herein have been prepared by U.S. Cellular, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, U.S. Cellular believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in U.S. Cellular’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2011.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of June 30, 2012 and December 31, 2011, and the results of operations for the three and six months ended June 30, 2012 and 2011 and cash flows and changes in equity for the six months ended June 30, 2012 and 2011. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and six months ended June 30, 2012 and 2011 equaled net income. The results of operations for the three and six months ended June 30, 2012 and 2011 and cash flows and changes in equity for the six months ended June 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

On July 27, 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). ASU 2012-02 is intended to reduce the cost and complexity of the annual indefinite-lived intangible assets impairment testing by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. As such, there is the possibility that quantitative assessments would not need to be performed if it is more likely than not that no impairment exists. U.S. Cellular is required to adopt the provisions of ASU 2012-02, which is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of ASU 2012-02 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

Agent Liabilities

U.S. Cellular has relationships with agents, which are independent businesses that obtain customers for U.S. Cellular. At June 30, 2012 and December 31, 2011, U.S. Cellular had accrued $50.2 million and $75.3 million, respectively, for amounts due to agents, including rebates and commissions. These amounts are included in Other current liabilities in the Consolidated Balance Sheet.

Amounts Collected from Customers and Remitted to Governmental Authorities

If a tax is assessed upon the customer and U.S. Cellular merely acts as an agent in collecting the tax on behalf of the imposing governmental authority, then amounts collected from customers and remitted to governmental authorities are recorded on a net basis within a tax liability account in the Consolidated Balance Sheet. If the tax is assessed upon U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $34.7 million and $69.9 million for the three and six months ended June 30, 2012, respectively, and $31.1 million and $62.4 million for the three and six months ended June 30, 2011, respectively.

2. Revision of Prior Period Amounts

In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, U.S. Cellular discovered certain errors related to the classification of outstanding checks with the right of offset and the classification of Accounts payable-trade for Additions to property, plant and equipment. These errors resulted in the misstatement of Cash and cash equivalents and Accounts payable-trade as of December 31, 2010 and each quarterly period in 2011, and the misstatement of Cash flows from operating activities and Cash flows from investing activities for the years ended December 31, 2010 and 2009 and each of the quarterly periods in 2011 and 2010. In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), U.S. Cellular evaluated these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendment of previously filed reports was not required. However, in order to provide consistency in the Consolidated Statement of Cash Flows and as permitted by SAB 108, revisions for these immaterial amounts to previously reported amounts were reflected in the financial information as of and for the periods ended December 31, 2011, are reflected in the financial information herein and will be reflected in future filings containing such financial information.

In preparing its financial statements for the nine months ended September 30, 2011, U.S. Cellular discovered certain errors related to accounting for asset retirement obligations and asset retirement costs. These errors resulted in the overstatement of Total operating expenses, Property, plant and equipment, net and Other deferred liabilities and credits in the first and second quarter 2011 interim financial statements and in the 2010, 2009 and 2008 annual periods reported in the Company’s December 31, 2010 financial statements. The December 31, 2007 Retained earnings balance presented in the December 31, 2010 annual financial statements also was overstated as a result of these errors. In accordance with SAB 99 and SAB 108, U.S. Cellular evaluated these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendments of previously filed reports were not required. However, if the adjustments to correct the cumulative errors had been recorded in the third quarter 2011, U.S. Cellular believes that the impact would have been significant to the third quarter results and would have impacted comparisons to prior periods. As permitted by SAB 108, revisions for these immaterial amounts to previously reported annual and quarterly results were reflected in the financial information as of and for the periods ended September 30, 2011 and December 31, 2011, and are reflected in the financial information herein.

In accordance with SAB 108, the combined effects of the foregoing revisions to the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows were as follows:

Consolidated Statement of Operations— Three Months Ended June 30, 2011

		As previously reported (1)
	(Dollars in thousands except per share amounts)	As previously reported (1)			Adjustment			Revised

	Depreciation, amortization and accretion	$	148,283		$	(1,706	)	$	146,577
	Total operating expenses		973,792			(1,706	)		972,086
	Operating income		102,390			1,706			104,096
	Income before income taxes		113,958			1,706			115,664
	Income tax expense		34,077			655			34,732
	Net income		79,881			1,051			80,932
	Net income attributable to U.S. Cellular shareholders		73,888			1,051			74,939
	Basic earnings per share attributable to U.S. Cellular shareholders		0.87			0.01			0.88
	Diluted earnings per share attributable to U.S. Cellular shareholders		0.87			0.01			0.88


Consolidated Statement of Operations— Six Months Ended June 30, 2011

		As previously reported (1)
	(Dollars in thousands except per share amounts)	As previously reported (1)			Adjustment			Revised

	Depreciation, amortization and accretion	$	293,328		$	(3,411	)	$	289,917
	Total operating expenses		1,973,841			(3,411	)		1,970,430
	Operating income		159,433			3,411			162,844
	Income before income taxes		177,430			3,411			180,841
	Income tax expense		58,169			1,310			59,479
	Net income		119,261			2,101			121,362
	Net income attributable to U.S. Cellular shareholders		107,999			2,101			110,100
	Basic earnings per share attributable to U.S. Cellular shareholders		1.27			0.02			1.29
	Diluted earnings per share attributable to U.S. Cellular shareholders		1.26			0.02			1.28


Consolidated Statement of Cash Flows— Six Months Ended June 30, 2011

		As previously reported (1)
	(Dollars in thousands)	As previously reported (1)			Adjustment			Revised

	Net income	$	119,261		$	2,101		$	121,362
	Depreciation, amortization and accretion		293,328			(3,411	)		289,917
	Change in Accounts payable-trade		8,588			15,247			23,835
	Change in Accrued taxes		10,215			1,310			11,525
	Change in Other assets and liabilities		(74,549	)		(579	)		(75,128	)
	Cash flows from operating activities		423,432			14,668			438,100
	Cash used for additions to property, plant and equipment		(258,040	)		(7,354	)		(265,394	)
	Cash flows from investing activities		(222,516	)		(7,354	)		(229,870	)
	Net increase (decrease) in cash and cash equivalents		134,199			7,314			141,513

(1) In Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed on August 8, 2011.

3. Fair Value Measurements

As of June 30, 2012 and December 31, 2011, U.S. Cellular did not have any financial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP. However, U.S. Cellular has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

Under the provisions of GAAP, fair value is a market-based measurement and not an entity-specific measurement, based on an exchange transaction in which the entity sells an asset or transfers a liability (exit price). The provisions also establish a fair value hierarchy that contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.

		Level within	June 30,				December 31,
		the Fair Value	2012				2011
		Hierarchy	Book Value		Fair Value		Book Value		Fair Value
(Dollars in thousands)
Cash and cash equivalents		1	$	437,624	$	437,624	$	424,155	$	424,155
Short-term investments (1)(2)
	Government-backed securities (3)	1		100,738		100,738		127,039		127,039
Long-term investments (1)(4)
	Government-backed securities (3)	1		55,468		55,468		30,057		30,140
Long-term debt (5)
	6.95% Senior Notes	1		342,000		366,624		342,000		364,162
	6.7% Senior Notes	2		534,338		540,928		534,111		534,860

(1) Designated as held-to-maturity investments and recorded at amortized cost in the Consolidated Balance Sheet.

(2) Maturities are less than twelve months from the respective balance sheet dates.

(3) Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program.

(4) At June 30, 2012, maturities range between 12 and 21 months.

(5) Excludes capital lease obligations and current portion of Long-term debt.

The fair values of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. The fair values of Long-term investments were estimated using quoted market prices for the individual issuances. The fair value of Long-term debt, excluding capital lease obligations and the current portion of such Long- term debt, was estimated using market prices for the 6.95% Senior Notes, which are publicly traded, and discounted cash flow analysis using an estimated yield to maturity of 6.75% for the 6.7% Senior Notes, which are not publicly traded.

As of June 30, 2012 and December 31, 2011, U.S. Cellular did not have nonfinancial assets or liabilities that required the application of fair value accounting for purposes of reporting such amounts in the Consolidated Balance Sheet.

4. Income Taxes

U.S. Cellular is included in a consolidated federal income tax return and in certain state income tax returns with other members of the TDS consolidated group. For financial statement purposes, U.S. Cellular and its subsidiaries compute their income tax expense as if they comprised a separate affiliated group and were not included in the TDS consolidated group.

U.S. Cellular’s overall effective tax rate on Income before income taxes for the three and six months ended June 30, 2012 was 36.9% and 32.0%, respectively, and for the three and six months ended June 30, 2011 was 30.0% and 32.9%, respectively.

The effective tax rate for the three months ended June 30, 2011 was lower than the rate for the three months ended June 30, 2012 primarily as a result of tax benefits from the expiration of the statutes of limitation for certain tax years in 2011. The benefits from this change, along with other discrete items, decreased income tax expense for the three months ended June 30, 2011 by $4.5 million; absent these benefits, the effective tax rate for such period would have been higher by 8.4 percentage points.

The effective tax rate for the six months ended June 30, 2012 was lower than the rate for the six months ended June 30, 2011 primarily as a result of tax benefits related to the expiration of the statutes of limitation for certain tax years in 2012 and correction of deferred tax balances related to certain partnership investments in 2012. The amount of the correction was $3.7 million and relates to the quarter ended December 31, 2011. The benefits from this change, along with other discrete items, decreased income tax expense for the six months ended June 30, 2012 by $8.4 million; absent these benefits, the effective tax rate for such period would have been higher by 4.5 percentage points.

U.S. Cellular incurred a federal net operating loss in 2011 largely attributable to 100% bonus depreciation applicable to qualified capital expenditures. U.S. Cellular carried back this federal net operating loss to prior tax years, and received a $58.2 million refund in 2012 for carrybacks to 2009 and 2010 tax years. U.S. Cellular’s future federal income tax liabilities associated with the benefits realized from bonus depreciation are accrued as a component of Net deferred income tax liability (noncurrent) in the Consolidated Balance Sheet. The bonus depreciation rate for federal income tax purposes is 50% for 2012 and will expire at the end of the year. U.S. Cellular expects federal income tax payments to substantially increase beginning in 20