|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES | |||||||||||||||||
SECURITIES AND EXCHANGE COMMISSION | |||||||||||||||||
Washington, D.C. 20549 | |||||||||||||||||
FORM 10-Q | |||||||||||||||||
(Mark One) | |||||||||||||||||
[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||||||
For the quarterly period ended | |||||||||||||||||
|
|
|
|
|
|
|
| OR |
|
|
|
|
|
|
|
| |
[ ] | 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 001-09712 |
(Exact name of Registrant as specified in its charter) | |||||||||||||||||
Delaware |
|
| 62-1147325 | ||||||||||||||
(State or other jurisdiction of incorporation or organization) |
|
| (IRS 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 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Yes | No | |||||||||||||||
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. | [x] | [ ] | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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). | [x] | [ ] | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |||||||||||||||||
Large accelerated filer | [ ] |
|
|
|
|
|
|
| Accelerated filer | [x] | |||||||
Non-accelerated filer | [ ] | (Do not check if a smaller reporting company) |
| Smaller reporting company | [ ] | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Emerging growth company | [ ] | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | [ ] | ||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | [ ] | [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 | ||||||||||||||
Common Shares, $1 par value |
|
|
| ||||||||||||||
Series A Common Shares, $1 par value |
|
| 33,005,877 Shares | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Cellular Corporation | ||
|
| |
Quarterly Report on Form 10-Q | ||
For the Period Ended | ||
|
|
|
Index | Page No. | |
|
|
|
| Management Discussion and Analysis of Financial Condition and Results of Operations | |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| Supplemental Information Relating to Non-GAAP Financial Measures | |
| ||
| ||
| ||
| Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement | |
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
| ||
| ||
| ||
| ||
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
|
United States Cellular Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis compares United States Cellular Corporation’s (U.S. Cellular) financial results for the three and nine months ended September 30, 2017,March 31, 2018, to the three and nine months ended September 30, 2016.March 31, 2017. It should be read in conjunction with U.S. Cellular’s interim consolidated financial statements and notes included herein, and with the description of U.S. Cellular’s business, its audited consolidated financial statements and Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations included in U.S. Cellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2016.2017. Certain numbers included herein are rounded to millions for ease of presentation; however, calculated amounts and percentages are determined using the unrounded numbers.
This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects”“projects,” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.
U.S. Cellular uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A. A discussion of the reason U.S. Cellular determines these metrics to be useful and a reconciliation of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section within the MD&A of this Form 10-Q Report.
|
U.S. Cellular owns, operates, and invests in wireless markets throughout the United States. U.S. Cellular is an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS). U.S. Cellular’s strategy is to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, all provided with a local focus.
OPERATIONS |
|
|
|
U.S. Cellular Mission and Strategy
U.S. Cellular’s mission is to provide exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the mid-sized and rural markets served.
In 2017,2018, U.S. Cellular continues to execute on its strategies to protect its current customer base, grow revenues, by attracting new customers through economical offerings and identifying new revenue opportunities, and drive improvements in itsthe overall cost structure.structure, and invest in its network and online platforms. Strategic efforts include:
Net loss attributable to U.S. Cellular shareholders was $299 million and $261 million for the three and nine months ended September 30, 2017, respectively. Such net losses include a non-cash charge related to goodwill impairment of $370 million ($309 million, net of tax), which was recorded for the three months ended September 30, 2017. See Note 6 — Intangible Assets for a detailed discussion regarding the goodwill impairment. Refer to Supplemental Information to Non-GAAP Financial Measures within this MD&A for a reconciliation of the goodwill impairment, net of tax.
|
The following is a list of definitions of certain industry terms that are used throughout this document:
|
|
|
|
|
| Q3 | Q3 | YTD | YTD | |||||
|
|
|
|
| 2017 | 2016 | 2017 | 2016 | |||||
| Postpaid Activity and Churn |
|
|
|
| ||||||||
|
| Gross Additions: | |||||||||||
|
| ||||||||||||
|
|
|
| Handsets | |||||||||
|
|
|
| ||||||||||
|
|
|
| Connected Devices | |||||||||
|
|
|
| ||||||||||
As of September 30, |
|
| Net Additions (Losses): | ||||||||||
|
| ||||||||||||
|
|
|
|
|
|
| Handsets | ||||||
|
|
|
|
|
|
| |||||||
Retail Connections – End of Period |
|
|
|
| Connected Devices | ||||||||
|
|
|
| ||||||||||
| Postpaid |
|
|
| Churn: | 1.16% | 1.34% | 1.19% | 1.27% | ||||
|
|
|
| ||||||||||
| Prepaid |
|
|
|
|
| Handsets | 0.96% | 1.22% | 0.98% | 1.17% | ||
|
|
|
|
|
| ||||||||
| Total |
|
|
|
|
| Connected Devices | 2.33% | 2.04% | 2.41% | 1.97% | ||
|
|
|
|
|
|
| As of March 31, |
| 2018 |
| 2017 | |||
| Retail Connections – End of Period |
|
|
| ||||
|
| Postpaid | 4,481,000 |
| 4,455,000 | |||
|
| Prepaid | 525,000 |
| 480,000 | |||
|
| Total | 5,006,000 |
| 4,935,000 | |||
|
|
|
|
|
| |||
| Quarter Ended March 31, | 2018 |
| 2017 | ||||
| Postpaid Activity: |
|
|
| ||||
|
| Gross Additions | 129,000 |
| 146,000 | |||
|
| Net Losses | (37,000) |
| (27,000) | |||
|
| Churn | 1.23% |
| 1.29% | |||
|
|
|
|
|
| |||
The increase in postpaid net
Postpaid handset gross additions for the three months ended September 30, 2017,March 31, 2018, were 96,000, slightly higher than in the same period last year. In addition, postpaid handset churn improved year over year, from 1.08% to 0.97%. As a result, the net loss on postpaid handsets for the three months ended March 31, 2018, of 16,000 was significantly reduced from the net loss in the prior year period.
Total postpaid net losses increased for the three months ended March 31, 2018, when compared to the same period last year, was driven mainly by higher handsets gross additions as well as lower handsets churn. These impacts were slightly offset by a decline in tablet gross additions and higher tablet churn which are included in thedue to net losses for connected devices, line above.
The decrease in postpaid net additions for the nine months ended September 30, 2017, when compared to the same period last year, was driven mainly bywhich reflected both lower tablet gross additions and an increase in tablet churn, partially offset by an improvement in handsets net additions largely reflecting achurn. The decline in handsets churn.tablet gross additions reflects U.S. Cellular‘s decision to curtail promotions of heavily discounted tablets.
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended | ||||||||||||
|
| September 30, |
|
| September 30, |
| March 31, | |||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||||
Average Revenue Per User (ARPU) | Average Revenue Per User (ARPU) | $ |
| $ |
| $ |
| $ | Average Revenue Per User (ARPU) | $ |
| $ | ||||||
Average Billings Per User (ABPU)1 | Average Billings Per User (ABPU)1 | $ |
| $ |
| $ |
| $ | Average Billings Per User (ABPU)1 | $ |
| $ | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average Revenue Per Account (ARPA) | Average Revenue Per Account (ARPA) | $ |
| $ |
| $ |
| $ | Average Revenue Per Account (ARPA) | $ |
| $ | ||||||
Average Billings Per Account (ABPA)1 | Average Billings Per Account (ABPA)1 | $ |
| $ |
| $ |
| $ | Average Billings Per Account (ABPA)1 | $ |
| $ | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Postpaid ABPU and Postpaid ABPA are non-GAAP financial measures. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of these measures. | Postpaid ABPU and Postpaid ABPA are non-GAAP financial measures. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of these measures. |
On January 1, 2018, U.S. Cellular adopted the provisions of ASU 2014-09, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to retained earnings at January 1, 2018. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details.
Postpaid ARPU and Postpaid ARPA decreased for the three and nine months ended September 30, 2017, due primarilyMarch 31, 2018, when compared to the same period last year, reflecting industry-wide price competition resulting in overall price reductions on plan offerings.offerings as well as the impact of adopting the provisions of ASU 2014-09, as discussed above. Application of the new accounting standard had the impact of reducing ARPU and ARPA for the three months ended March 31, 2018, by $0.53 and $1.11, respectively. Such factors were partially offset by increases in regulatory cost recovery and Device Protection plan revenues.
EquipmentUnder equipment installment plans, increase equipment sales revenue as customers pay for their wireless devices in installments atover a total device price that is generally higher than the device price offered to customers in conjunction with alternative plans that are subject to a service contract. Equipment installment plans also have the impactperiod of reducing service revenues as certain equipment installment plans provide for reduced monthly service charges.time. In order to show the trendstrend in totalestimated cash collections from postpaid customer billings for both service and equipment, revenues received, U.S. Cellular has presented Postpaid ABPU and Postpaid ABPA, which are calculated as Postpaid ARPU and Postpaid ARPA plus average monthly equipment installment plan billings per connection and account, respectively.
Equipment installment plan billings increased for the three and nine months ended September 30, 2017, when compared to the same periods last year,March 31, 2018, due mainly due to increased penetration of equipment installment plans. Postpaid ABPU and ABPA decreasedincreased for the three and nine months ended September 30, 2017, when compared to the same periods last year,March 31, 2018, as the increase in equipment installment plan billings was more than offset by the decline in Postpaid ARPU and ARPA discussed above. U.S. Cellular expects the penetration of equipment installment plans to continue to increase over time due to the fact that, effective in September 2016, all equipment sales to retail customers are made under installment plans.
|
|
|
|
| Three Months Ended |
| Nine Months Ended | |||||||||||||
|
|
|
|
| September 30, |
| September 30, | ||||||||||||
|
|
|
|
|
|
|
|
| 2017 vs. |
|
|
|
| 2017 vs. | |||||
|
|
|
|
| 2017 |
| 2016 |
| 2016 |
| 2017 |
| 2016 |
| 2016 | ||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Retail service |
| $ |
| $ |
| (7)% |
| $ |
| $ |
| (5)% | |||||||
Inbound roaming |
|
|
|
|
| (17)% |
|
|
|
|
| (20)% | |||||||
Other1 |
|
|
|
|
| 12% |
|
|
|
|
| 13% | |||||||
| Service revenues1 |
|
|
|
|
| (6)% |
|
|
|
|
| (5)% | ||||||
Equipment sales |
|
|
|
|
| (5)% |
|
|
|
|
| (3)% | |||||||
| Total operating revenues1 |
|
|
|
|
| (6)% |
|
|
|
|
| (4)% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
System operations (excluding Depreciation, amortization and accretion reported below) |
|
|
|
|
| (6)% |
|
|
|
|
| (4)% | |||||||
Cost of equipment sold |
|
|
|
|
| (7)% |
|
|
|
|
| (6)% | |||||||
Selling, general and administrative |
|
|
|
|
| (5)% |
|
|
|
|
| (4)% | |||||||
Depreciation, amortization and accretion |
|
|
|
|
| (2)% |
|
|
|
|
| – | |||||||
Loss on impairment of goodwill |
|
|
|
|
| N/M |
|
|
|
|
| N/M | |||||||
(Gain) loss on asset disposals, net |
|
|
|
|
| (26)% |
|
|
|
|
| (17)% | |||||||
(Gain) loss on sale of business and other exit costs, net |
|
|
|
|
| N/M |
|
|
|
|
| >(100)% | |||||||
(Gain) loss on license sales and exchanges, net |
|
|
|
|
| 100% |
|
|
|
|
| (16)% | |||||||
| Total operating expenses |
|
|
|
|
| 32% |
|
|
|
|
| 8% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss)¹ |
| $ |
| $ |
| >(100)% |
| $ |
| $ |
| >(100)% | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ |
| $ |
| >(100)% |
| $ |
| $ |
| >(100)% | |||||||
Adjusted OIBDA (Non-GAAP)1,2 |
| $ |
| $ |
| (6)% |
| $ |
| $ |
| – | |||||||
Adjusted EBITDA (Non-GAAP)2 |
| $ |
| $ |
| (6)% |
| $ |
| $ |
| (1)% | |||||||
Capital expenditures |
| $ |
| $ |
| 8% |
| $ |
| $ |
| (7)% | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - Percentage change not meaningful | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
|
|
|
| Three Months Ended | |||||||
|
|
|
|
| March 31, | ||||||
|
|
|
|
|
|
|
|
| 2018 vs. | ||
|
|
|
|
| 2018¹ |
| 2017 |
| 2017 | ||
(Dollars in millions) |
|
|
|
|
|
|
|
| |||
Retail service |
| $ |
| $ |
| (1)% | |||||
Inbound roaming |
|
|
|
|
| 3% | |||||
Other |
|
|
|
|
| (23)% | |||||
| Service revenues |
|
|
|
|
| (3)% | ||||
Equipment sales |
|
|
|
|
| 14% | |||||
| Total operating revenues |
|
|
|
|
| 1% | ||||
|
|
|
|
|
|
|
|
|
| ||
System operations (excluding Depreciation, amortization and accretion reported below) |
|
|
|
|
| 2% | |||||
Cost of equipment sold |
|
|
|
|
| (4)% | |||||
Selling, general and administrative |
|
|
|
|
| (4)% | |||||
Depreciation, amortization and accretion |
|
|
|
|
| 3% | |||||
(Gain) loss on asset disposals, net |
|
|
|
|
| (62)% | |||||
(Gain) loss on license sales and exchanges, net |
|
|
|
|
| 61% | |||||
| Total operating expenses |
|
|
|
|
| (1)% | ||||
|
|
|
|
|
|
|
|
|
| ||
Operating income |
| $ |
| $ |
| 21% | |||||
|
|
|
|
|
|
|
|
|
| ||
Net income |
| $ |
| $ |
| 97% | |||||
Adjusted OIBDA (Non-GAAP)2 |
| $ |
| $ |
| 13% | |||||
Adjusted EBITDA (Non-GAAP)2 |
| $ |
| $ |
| 13% | |||||
Capital expenditures |
| $ |
| $ |
| 14% | |||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
|
| |
Service revenues consist of:
Equipment revenues consist of:
| |
Key components of changes in the statement of operations line items were as follows:
Total operating revenues
On January 1, 2017, U.S. Cellular elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.
Service revenues decreased for the three and nine months ended September 30, 2017,March 31, 2018, when compared to the same period last year, as a result of (i) a decreasethe decline in retail service revenues primarily driven by industry-wide price competition resultingPostpaid ARPU as previously discussed in overall price reductions on plan offerings;the Operational Overview section; and (ii) a decrease in inbound roaming revenues primarily driven by lower roaming rates. Such reductions were partially offset by an increase in imputed interest income due to an increase in the total numberimpact of active equipment installment plans.
adopting the provisions of ASU 2014-09.
Federal USF revenue remained flat year over year at $23 million and $69 million for the three and nine months ended September 30, 2017, respectively, when compared to the same periods last year.million. See the Regulatory Matters section in this MD&A for a description of the FCC Mobility Fund II Order (MF2 Order) and its expected impacts on U.S. Cellular’s current Federal USF support.
Equipment sales revenues decreasedincreased for the three months ended September 30, 2017, when comparedMarch 31, 2018, due to the same period last year, dueimpact of adopting the provisions of ASU 2014-09, an increase in the average revenue per device sold, a mix shift from feature phones and connected devices to higher end smartphone devices, and an increase in accessories revenues. Such factors were partially offset by a decrease in the number of devices sold and a reduction in guarantee liability amortization for equipment installment contracts as a result of changes in plan offerings and an overall reduction in the number of devices sold. offerings.
See Note 3 – Equipment Installment Plans2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details regardingon the amortizationfinancial statement impact of ASU 2014-09.
System operations expenses
System operations expenses increased for the guarantee liability. These impactsthree months ended March 31, 2018, due to higher maintenance, utility and cell site expenses largely reflecting increased cell site rent and tower maintenance and repair costs. Such factors were partially offset by a mix shift to higher end smartphone devices as well as an increasedecrease in accessories revenues.roaming expenses primarily driven by lower data roaming rates, partially offset by increased data roaming usage.
Equipment sales revenuesCost of equipment sold
Cost of equipment sold decreased for the ninethree months ended September 30, 2017, when comparedMarch 31, 2018, mainly due to the same period last year, as a result of an overall reductiondecrease in the number of devices sold and, as a resultwell as the impact of changes in plan offerings, a decrease in guarantee liability amortization for equipment installment contracts and lower device activation fees. These impactsadopting the provisions of ASU 2014-09. Such factors were partially offset by an increase in the proportion of new device sales made under equipment installment plans,increases due to a mix shift from feature phones and connected devices to higher cost smartphones, an increase in the average cost per device sold, and to a lesser extent, an increase in accessories revenues.cost.
Loss on equipment sold, defined as Equipment sales revenues less Cost of equipment sold, was $1 million and $38 million for the three months ended March 31, 2018 and 2017, respectively.
Selling, general and administrative expenses
Selling expenses decreased by $4 million for the three months ended March 31, 2018, due to lower advertising expenses and lower commissions expenses.
|
System operations expenses
System operationsGeneral and administrative expenses decreased for the three and nine months ended September 30, 2017, when compared to the same periods last year, as a result of (i) a decrease in roaming expenses driven primarily by lower roaming rates, partially offset by increased data roaming usage; and (ii) a decrease in customer usage expenses primarily driven by decreased circuit costs.
Cost of equipment sold
The decrease in Cost of equipment sold for the three and nine months ended September 30, 2017, when compared to the same periods last year, was mainly due to a reduction in the number of devices sold as well as a decrease in the average cost of smartphones, partially offset by a mix shift from feature phones and connected devices to higher cost smartphones. Loss on equipment, defined as Equipment sales revenues less Cost of equipment sold, was $35 million and $41$9 million for the three months ended September 30, 2017 and 2016, respectively, and $110 million and $144 million for the nine months ended September 30, 2017 and 2016, respectively.
Selling, general and administrative expenses
Selling expenses for the three and nine months ended September 30, 2017, decreased by $8 million and $24 million, respectively,March 31, 2018, mainly due to lower advertising expenses, including a decrease in sponsorship expenses related to the termination of a naming rights agreement during the third quarter of 2016; increases in commissions expenses were partially offsetting. General and administrative expenses for the three and nine months ended September 30, 2017, decreased $11 million and $25 million, respectively, mainly due to lower bad debts driven primarily by improved receivables collectability, lower employee related and phone programconsulting expenses, together withas well as reductions in numerous other general and administrative expense categories.
Loss on impairment of goodwill
DuringDepreciation, amortization and accretion
Depreciation, amortization and accretion increased for the third quarter of 2017, U.S. Cellular recorded a $370 million loss on impairmentthree months ended March 31, 2018, due primarily to an increase in amortization expense related to goodwill. See Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.billing system upgrades.
(Gain) loss on license sales and exchanges, net
Net gains in 20172018 and 20162017 were due to gains recognized on license sale and exchange transactions with various third parties. See Note 5 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information.
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Three Months Ended | Nine Months Ended | |||||||||||||
|
|
|
|
| September 30, |
| September 30, | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| 2017 vs. |
|
|
|
|
|
|
| 2017 vs. |
|
|
|
|
| 2017 |
| 2016 |
| 2016 |
| 2017 |
| 2016 |
| 2016 | ||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating income (loss)¹ |
| $ |
| $ |
| >(100)% | $ |
| $ |
| >(100)% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Equity in earnings of unconsolidated entities |
|
|
|
|
| (7)% |
|
|
|
| (8)% | ||||||||
Interest and dividend income1 |
|
|
|
|
| 68% |
|
|
|
| 45% | ||||||||
Interest expense |
|
|
|
|
| (2)% |
|
|
|
| (1)% | ||||||||
Other, net |
|
|
|
|
| 29% |
|
|
|
| (9)% | ||||||||
Total investment and other income1 |
|
|
|
|
| (21)% |
|
|
|
| (25)% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) before income taxes |
|
|
|
|
| >(100)% |
|
|
|
| >(100)% | ||||||||
Income tax expense (benefit) |
|
|
|
|
| >(100)% |
|
|
|
| >(100)% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
|
|
|
| >(100)% |
|
|
|
| >(100)% | ||||||||
Less: Net income (loss) attributable to noncontrolling interests, net of tax |
|
|
|
|
| (9)% |
|
|
|
| >100% | ||||||||
Net income (loss) attributable to U.S. Cellular shareholders |
| $ |
| $ |
| >(100)% | $ |
| $ |
| >(100)% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 | Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. |
|
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents U.S. Cellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for by the equity method. U.S. Cellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed $17$19 million and $16 million to Equity in earnings of unconsolidated entities for both the three months ended September 30,March 31, 2018 and 2017, and 2016, and $50 million and $57 million for the nine months ended September 30, 2017 and 2016, respectively. See Note 78 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Income tax expense
U.S. Cellular’sThe effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30,March 31, 2018 and 2017, was not meaningful28.8% and 54.2%, respectively. The lower rate in 2018 as compared to 2017 is due primarily to the recognitionreduction of a loss on impairment of goodwill and for the three and nine months ended September 30, 2016, was 46.0% and 41.4%, respectively. Due to difficulty in reliably projecting an annualU.S. federal corporate tax rate U.S. Cellular calculatedfrom 35% to 21% as a result of the Tax Act enacted in December 2017, as well as immaterial tax adjustments having a distortive impact on the tax rate in 2017. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information related to income taxes for the nine months ended September 30, 2017, based on an estimated year-to-date tax rate.taxes.
A reconciliationNet income attributable to noncontrolling interests, net of tax
Net income attributable to noncontrolling interests, net of tax increased mainly due to out-of-period adjustments recorded during the three months ended March 31, 2018. U.S. Cellular’s income tax expense (benefit) computed atCellular determined such adjustments were not material to any of the statutory rateperiods impacted. See Note 9 — Variable Interest Entities in the Notes to the reported income tax expense (benefit) and effective tax rate is as follows:Consolidated Financial Statements for additional information.
|
| Nine Months Ended | ||||||
|
|
| September 30, | |||||
|
|
| 2017 |
|
| 2016 | ||
|
|
| Amount | Rate |
|
| Amount | Rate |
(Dollars in millions) |
|
|
|
|
|
|
| |
Pretax income (loss) | $ | N/A |
| $ | N/A | |||
|
|
|
|
|
| |||
Statutory federal income tax expense (benefit) and rate |
| 35.0 % |
|
| 35.0% | |||
Goodwill impairment1 |
| (27.3)% |
|
| 0.0% | |||
Other differences, net |
| (0.7)% |
|
| 6.4% | |||
Total tax expense (benefit) and rate | $ | 7.0 % |
| $ | 41.4% | |||
|
|
|
|
|
|
|
|
|
1 | Goodwill impairment reflects an adjustment to increase federal and state income tax expense by $76 million related to a portion of the goodwill impairment U.S. Cellular recorded which is nondeductible for tax purposes. See Note 6 - Intangible Assets for a detailed discussion regarding the goodwill impairment. |
|
Liquidity and Capital Resources
Sources of Liquidity
U.S. Cellular operates a capital-intensive business. Historically, U.S. Cellular has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes. In the past, U.S. Cellular’s existing cash and investment balances, funds available under its revolving credit facility, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating, certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for U.S. Cellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of spectrum licenses. There is no assurance that this will be the case in the future. See Market Risk for additional information regarding maturities of long-term debt.
Although U.S. Cellular currently has a significant cash balance, in certain recent periods, U.S. Cellular has incurred negative free cash flow (non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment)at times in the past and this will continuecould occur in the future if operating results do not improve or capital expenditures are not reduced. U.S. Cellular currently expects to have negative free cash flow in 2017.future. However, U.S. Cellular believes that existing cash and investment balances, funds available under its revolving credit facility, receivables securitization facility and expected cash flows from operating and investing activities will provide sufficient liquidity for U.S. Cellular to meet its normal day-to-day operating needs and debt service requirements for the coming year.
U.S. Cellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, spectrum license or system acquisitions, system development and network capacity expansion, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments. It may be necessary from time to time to increase the size of the existing revolving credit facility, to put in place a new credit facility, or to obtain other forms of financing in order to fund potential expenditures. U.S. Cellular is exploring a potential securitized borrowing using its equipment installment plan receivables, which may occur in 2018. U.S. Cellular’s liquidity would be adversely affected if, among other things, U.S. Cellular is unable to obtain short or long-term financing on acceptable terms, U.S. Cellular makes significant spectrum license purchases, the LA Partnership discontinues or reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline. In addition, although sales of assets or businesses by U.S. Cellular have been an important source of liquidity in prior periods, U.S. Cellular does not expect a similar level of such sales in the future.
U.S. Cellular’s credit rating has beencurrently is sub-investment grade since 2014.grade. There can be no assurance that sufficient funds will continue to be available to U.S. Cellular or its subsidiaries on terms or at prices acceptable to U.S. Cellular. Insufficient cash flows from operating activities, changes in its credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of U.S. Cellular or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to U.S. Cellular, which could require U.S. Cellular to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends. U.S. Cellular cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur. Any of the foregoing would have an adverse impact on U.S. Cellular’s businesses, financial condition or results of operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of U.S. Cellular’s Cash and cash equivalents is for use in its operations and acquisition, capital expenditure and business development programs.
At
The majority of U.S. Cellular’s Cash and cash equivalents was held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies across a range of eligible money market investments that may include, but are not limited to, government agency repurchase agreements, government agency debt, U.S. Treasury repurchase agreements, U.S. Treasury debt, and other securities collateralized by U.S. government obligations. U.S. Cellular monitors the financial viability of the money market funds and direct investments in which it invests and believes that the credit risk associated with these investments is low. |
|
Short-term investmentsFinancing
At September 30, 2017, U.S. Cellular held $50 million of Short-term investments which consisted of U.S. Treasury Bills with original maturities of six months. For these investments, U.S. Cellular’s objective is to earn a higher rate of return on funds that are not anticipated to be required to meet liquidity needs in the immediate future while maintaining low investment risk. See Note 2 – Fair Value Measurements in the Notes to Consolidated Financial Statements for additional details on short-term investments.
Financing
U.S. Cellular has aan unsecured revolving credit facility available for general corporate purposes, including spectrum purchases and capital expenditures. This credit facility matures in June 2021.
U.S. Cellular’s unused capacity under its revolving credit facility was $298 million as of September 30, 2017.March 31, 2018. U.S. Cellular believes it was in compliance with all of the financial covenants and requirements set forth in its revolving credit facility as of that date. U.S. Cellular is in the process of seeking to replace this credit facility with a new facility that would mature in 2023.
U.S. Cellular, through its subsidiaries, also has a receivables securitization facility to permit securitized borrowings using its equipment installment plan receivables for general corporate purposes. The unused capacity under this facility was $200 million as of March 31, 2018, subject to sufficient collateral to satisfy the asset borrowing base provisions of the facility. As of March 31, 2018, the USCC Master Note Trust (Trust) held $8 million of assets available to be pledged as collateral for the receivables securitization facility. U.S. Cellular believes it was in compliance with all of the financial covenants and requirements set forth in its receivables securitization facility as of that date.
U.S. Cellular has in place an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities.
Long-term debt payments due for the remainder of 20172018 and the next four years are $219 million, which represent less than 4%13% of U.S. Cellular’sthe total gross long-term debt obligation as of September 30, 2017.at March 31, 2018.
Capital Expenditures
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures), which include the effects of accruals and capitalized interest, infor the three months ended March 31, 2018 and 2017, and 2016 were as follows:
Capital expenditures for the full year
|
U.S. Cellular plans to finance its capital expenditures program for 20172018 using primarily Cash flows from operating activities, and existing cash balances.balances and, if required, its receivables securitization and/or revolving credit facilities.
Acquisitions, Divestitures and Exchanges
U.S. Cellular may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties or wireless spectrum. In general, U.S. Cellular may not disclose such transactions until there is a definitive agreement. U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, U.S. Cellular reviewsactively seeks attractive opportunities to acquire additional wireless operating markets and wireless spectrum, including pursuant to FCC auctions. U.S. Cellular also may seek to divest outright or include in exchanges for other wireless interests those interests that are not strategic to its long-term success.
In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002. In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million. Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016. U.S. Cellular paid the remaining $186 million to the FCC and was granted the licenses during the second quarter of 2017.
In February 2016, U.S. Cellular entered into an agreement with a third party to exchange certain 700 MHz licenses for certain AWS and PCS licenses and $28 million of cash. This license exchange was accomplished in two closings. The first closing occurred in the second quarter of 2016, at which time U.S. Cellular received $13 million of cash and recorded a gain of $9 million. The second closing occurred in the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million.
U.S. Cellular consolidates certain “variable interest entities” as defined under GAAP. See Note 89 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. U.S. Cellular may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.
During the first quarter of 2017, U.S. Cellular formed USCC EIP LLC, a special purpose entity (SPE), to facilitate a potential securitized borrowing using its equipment installment plan receivables in the future. During the nine months ended September 30, 2017, net equipment installment plan receivables totaling $1,093 million were transferred to the newly formed SPE from affiliated entities. On a consolidated basis, the transfer of receivables into this SPE did not have a material impact to the financial condition of U.S. Cellular.
Common Share Repurchase Program
U.S. Cellular has repurchased and expects to continue to repurchase its Common Shares, subject to its repurchase program. ShareHowever, there were no share repurchases made under this program in 2017 and 2016 were as follows:the three months ended March 31, 2018 or in the year ended December 31, 2017.
| Nine Months Ended | |||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Number of shares |
|
| ||||
Average cost per share | $ |
| $ | |||
Dollar amount (in millions) | $ |
| $ | |||
|
As of March 31, 2018, the total cumulative amount of U.S. Cellular Common Shares authorized to be purchased is 5,900,849. For additional information related to the current repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.
Contractual and Other Obligations
There were no material changes outside the ordinary course of business between December 31, 20162017 and September 30, 2017,March 31, 2018, to the Contractual and Other Obligations disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.2017.
Off-Balance Sheet Arrangements
U.S. Cellular had no transactions, agreements or other contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that had or are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.
|
Consolidated Cash Flow Analysis
U.S. Cellular operates a capital- and marketing-intensive business. U.S. Cellular makes substantial investments to acquire wireless licenses and properties and to construct and upgrade wireless telecommunications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-reducing upgrades to U.S. Cellular’s networks. U.S. Cellular utilizes cash on hand, cash from operating activities, cash proceeds from divestitures and dispositions of investments, and short-term credit facilities and long-term debt financing to fund its acquisitions (including spectrum licenses), construction costs, operating expenses and share repurchases. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors. The following discussion summarizes U.S. Cellular's cash flow activities for the ninethree months ended September 30, 2017March 31, 2018 and 2016.2017.
20172018 Commentary
U.S. Cellular’s Cash, and cash equivalents decreased $88and restricted cash increased $158 million in 2017.the first quarter of 2018. Net cash provided by operating activities was $394 million and was offset by Cash flows used for investing activities of $472 million and Cash flows used for financing activities of $10 million.
Net cash provided by operating activities consisted of net income adjusted for non-cash items of $477 million, distributions received from unconsolidated entities of $85 million, including $30$188 million in distributions from the LA Partnership, and changes in working capital items which decreased net cash by $168 million. The non-cash items included a $370 million loss on impairment of goodwill. The decrease resulting from changes in working capital items was2018 due in part to a $164 million increase in equipment installment plan receivables, which are expected to continue to increase and further require the use of working capital in the near term.
Cash flows used for investing activities were $472 million. Cash paid in 2017 for additions to property, plant and equipment totaled $252 million. Cash paid for acquisitions and licenses was $189 million which included the remaining $186 million due to the FCC for licenses U.S. Cellular won in Auction 1002. Cash paid for investments was $50 million which included the purchase of short-term Treasury bills. This was partially offset by Cash received from divestitures and exchanges of $19 million. See Note 5 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information related to these transactions.
Cash flows used for financing activities were $10 million, primarily for scheduled repayments of debt.
2016 Commentary
U.S. Cellular’s Cash and cash equivalents decreased $41 million in 2016. Net cash provided by operating activities was $415 million in 2016 due to net income of $54$55 million plus non-cash items of $450$158 million and distributions received from unconsolidated entities of $55 million including a $10 million distribution from the LA Partnership.$17 million. This was partially offset by changes in working capital items which decreased net cash by $144$42 million. The working capital decrease was primarily influenced by timing of annual employee bonus, vendor and tax payments, partially offset by collections of customer and agent receivables. The adoption of ASU 2014-09 caused fluctuations in working capital items was due primarily to a $160 million increase in equipment installment plan receivables. This was partially offset by a federal tax refund of $28 million related tothe Consolidated Balance Sheet; however, it did not have an overpayment of the 2015 tax liability, which resulted from the enactment of federal bonus depreciation in December 2015.
The netimpact on total Net cash provided by operating activities was offset by activities.
Cash flows used for investing activities of $449were $23 million. Cash paid in 20162018 for additions to property, plant and equipment totaled $280$76 million. In June 2016, U.S. Cellular made a deposit of $143 million to the FCC for its participation in Auction 1002. Cash paid for acquisitions and licenses in 2016This was $46 million partially offset by Cashcash received for investments of $50 million, resulting from divestitures and exchangesthe redemption of $20 million.short-term Treasury bills.
Cash flows used for financing activities were $7 million, reflecting ordinary activity such as the scheduled repayments of debt.
2017 Commentary
U.S. Cellular’s Cash, cash equivalents and restricted cash decreased $14 million in 2017. Net cash provided by operating activities was $61 million in 2017, due primarily to net income of $28 million plus non-cash items of $139 million and distributions received from unconsolidated entities of $11 million. This was partially offset by changes in working capital items which decreased cash by $117 million. The decrease in working capital items was due in part to a $44 million increase in equipment installment plan receivables. The decrease was also a result of a $78 million decrease in accounts payable.
The net cash provided by operating activities was offset by cash flows used for investing activities of $75 million. Cash paid for additions to property, plant and equipment in the first quarter of 2017 totaled $88 million. Cash paid for acquisitions and licenses was $3 million which was offset by Cash received from divestitures and exchanges of $16 million.
|
Consolidated Balance Sheet Analysis
The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Changes in financial condition during 2017 are2018 were as follows:
Cash and cash equivalents
Cash and cash equivalents decreased $88 million due primarily to the purchase of $50 million in short-term investments. See the Consolidated Cash Flow analysisAnalysis above for a discussion of cash and cash equivalents.
Short-term investments
Short-term investments increaseddecreased $50 million due to the purchasematurity of short-term investments, which consisted of U.S. Treasury Bills with original maturities of six months. See Note 2 – Fair Value Measurements in the Notes to Consolidated Financial Statements for additional details on short-term investments.
Inventory, netOther assets and deferred charges
Inventory, net decreased $36Other assets and deferred charges increased $147 million due primarily to overall improvements in inventory planningthe creation of contract assets and procurement practices.
Licenses
Licenses increased $339 million due primarily to an aggregate winning bidcontract cost assets as a result of $329 million in FCC Auction 1002. These licenses were granted by the FCC in the second quarteradoption of 2017.ASU 2014-09. See Note 52 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for more information about this transaction.
Goodwill
Goodwill decreased $370 million due to the impairment loss recorded in the third quarter of 2017. See Note 6 — Intangible AssetsRevenue Recognition in the Notes to Consolidated Financial Statements for additional information.
Accounts payableCustomer deposits and deferred revenues
Customer deposits and deferred revenues decreased $53 million due in large part to the impact of reclassifying certain deferred revenues to Other assets and deferred charges to reflect the net contract position for each customer contract on the Consolidated Balance Sheet as required by ASU 2014-09, which was adopted on January 1, 2018. See Note 2 — TradeRevenue Recognition in the Notes to Consolidated Financial Statements for additional information.
Accounts payable — TradeAccrued compensation
Accrued compensation decreased $50$31 million due primarily to reduction of expensesemployee bonus payments in 2017 as well as payment timing differences.March 2018.
Deferred income tax liability, net
Accrued taxes
Accrued taxesDeferred income tax liability, net, increased $26$65 million due primarily to the excessadoption of current incomeASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis without a corresponding increase in tax expense over federal estimated payments made duringbasis, as well as the nine months ended September 30, 2017.impact of full expensing of qualified property additions following the enactment of the Tax Act.
|
Supplemental Information Relating to Non-GAAP Financial Measures
U.S. Cellular sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with U.S. GAAP to evaluate the performance of its business. Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. Specifically, U.S. Cellular has referred to the following measures in this Form 10-Q Report:
Following are explanations of each of these measures.
EBITDA, Adjusted EBITDA and Adjusted OIBDA
EBITDA, Adjusted EBITDA isand Adjusted OIBDA are defined as net income (loss) adjusted for the items set forth in the reconciliation below. Adjusted OIBDA is defined as net income (loss) adjusted for the items set forth in the reconciliation below.EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under GAAP and should not be considered as alternatives to Net income (loss) or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. U.S. Cellular does not intend to imply that any such items set forth in the reconciliation below are non-recurring, infrequent or unusual; such items may occur in the future.
Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability and, therefore, reconciliations to Net income (loss) are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of U.S. Cellular’s operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of U.S. Cellular’s financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following table reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income (loss).income.
|
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended | |||||||||||||
|
|
| September 30, |
| September 30, |
|
| March 31, | ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018¹ |
| 2017 | ||||||||
(Dollars in millions) | (Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| (Dollars in millions) |
|
|
|
|
| ||
Net income (loss) (GAAP) | $ |
| $ |
| $ |
| $ | |||||||||||||
Net income (GAAP) | Net income (GAAP) | $ |
| $ | ||||||||||||||||
Add back: | Add back: |
|
|
|
|
|
|
| Add back: |
|
|
| ||||||||
| Income tax expense (benefit) |
|
|
|
|
|
|
| Income tax expense |
|
|
| ||||||||
| Interest expense |
|
|
|
|
|
|
| Interest expense |
|
|
| ||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| Depreciation, amortization and accretion |
|
|
| ||||||||
EBITDA (Non-GAAP) | EBITDA (Non-GAAP) |
|
|
|
|
|
|
| EBITDA (Non-GAAP) |
|
|
| ||||||||
Add back or deduct: | Add back or deduct: |
|
|
|
|
|
|
| Add back or deduct: |
|
|
| ||||||||
| Loss on impairment of goodwill |
|
|
|
|
|
|
| (Gain) loss on asset disposals, net |
|
|
| ||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| ||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
| ||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| ||||||||||||
Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) |
|
|
|
|
|
|
| Adjusted EBITDA (Non-GAAP) |
|
|
| ||||||||
Deduct: | Deduct: |
|
|
|
|
|
|
| Deduct: |
|
|
| ||||||||
| Equity in earnings of unconsolidated entities |
|
|
|
|
|
|
| Equity in earnings of unconsolidated entities |
|
|
| ||||||||
| Interest and dividend income1 |
|
|
|
|
|
|
| Interest and dividend income |
|
|
| ||||||||
| Other, net |
|
|
|
|
|
|
| Other, net |
|
|
| ||||||||
Adjusted OIBDA (Non-GAAP)1 |
|
|
|
|
|
|
| |||||||||||||
Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) |
|
|
| ||||||||||||||||
Deduct: | Deduct: |
|
|
|
|
|
|
| Deduct: |
|
|
| ||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| Depreciation, amortization and accretion |
|
|
| ||||||||
| Loss on impairment of goodwill |
|
|
|
|
|
|
| (Gain) loss on asset disposals, net |
|
|
| ||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| ||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
| ||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| ||||||||||||
Operating income (loss) (GAAP)¹ | $ |
| $ |
| $ |
| $ | |||||||||||||
Operating income (GAAP) | Operating income (GAAP) | $ |
| $ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | 1 | Equipment installment plan interest income is reflected as a component of Service revenues consistent with the accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. | 1 | As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. |
|
The following table presents Free cash flow. Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.
| Nine Months Ended September 30, |
| Three Months Ended March 31, | |||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
(Dollars in millions) | (Dollars in millions) |
|
|
|
|
| (Dollars in millions) |
|
|
|
|
|
Cash flows from operating activities (GAAP) | Cash flows from operating activities (GAAP) | $ |
| $ | Cash flows from operating activities (GAAP) | $ |
| $ | ||||
Less: Cash paid for additions to property, plant and equipment | Less: Cash paid for additions to property, plant and equipment |
|
|
| Less: Cash paid for additions to property, plant and equipment |
|
|
| ||||
| Free cash flow (Non-GAAP) | $ |
| $ | Free cash flow (Non-GAAP) | $ |
| $ |
Postpaid ABPU and Postpaid ABPA
U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shiftestimated cash collections from Service revenues to Equipment salespostpaid customer billings for both service and equipment resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined, herein, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment sales revenues received from customers.
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, | |||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018¹ |
| 2017 | ||||||||
(Dollars and connection counts in millions) | (Dollars and connection counts in millions) |
|
|
|
|
|
|
|
|
|
|
| (Dollars and connection counts in millions) |
|
|
|
|
| ||
Calculation of Postpaid ARPU | Calculation of Postpaid ARPU |
|
|
|
|
|
|
| Calculation of Postpaid ARPU |
|
|
| ||||||||
Postpaid service revenues | Postpaid service revenues | $ |
| $ |
| $ |
| $ | Postpaid service revenues | $ |
| $ | ||||||||
Average number of postpaid connections | Average number of postpaid connections |
|
|
|
|
|
|
| Average number of postpaid connections |
|
|
| ||||||||
Number of months in period | Number of months in period |
|
|
|
|
|
|
| Number of months in period |
|
|
| ||||||||
| Postpaid ARPU (GAAP metric) | $ |
| $ |
| $ |
| $ | Postpaid ARPU (GAAP metric) | $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ABPU | Calculation of Postpaid ABPU |
|
|
|
|
|
|
| Calculation of Postpaid ABPU |
|
|
| ||||||||
Postpaid service revenues | Postpaid service revenues | $ |
| $ |
| $ |
| $ | Postpaid service revenues | $ |
| $ | ||||||||
Equipment installment plan billings | Equipment installment plan billings |
|
|
|
|
|
|
| Equipment installment plan billings |
|
|
| ||||||||
| Total billings to postpaid connections | $ |
| $ |
| $ |
| $ | Total billings to postpaid connections | $ |
| $ | ||||||||
Average number of postpaid connections | Average number of postpaid connections |
|
|
|
|
|
|
| Average number of postpaid connections |
|
|
| ||||||||
Number of months in period | Number of months in period |
|
|
|
|
|
|
| Number of months in period |
|
|
| ||||||||
| Postpaid ABPU (Non-GAAP metric) | $ |
| $ |
| $ |
| $ | Postpaid ABPU (Non-GAAP metric) | $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ARPA | Calculation of Postpaid ARPA |
|
|
|
|
|
|
| Calculation of Postpaid ARPA |
|
|
| ||||||||
Postpaid service revenues | Postpaid service revenues | $ |
| $ |
| $ |
| $ | Postpaid service revenues | $ |
| $ | ||||||||
Average number of postpaid accounts | Average number of postpaid accounts |
|
|
|
|
|
|
| Average number of postpaid accounts |
|
|
| ||||||||
Number of months in period | Number of months in period |
|
|
|
|
|
|
| Number of months in period |
|
|
| ||||||||
| Postpaid ARPA (GAAP metric) | $ |
| $ |
| $ |
| $ | Postpaid ARPA (GAAP metric) | $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ABPA | Calculation of Postpaid ABPA |
|
|
|
|
|
|
| Calculation of Postpaid ABPA |
|
|
| ||||||||
Postpaid service revenues | Postpaid service revenues | $ |
| $ |
| $ |
| $ | Postpaid service revenues | $ |
| $ | ||||||||
Equipment installment plan billings | Equipment installment plan billings |
|
|
|
|
|
|
| Equipment installment plan billings |
|
|
| ||||||||
| Total billings to postpaid accounts | $ |
| $ |
| $ |
| $ | Total billings to postpaid accounts | $ |
| $ | ||||||||
Average number of postpaid accounts | Average number of postpaid accounts |
|
|
|
|
|
|
| Average number of postpaid accounts |
|
|
| ||||||||
Number of months in period | Number of months in period |
|
|
|
|
|
|
| Number of months in period |
|
|
| ||||||||
| Postpaid ABPA (Non-GAAP metric) | $ |
| $ |
| $ |
| $ | Postpaid ABPA (Non-GAAP metric) | $ |
| $ | ||||||||
|
|
|
|
|
|
|
| |||||||||||||
1 | 1 | As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. |
|
Goodwill impairment, net of tax
The following non-GAAP financial measure isolates the total effect on net income of the current period loss on impairment of goodwill including tax impacts. U.S. Cellular believes this measure may be useful to investors and other users of its financial information to assist in comparing the current period financial results with periods that were not impacted by such a charge.
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
|
| 2017 |
| 2016 | 2017 |
| 2016 | ||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| |
Goodwill impairment: |
|
|
|
|
|
|
|
|
|
|
| |
| Loss on impairment of goodwill | $ |
| $ |
| $ |
| $ | ||||
| Tax benefit on impairment of goodwill1 |
|
|
|
|
|
|
| ||||
| Goodwill impairment, net of tax (Non-GAAP) | $ |
| $ |
| $ |
| $ | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment. |
Application of Critical Accounting Policies and Estimates
U.S. Cellular prepares its consolidated financial statements in accordance with GAAP. U.S. Cellular’s significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Notes to Consolidated Financial Statements and U.S. Cellular’s Application of Critical Accounting Policies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.
Effective January 1, 2017, U.S. Cellular elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations. All prior period numbers have been recast to conform to the current year presentation. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional information regarding this accounting change. There were no other material changes to U.S. Cellular’s application of critical accounting policies and estimates during the nine months ended September 30, 2017.
Goodwill Interim Impairment Assessment
U.S. Cellular adopted ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment,in the third quarter of 2017 and applied the guidance to interim goodwill impairment tests. During the third quarter of 2017, U.S. Cellular recorded a loss on impairment of goodwill of $370 million. Further, U.S. Cellular’s asset group was assessed for recoverability, which resulted in no impairment. See Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements for additional details.
Management continues to monitor industry conditions and other economic factors such as the success of new and existing products and services, competition, and/or operational difficulties for negative trends. Such trends if identified, could adversely influence future forecasted cash flows, market prices on key assets such as spectrum licenses or recoverability of long-lived assets, which could result in possible impairments of such assets in future periods.
Recent Accounting Pronouncements
See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.
FCC Auction 1002
U.S. Cellular was a bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002, which concluded in March 2017. In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million. Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016. U.S. Cellular paid the remaining $186 million to the FCC and was granted the licenses during the second quarter of 2017.
FCC Mobility Fund Phase II Order
In October 2011, the FCC adopted its USF/Intercarrier Compensation Transformation Order (USF Order). Pursuant to this order, U.S. Cellular’s then current Federal USF support was to be phased down at the rate of 20% per year beginning July 1, 2012. The USF Order contemplated the establishment of a new mobile USF program and provided for a pause in the phase down if that program was not timely implemented by July 2014. The Phase II Connect America Mobility Fund (MF2) was not operational as of July 2014 and, therefore, as provided by the USF Order, the phase down was suspended at 60% of the baseline amount until such time as the FCC had taken steps to establish the MF2. In February 2017, the FCC adopted the MF2 Order addressing the framework for MF2 and the resumption of the phase down. The MF2 Order establishes a support fund of $453 million annually for ten years to be distributed through a market-based, multi-round reverse auction. For areas that receive support under MF2, legacy support to MF2 Auction winners will terminate and be replaced with MF2 support effective the first day of the month following release of the public notice closing the auction. Legacy support in areas where the legacy support recipient is not an MF2 winner will be subject to phase down over two years unless there is no winner in a particular census block, in which case it will be continued for one legacy support recipient only. The MF2 Order further states that the phase down of legacy support for areas that dowere not receiveeligible for support under MF2 will commence on the first day of the month following the completion of the auction and will conclude two years later.
In August 2017, the FCC adopted the MF2 Challenge Process Order, which laid out procedures for establishing areas that would be eligible for support under the MF2 program. This will include a collection process to be followed by a challenge window, a challenge response window, and finally adjudication of any coverage disputes. In September 2017, the FCC issued a public notice initiating the collection of 4G LTE coverage data. Responses submitting the collected data arewere due on January 4, 2018.
In October 2017,On February 27, 2018, the FCC issued a public notice proposing and seeking comment onnotices providing detailed challenge procedures and a schedule for the challenge process. Under this proposal,Pursuant to these notices, the challenge window would begin no earlier than four weeks after the January 4 collection datebegan on March 29, 2018 and would last 150 days.will close on August 27, 2018. No earlier than five businessthirty days after the close ofFCC processes the challenge window, the FCC wouldchallenges, it will open a thirty-day challenge response window. Following the challenge response window, the FCC wouldwill adjudicate any disputes. This entire process must be completed before an auction can be commenced.
U.S. Cellular cannot predict at this time when the MF2 auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the MF2 auction will provide opportunities to U.S. Cellular to offset any loss in existing support. However, the FCC has indicated that it currently plans to hold the MF2 auction in 2018. U.S. Cellular currently expects that its legacy support will continue at the current2017 level for the remainder of 2017.through 2018.
FCC Notice of Proposed Rulemaking – “Restoring Internet Freedom”Millimeter Wave Spectrum Auctions
In May 2017,At its open meeting on April 17, 2018, the FCC adopted a Noticepublic notice seeking comment on procedures for two auctions of Proposed Rulemaking (NPRM) proposing to revise decisions madespectrum licenses in the FCC’s 2015 Open Internet28 GHz and Title II Order (Restoring Internet Freedom). If adopted as24 GHz bands. As proposed, the item28GHz auction (Auction 101) would reversecommence on November 14, 2018, and would offer two 425 MHz licenses in the FCC’s decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II28 GHz band over portions of the Telecommunications Act. The NPRM also sought comment on blocking, throttling, paid prioritization, and transparency rules adopted as partUnited States that do not have incumbent licensees. Following the completion of Auction 101, the FCC would commence the 24 GHz auction (Auction 102), which would offer up to seven 100 MHz licenses in the 24 GHz band in Partial Economic Areas covering most of the FCC’s previous rulemaking.
The NPRM is subject to public comment and further action by the FCC, and any final rules adopted may differ from those proposed in the NPRM. Also, there may be legal proceedings challenging any rule changes that are ultimately adopted. U.S. Cellular cannot predict the outcome of these proceedings or the impact on its business.
Other Regulatory Matters
In March 2017, both the U.S. Senate and U.S. House of Representatives approved a joint resolution under the Congressional Review Act to repeal regulations approved by the FCC in October 2016 governing consumer privacy by broadband Internet service providers. The President approved the resolution in April 2017. The repeal removed the pending FCC rules, which would have gone into effect in 2017. The rules would have prohibited broadband internet service providers from sharing certain sensitive customer information unless customers opted in and expressly agreed to share such information. U.S. Cellular will continue to protect customer information in accordance with Section 222 of the Telecommunications Act and its publicly available Privacy Statement until such time as regulators adopt other privacy requirements. United States.
|
Private Securities Litigation Reform Act of 1995
Safe Harbor Cautionary Statement
This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that U.S. Cellular intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include those set forth below, as more fully described under “Risk Factors” in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.2017. Each of the following risks could have a material adverse effect on U.S. Cellular’s business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. U.S. Cellular undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. You should carefully consider the Risk Factors in U.S. Cellular’s Form 10-K for the year ended December 31, 2016,2017, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to U.S. Cellular’s business, financial condition or results of operations.
|
In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in U.S. Cellular’s Annual Report on Form 10-K for the year ended December 31, 2016,2017, which could materially affect U.S. Cellular’s business, financial condition or future results. The risks described in this Form 10-Q and the Form 10-K for the year ended December 31, 2016,2017, may not be the only risks that could affect U.S. Cellular. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect U.S. Cellular’s business, financial condition and/or operating results. Subject to the foregoing, U.S. Cellular has not identified for disclosure any material changes to the risk factors as previously disclosed in U.S. Cellular’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Refer to the disclosure under Market Risk in U.S. Cellular’s Form 10-K for the year ended December 31, 2016,2017, for additional information, including information regarding required principal payments and the weighted average interest rates related to U.S. Cellular’s Long-term debt. There have been no material changes to such information since December 31, 2016.2017.
See Note 23 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of U.S. Cellular’s Long-term debt as of September 30, 2017.March 31, 2018.
|
United States Cellular Corporation
Consolidated Statement of Operations
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended | |||||||||||||||
|
|
| September 30, |
| September 30, |
|
| March 31, | ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||||||||
(Dollars and shares in millions, except per share amounts) | (Dollars and shares in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
| (Dollars and shares in millions, except per share amounts) |
|
|
|
|
| ||||
Operating revenues | Operating revenues |
|
|
|
|
|
|
|
|
|
|
| Operating revenues |
|
|
|
|
| ||||
| Service | $ |
| $ |
| $ |
| $ | Service | $ |
| $ | ||||||||||
| Equipment sales |
|
|
|
|
|
|
| Equipment sales |
|
|
| ||||||||||
|
| Total operating revenues |
|
|
|
|
|
|
|
| Total operating revenues |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating expenses | Operating expenses |
|
|
|
|
|
|
| Operating expenses |
|
|
| ||||||||||
| System operations (excluding Depreciation, amortization and accretion reported below) |
|
|
|
|
|
|
| System operations (excluding Depreciation, amortization and accretion reported below) |
|
|
| ||||||||||
| Cost of equipment sold |
|
|
|
|
|
|
| Cost of equipment sold |
|
|
| ||||||||||
| Selling, general and administrative (including charges from affiliates of $20 million and $21 million, respectively, for the three months, and $62 million and $69 million, respectively, for the nine months) |
|
|
|
|
|
|
| Selling, general and administrative (including charges from affiliates of $19 million and $21 million, respectively) |
|
|
| ||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| Depreciation, amortization and accretion |
|
|
| ||||||||||
| Loss on impairment of goodwill |
|
|
|
|
|
|
| (Gain) loss on asset disposals, net |
|
|
| ||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| ||||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
|
|
| Total operating expenses |
|
|
| |||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Total operating expenses |
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating income (loss) |
|
|
|
|
|
|
| |||||||||||||||
Operating income | Operating income |
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Investment and other income (expense) | Investment and other income (expense) |
|
|
|
|
|
|
| Investment and other income (expense) |
|
|
| ||||||||||
| Equity in earnings of unconsolidated entities |
|
|
|
|
|
|
| Equity in earnings of unconsolidated entities |
|
|
| ||||||||||
| Interest and dividend income |
|
|
|
|
|
|
| Interest and dividend income |
|
|
| ||||||||||
| Interest expense |
|
|
|
|
|
|
| Interest expense |
|
|
| ||||||||||
| Other, net |
|
|
|
|
|
|
| Other, net |
|
|
| ||||||||||
|
| Total investment and other income |
|
|
|
|
|
|
|
| Total investment and other income |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income (loss) before income taxes |
|
|
|
|
|
|
| |||||||||||||||
Income before income taxes | Income before income taxes |
|
|
| ||||||||||||||||||
| Income tax expense (benefit) |
|
|
|
|
|
|
| Income tax expense |
|
|
| ||||||||||
Net income (loss) |
|
|
|
|
|
|
| |||||||||||||||
Less: Net income (loss) attributable to noncontrolling interests, net of tax |
|
|
|
|
|
|
| |||||||||||||||
Net income (loss) attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ | |||||||||||||||
Net income | Net income |
|
|
| ||||||||||||||||||
Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax |
|
|
| ||||||||||||||||||
Net income attributable to U.S. Cellular shareholders | Net income attributable to U.S. Cellular shareholders | $ |
| $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average shares outstanding | Basic weighted average shares outstanding |
|
|
|
|
| Basic weighted average shares outstanding |
|
| |||||||||||||
Basic earnings (loss) per share attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ | |||||||||||||||
Basic earnings per share attributable to U.S. Cellular shareholders | Basic earnings per share attributable to U.S. Cellular shareholders | $ |
| $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding |
|
|
|
|
| Diluted weighted average shares outstanding |
|
| |||||||||||||
Diluted earnings (loss) per share attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ | |||||||||||||||
Diluted earnings per share attributable to U.S. Cellular shareholders | Diluted earnings per share attributable to U.S. Cellular shareholders | $ |
| $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements. |
United States Cellular Corporation
Consolidated Statement of Cash Flows
(Unaudited)
|
|
|
| Three Months Ended | |||||
|
|
|
|
| March 31, | ||||
| 2018 |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
| ||||
Cash flows from operating activities |
|
|
|
|
| ||||
| Net income | $ |
| $ | |||||
| Add (deduct) adjustments to reconcile net income to net cash flows |
|
|
| |||||
|
| from operating activities |
|
|
| ||||
|
|
| Depreciation, amortization and accretion |
|
|
| |||
|
|
| Bad debts expense |
|
|
| |||
|
|
| Stock-based compensation expense |
|
|
| |||
|
|
| Deferred income taxes, net |
|
|
| |||
|
|
| Equity in earnings of unconsolidated entities |
|
|
| |||
|
|
| Distributions from unconsolidated entities |
|
|
| |||
|
|
| (Gain) loss on asset disposals, net |
|
|
| |||
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| |||
|
|
| Noncash interest |
|
|
| |||
| Changes in assets and liabilities from operations |
|
|
| |||||
|
|
| Accounts receivable |
|
|
| |||
|
|
| Equipment installment plans receivable |
|
|
| |||
|
|
| Inventory |
|
|
| |||
|
|
| Accounts payable |
|
|
| |||
|
|
| Customer deposits and deferred revenues |
|
|
| |||
|
|
| Accrued taxes |
|
|
| |||
|
|
| Accrued interest |
|
|
| |||
|
|
| Other assets and liabilities |
|
|
| |||
|
|
|
| Net cash provided by operating activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
| ||||||
| Cash paid for additions to property, plant and equipment |
|
|
| |||||
| Cash paid for licenses |
|
|
| |||||
| Cash received for investments |
|
|
| |||||
| Cash received from divestitures and exchanges |
|
|
| |||||
|
|
|
| Net cash used in investing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
| ||||||
| Repayment of long-term debt |
|
|
| |||||
| Common shares reissued for benefit plans, net of tax payments |
|
|
| |||||
| Other financing activities |
|
|
| |||||
|
|
|
| Net cash used in financing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
| ||||||
|
|
|
|
|
|
|
| ||
Cash, cash equivalents and restricted cash |
|
|
| ||||||
| Beginning of period |
|
|
| |||||
| End of period | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
United States Cellular Corporation
Consolidated Balance Sheet — Assets
(Unaudited)
March 31, |
| December 31, | ||||||
| 2018 |
| 2017 | |||||
(Dollars in millions) |
|
|
|
|
| |||
Current assets |
|
|
|
|
| |||
| Cash and cash equivalents | $ |
| $ | ||||
| Short-term investments |
|
|
| ||||
| Accounts receivable |
|
|
| ||||
|
| Customers and agents, less allowances of $56 and $55, respectively |
|
|
| |||
|
| Roaming |
|
|
| |||
|
| Affiliated |
|
|
| |||
|
| Other, less allowances of $1 and $1, respectively |
|
|
| |||
| Inventory, net |
|
|
| ||||
| Prepaid expenses |
|
|
| ||||
| Other current assets |
|
|
| ||||
|
|
| Total current assets |
|
|
| ||
|
|
|
|
|
|
| ||
Assets held for sale |
|
|
| |||||
|
|
|
|
|
|
| ||
Licenses |
|
|
| |||||
|
|
|
|
|
|
| ||
Investments in unconsolidated entities |
|
|
| |||||
|
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
| |||||
| In service and under construction |
|
|
| ||||
| Less: Accumulated depreciation and amortization |
|
|
| ||||
|
|
| Property, plant and equipment, net |
|
|
| ||
|
|
|
|
|
|
| ||
Other assets and deferred charges |
|
|
| |||||
|
|
|
|
|
|
| ||
Total assets1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
United States Cellular Corporation
Consolidated Balance Sheet — Liabilities and Equity
(Unaudited)
March 31, |
| December 31, | ||||||
| 2018 |
| 2017 | |||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
| |||
Current liabilities |
|
|
|
|
| |||
| Current portion of long-term debt | $ |
| $ | ||||
| Accounts payable |
|
|
| ||||
|
| Affiliated |
|
|
| |||
|
| Trade |
|
|
| |||
| Customer deposits and deferred revenues |
|
|
| ||||
| Accrued taxes |
|
|
| ||||
| Accrued compensation |
|
|
| ||||
| Other current liabilities |
|
|
| ||||
|
|
| Total current liabilities |
|
|
| ||
|
|
|
|
|
|
| ||
Deferred liabilities and credits |
|
|
| |||||
| Deferred income tax liability, net |
|
|
| ||||
| Other deferred liabilities and credits |
|
|
| ||||
|
|
|
|
|
|
| ||
Long-term debt, net |
|
|
| |||||
|
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
| |||||
|
|
|
|
|
|
| ||
Noncontrolling interests with redemption features |
|
|
| |||||
|
|
|
|
|
|
| ||
Equity |
|
|
| |||||
| U.S. Cellular shareholders’ equity |
|
|
| ||||
|
| Series A Common and Common Shares |
|
|
| |||
|
|
| Authorized 190 shares (50 Series A Common and 140 Common Shares) |
|
|
| ||
|
|
| Issued 88 shares (33 Series A Common and 55 Common Shares) |
|
|
| ||
|
|
| Outstanding 85 shares (33 Series A Common and 52 Common Shares) |
|
|
| ||
|
|
| Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares) |
|
|
| ||
|
| Additional paid-in capital |
|
|
| |||
|
| Treasury shares, at cost, 3 Common Shares |
|
|
| |||
|
| Retained earnings |
|
|
| |||
|
|
| Total U.S. Cellular shareholders' equity |
|
|
| ||
|
|
|
|
|
|
| ||
| Noncontrolling interests |
|
|
| ||||
|
|
|
|
|
|
| ||
|
| Total equity |
|
|
| |||
|
|
|
|
|
|
| ||
Total liabilities and equity1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | The consolidated total assets as of March 31, 2018 and December 31, 2017, include assets held by consolidated variable interest entities (VIEs) of $793 million and $785 million, respectively, which are not available to be used to settle the obligations of U.S. Cellular. The consolidated total liabilities as of March 31, 2018 and December 31, 2017, include certain liabilities of consolidated VIEs of $21 million and $24 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of U.S. Cellular. See Note 9 — Variable Interest Entities for additional information. | |||||||
| ||||||||
|
| |||||||
|
|
|
United States Cellular Corporation
Consolidated Statement of Cash Flows
(Unaudited)
|
|
|
| Nine Months Ended | |||||
|
|
|
|
| September 30, | ||||
| 2017 |
| 2016 | ||||||
(Dollars in millions) |
|
|
|
|
| ||||
Cash flows from operating activities |
|
|
|
|
| ||||
| Net income (loss) | $ |
| $ | |||||
| Add (deduct) adjustments to reconcile net income (loss) to net cash flows |
|
|
| |||||
|
| from operating activities |
|
|
| ||||
|
|
| Depreciation, amortization and accretion |
|
|
| |||
|
|
| Bad debts expense |
|
|
| |||
|
|
| Stock-based compensation expense |
|
|
| |||
|
|
| Deferred income taxes, net |
|
|
| |||
|
|
| Equity in earnings of unconsolidated entities |
|
|
| |||
|
|
| Distributions from unconsolidated entities |
|
|
| |||
|
|
| Loss on impairment of goodwill |
|
|
| |||
|
|
| (Gain) loss on asset disposals, net |
|
|
| |||
|
|
| (Gain) loss on sale of business and other exit costs, net |
|
|
| |||
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| |||
|
|
| Noncash interest |
|
|
| |||
|
|
| Other operating activities |
|
|
| |||
| Changes in assets and liabilities from operations |
|
|
| |||||
|
|
| Accounts receivable |
|
|
| |||
|
|
| Equipment installment plans receivable |
|
|
| |||
|
|
| Inventory |
|
|
| |||
|
|
| Accounts payable |
|
|
| |||
|
|
| Customer deposits and deferred revenues |
|
|
| |||
|
|
| Accrued taxes |
|
|
| |||
|
|
| Accrued interest |
|
|
| |||
|
|
| Other assets and liabilities |
|
|
| |||
|
|
|
| Net cash provided by operating activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
| ||||||
| Cash paid for additions to property, plant and equipment |
|
|
| |||||
| Cash paid for licenses |
|
|
| |||||
| Cash paid for investments |
|
|
| |||||
| Cash received from divestitures and exchanges |
|
|
| |||||
| Federal Communications Commission deposit |
|
|
| |||||
|
|
|
| Net cash used in investing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
| ||||||
| Repayment of long-term debt |
|
|
| |||||
| Common shares reissued for benefit plans, net of tax payments |
|
|
| |||||
| Common shares repurchased |
|
|
| |||||
| Payment of debt issuance costs |
|
|
| |||||
| Distributions to noncontrolling interests |
|
|
| |||||
| Other financing activities |
|
|
| |||||
|
|
|
| Net cash used in financing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Net decrease in cash and cash equivalents |
|
|
| ||||||
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
|
| ||||||
| Beginning of period |
|
|
| |||||
| End of period | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
United States Cellular Corporation
Consolidated Balance Sheet — Assets
(Unaudited)
September 30, |
| December 31, | ||||||
| 2017 |
| 2016 | |||||
(Dollars in millions) |
|
|
|
|
| |||
Current assets |
|
|
|
|
| |||
| Cash and cash equivalents | $ |
| $ | ||||
| Short-term investments |
|
|
| ||||
| Accounts receivable |
|
|
| ||||
|
| Customers and agents, less allowances of $52 and $51, respectively |
|
|
| |||
|
| Roaming |
|
|
| |||
|
| Affiliated |
|
|
| |||
|
| Other, less allowances of $1 and $1, respectively |
|
|
| |||
| Inventory, net |
|
|
| ||||
| Prepaid expenses |
|
|
| ||||
| Other current assets |
|
|
| ||||
|
|
| Total current assets |
|
|
| ||
|
|
|
|
|
|
| ||
Assets held for sale |
|
|
| |||||
|
|
|
|
|
|
| ||
Licenses |
|
|
| |||||
Goodwill |
|
|
| |||||
Investments in unconsolidated entities |
|
|
| |||||
|
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
| |||||
| In service and under construction |
|
|
| ||||
| Less: Accumulated depreciation and amortization |
|
|
| ||||
|
|
| Property, plant and equipment, net |
|
|
| ||
|
|
|
|
|
|
| ||
Other assets and deferred charges |
|
|
| |||||
|
|
|
|
|
|
| ||
Total assets1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
United States Cellular Corporation
Consolidated Balance Sheet — Liabilities and Equity
(Unaudited)
September 30, |
| December 31, | ||||||
| 2017 |
| 2016 | |||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
| |||
Current liabilities |
|
|
|
|
| |||
| Current portion of long-term debt | $ |
| $ | ||||
| Accounts payable |
|
|
| ||||
|
| Affiliated |
|
|
| |||
|
| Trade |
|
|
| |||
| Customer deposits and deferred revenues |
|
|
| ||||
| Accrued taxes |
|
|
| ||||
| Accrued compensation |
|
|
| ||||
| Other current liabilities |
|
|
| ||||
|
|
| Total current liabilities |
|
|
| ||
|
|
|
|
|
|
| ||
Deferred liabilities and credits |
|
|
| |||||
| Deferred income tax liability, net |
|
|
| ||||
| Other deferred liabilities and credits |
|
|
| ||||
|
|
|
|
|
|
| ||
Long-term debt, net |
|
|
| |||||
|
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
| |||||
|
|
|
|
|
|
| ||
Noncontrolling interests with redemption features |
|
|
| |||||
|
|
|
|
|
|
| ||
Equity |
|
|
| |||||
| U.S. Cellular shareholders’ equity |
|
|
| ||||
|
| Series A Common and Common Shares |
|
|
| |||
|
|
| Authorized 190 shares (50 Series A Common and 140 Common Shares) |
|
|
| ||
|
|
| Issued 88 shares (33 Series A Common and 55 Common Shares) |
|
|
| ||
|
|
| Outstanding 85 shares (33 Series A Common and 52 Common Shares) |
|
|
| ||
|
|
| Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares) |
|
|
| ||
|
| Additional paid-in capital |
|
|
| |||
|
| Treasury shares, at cost, 3 Common Shares |
|
|
| |||
|
| Retained earnings |
|
|
| |||
|
|
| Total U.S. Cellular shareholders' equity |
|
|
| ||
|
|
|
|
|
|
| ||
| Noncontrolling interests |
|
|
| ||||
|
|
|
|
|
|
| ||
|
| Total equity |
|
|
| |||
|
|
|
|
|
|
| ||
Total liabilities and equity1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | The consolidated total assets as of September 30, 2017 and December 31, 2016, include assets held by consolidated variable interest entities (VIEs) of $777 million and $827 million, respectively, which are not available to be used to settle the obligations of U.S. Cellular. The consolidated total liabilities as of September 30, 2017 and December 31, 2016, include certain liabilities of consolidated VIEs of $20 million and $19 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of U.S. Cellular. See Note 8 — Variable Interest Entities for additional information. | |||||||
| ||||||||
|
| |||||||
|
|
United States Cellular Corporation
Consolidated Statement of Changes in Equity
(Unaudited)
| U.S. Cellular Shareholders |
|
|
|
|
|
| ||||||||||||||
|
| Series A Common and Common shares |
| Additional paid-in capital |
| Treasury shares |
| Retained earnings |
| Total U.S. Cellular shareholders' equity |
| Noncontrolling interests |
| Total equity | |||||||
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, December 31, 2016 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Net loss attributable to U.S. Cellular shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income attributable to noncontrolling interests classified as equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incentive and compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock-based compensation awards |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, September 30, 2017 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
The accompanying notes are an integral part of these consolidated financial statements. |
| U.S. Cellular Shareholders |
|
|
|
|
|
| ||||||||||||||
|
| Series A Common and Common shares |
| Additional paid-in capital |
| Treasury shares |
| Retained earnings |
| Total U.S. Cellular shareholders' equity |
| Noncontrolling interests |
| Total equity | |||||||
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, December 31, 2017 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income attributable to U.S. Cellular shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incentive and compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock-based compensation awards |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, March 31, 2018 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
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 |
|
|
|
|
|
| U.S. Cellular Shareholders |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Series A Common and Common shares |
| Additional paid-in capital |
| Treasury shares |
| Retained earnings |
| Total U.S. Cellular shareholders' equity |
| Noncontrolling interests |
| Total equity |
| Series A Common and Common shares |
| Additional paid-in capital |
| Treasury shares |
| Retained earnings |
| Total U.S. Cellular shareholders' equity |
| Noncontrolling interests |
| Total equity | ||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | (Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, December 31, 2015 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||||||||||||||||||||||
Balance, December 31, 2016 | Balance, December 31, 2016 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||||||||||||||||||||||
Net income attributable to U.S. Cellular shareholders | Net income attributable to U.S. Cellular shareholders |
|
|
|
|
|
|
|
|
|
| Net income attributable to U.S. Cellular shareholders |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income attributable to noncontrolling interests classified as equity | Net income attributable to noncontrolling interests classified as equity |
|
|
|
|
|
|
|
|
|
| Net income attributable to noncontrolling interests classified as equity |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Repurchase of Common shares |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Incentive and compensation plans | Incentive and compensation plans |
|
|
|
|
|
|
|
|
|
| Incentive and compensation plans |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Stock-based compensation awards | Stock-based compensation awards |
|
|
|
|
|
|
|
|
|
| Stock-based compensation awards |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance, September 30, 2016 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||||||||||||||||||||||
Balance, March 31, 2017 | Balance, March 31, 2017 | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements. |
|
United States Cellular Corporation
Notes to Consolidated Financial Statements
United States Cellular Corporation (U.S. Cellular), a Delaware corporation, is an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).
The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of U.S. Cellular’s financial position as of September 30, 2017March 31, 2018 and December 31, 2016,2017, and its results of operations, for the three and nine months ended September 30, 2017 and 2016, and its cash flows and changes in equity for the ninethree months ended September 30, 2017March 31, 2018 and 2016.2017. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, equaled net income. These results are not necessarily indicative of the results to be expected for the full year. U.S. Cellular has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2016,2017, except as described below.below and as disclosed in Note 2 — Revenue Recognition and Note 8 — Investments in Unconsolidated Entities.
Equipment Installment PlansRestricted Cash
|
|
| March 31, |
|
| December 31, | |
|
|
| 2018 |
|
| 2017 | |
(Dollars in millions) |
|
|
|
|
|
| |
Cash and cash equivalents |
| $ |
| $ | |||
Restricted cash included in: |
|
|
|
| |||
| Other current assets |
|
|
|
| ||
Cash, cash equivalents and restricted cash in the statement of cash flows |
| $ |
| $ |
Recently Adopted Accounting Pronouncements
In December 2016, the FASB issued Accounting Standards Update 2016-19 Technical Corrections and Improvements (ASU 2016-19). ASU 2016-19 includes an amendment to Accounting Standards Codification Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which clarifies that a software license within the scope of the Subtopic will be accounted for as the acquisition of an intangible asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition. U.S. Cellular adopted this standard prospectively for all arrangements entered into or materially modified after January 1, 2017.
In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 eliminates Step 2 of the current goodwill impairment test. Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted. U.S. Cellular elected to early adopt ASU 2017-04 and applied the new guidance to interim goodwill impairment testing performed during the third quarter of 2017. See Note 6 – Intangible Assets for the discussion of U.S. Cellular’s goodwill impairment.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU(ASU 2016-02). ASU 2016-02 requires lessees to record a right-of-use asset and lease liability for almost all leases. This ASU does not substantially impact the lessor accounting model. However, some changes to the lessor accounting guidance were made to align with lessee accounting changes within Accounting Standards Codification (ASC) 842, Leases and certain key aspects of ASC 606, Revenue from Contracts with Customers. Early adoption is permitted; however, U.S. Cellular is requiredplans to adopt ASU 2016-02 on a modified retrospective basis when required on January 1, 2019. EarlyIn January 2018, the FASB issued Accounting Standards Update 2018-01, Leases (ASU 2018-01), which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entities adoption of ASU 2016-02. U.S. Cellular plans to adopt ASU 2018-01 in conjunction with its adoption of ASU 2016-02. U.S. Cellular is permitted. Uponevaluating the full effect that adoption of ASU 2016-02 and ASU 2018-01 will have on its financial condition, results of operations and disclosures. Upon adoption, U.S. Cellular expects a substantial increase to assets and liabilities on its balance sheet. U.S. Cellularsheet and is evaluatingin the full effect that adoptionprocess of ASU 2016-02 will have on its financial condition, resultsimplementing a new lease management and accounting system to assist in the application of operations and disclosures.the new standard.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU(ASU 2016-13). ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. U.S. Cellular is required to adopt ASU 2016-13 on January 1, 2020.2020, using the modified retrospective approach. Early adoption is permitted as of January 1, 2019 is permitted.2019. U.S. Cellular is evaluating the effects that adoption of ASU 2016-13 will have on its financial position, results of operations and disclosures.
In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets. U.S. Cellular is required to adopt ASU 2017-05 on January 1, 2018. Early adoption is permitted. The adoption of ASU 2017-05 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.
In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as modifications. U.S. Cellular is required to adopt ASU 2017-09 on January 1, 2018. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.
In July 2017, the FASB issued Accounting Standards Update 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging: I. Accounting for Certain Financial Instruments with Down Round Features, II.Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (ASU 2017-11). The amendments in Part I of ASU 2017-11 that relate to liability or equity classification of financial instruments (or embedded features) affect all entities that issue financial instruments (for example, warrants or convertible instruments) that include down round features. The amendments in Part II ASU 2017-11 do not have an accounting effect since the amendments only replace the indefinite deferral of certain guidance with a scope exception. U.S. Cellular is required to adopt ASU 2017-11 on January 1, 2019. Early adoption is permitted. The adoption of ASU 2017-11 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.
In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 amends hedge accounting recognition and presentation requirements to improve transparency and understandability of information disclosed in the financials as well as simplifies the application of hedge accounting guidance. U.S. Cellular is required to adopt ASU 2017-12 on January 1, 2019. Early adoption is permitted. The adoption of ASU 2017-12 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.
Amounts Collected from Customers and Remitted to Governmental Authorities
U.S. Cellular records amounts collected from customers and remitted to governmental authorities on a net basis within a tax liability account if the 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. 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 $14$17 million and $42$14 million for the three and nine months ended September 30,March 31, 2018 and 2017, respectively,respectively.
Change in Accounting Policy
As a practical expedient, U.S. Cellular groups similar contracts or similar performance obligations together into portfolios of contracts or performance obligations if doing so does not result in a significant difference from applying the new accounting standard to the individual contracts. U.S. Cellular applies this grouping method for the following types of transactions: device activation fees, contract acquisition costs, and $49certain customer promotions. Contract portfolios will be recognized over the respective expected customer lives or terms of the contracts.
The line items impacted by the adoption of ASU 2014-09 and ASU 2017-05 in the Consolidated Statement of Operations and the Consolidated Balance Sheet are presented below.
Consolidated Statement of Operations
Results under prior accounting standards |
|
|
|
|
|
| ||
|
| Adjustment |
| As reported | ||||
Three Months Ended March 31, 2018 |
|
| ||||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
|
|
|
|
Operating revenues |
|
|
|
|
|
|
|
|
Service | $ |
| $ |
| $ | |||
Equipment sales |
|
|
|
|
| |||
Total operating revenues |
|
|
|
|
| |||
Cost of equipment sold |
|
|
|
|
| |||
(Gain) loss on license sales and exchanges, net |
|
|
|
|
| |||
Total operating expenses |
|
|
|
|
| |||
Operating income (loss) |
|
|
|
|
| |||
Income (loss) before income taxes |
|
|
|
|
| |||
Income tax expense (benefit) |
|
|
|
|
| |||
Net income (loss) |
|
|
|
|
| |||
Net income (loss) attributable to U.S. Cellular shareholders |
|
|
|
|
| |||
Basic earnings (loss) per share attributable to |
|
|
|
|
|
|
| |
U.S. Cellular shareholders | $ |
| $ |
| $ | |||
Diluted earnings (loss) per share attributable to |
|
|
|
|
|
|
| |
U.S. Cellular shareholders | $ |
| $ |
| $ |
The decrease in Service revenues and the increase in Equipment sales revenues are driven primarily by differences in the timing and classification of revenue recognized for certain arrangements with multiple performance obligations and ceasing to record deferred imputed interest and the resulting interest income on equipment installment contracts. Under prior accounting standards, revenues were allocated to deliverables using the relative selling price method, where consideration was allocated to each element on the basis of its relative selling price. Revenue recognized for the delivered items was limited to the amount due from the customer that was not contingent upon the delivery of additional products or services. Under ASU 2014-09, the revenue allocation of the transaction price is based on the relative standalone selling prices of the individual performance obligations in the customer’s contract, and the resulting revenue attributable to each is recognized as control over the performance obligation is transferred to the customer. This has resulted in increased Equipment sales revenues as more revenue is allocated to discounted equipment than under prior accounting standards. Under prior accounting standards, U.S. Cellular deferred imputed interest related to equipment installment plan receivable contracts that exceeded twelve months, and recognized the corresponding interest income over the contract period in Service revenues. Under the provisions of ASU 2014-09, U.S. Cellular has determined that equipment installment plan contracts do not contain a significant financing component, and accordingly U.S. Cellular ceased recording deferred imputed interest and the resulting interest income on equipment installment contracts upon the adoption of ASU 2014-09.
Cost of equipment sold decreased due to a change in timing of recognition of cost of goods sold in the agent channel. Under prior accounting standards, Equipment sales to agents and the related Cost of equipment sold was recognized when equipment was sold through from the agent to end user customers. In accordance with the provisions of ASU 2014-09, such amounts are recognized when U.S. Cellular delivers the equipment to the agent.
Under ASU 2017-05, (Gain) loss on license sales and exchanges, net is calculated by subtracting the carrying amount of the distinct asset being disposed from the consideration measured and allocated to that distinct asset. The consideration, or transaction price, is the fair value of the licenses received. Under prior accounting standards, the transaction price was typically the fair value of the licenses surrendered. This change in guidance has resulted in a decrease in (Gain) loss on license sales and exchanges, net.
Consolidated Balance Sheet
Results under prior accounting standards |
|
|
|
|
|
| ||
|
| Adjustment |
| As reported | ||||
As of March 31, 2018 |
|
| ||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
| |||
Customers and agents, less allowances | $ |
| $ |
| $ | |||
Roaming |
|
|
|
|
| |||
Prepaid expenses |
|
|
|
|
| |||
Other current assets |
|
|
|
|
| |||
Total current assets |
|
|
|
|
| |||
Licenses |
|
|
|
|
| |||
Investments in unconsolidated entities |
|
|
|
|
| |||
Other assets and deferred charges |
|
|
|
|
| |||
Total assets |
|
|
|
|
| |||
Customer deposits and deferred revenues |
|
|
|
|
| |||
Accrued taxes |
|
|
|
|
| |||
Other current liabilities |
|
|
|
|
| |||
Total current liabilities |
|
|
|
|
| |||
Deferred income tax liability, net |
|
|
|
|
| |||
Other deferred liabilities and credits |
|
|
|
|
| |||
Retained earnings |
|
|
|
|
| |||
Total U.S. Cellular shareholders' equity |
|
|
|
|
| |||
Noncontrolling interests |
|
|
|
|
| |||
Total equity |
|
|
|
|
| |||
Total liabilities and equity |
|
|
|
|
|
As a result of adoption of ASU 2014-09, U.S. Cellular recorded short-term and long-term contract assets and contract liabilities in its Consolidated Balance Sheet as of March 31, 2018. Under ASU 2014-09, the timing of recognition of revenue for each performance obligation may differ from the timing of the customer billing, creating a contract asset or contract liability. See Contract Balances below for additional information. Contract assets are included in Other current assets if short-term in nature or Other assets and deferred charges if long-term in nature. Short-term contract liabilities are classified as Customer deposits and deferred revenues and long-term contract liabilities are included in Other deferred liabilities and credits. Accounts receivable increased as a result of U.S. Cellular ceasing to record deferred imputed interest. Certain prepaid expenses have been reclassified as contract cost assets, which are a component of Other assets and deferred charges. Investments in unconsolidated entities increased due to the cumulative effect of applying the provisions of ASU 2014-09 to certain of U.S. Cellular’s equity method investments as of January 1, 2018. Deferred income tax liabilities, net, increased due to the provisions of ASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis, without a corresponding increase in tax basis. Contract cost assets have also been created as a result of ASU 2014-09 due to capitalization of costs to obtain a new contract. See Contract Cost Assets below for additional information.
The following is a description of principal activities from which U.S. Cellular generates its revenues.
Services and products | Nature, timing of satisfaction of performance obligations, and significant payment terms | |
Wireless services | Wireless service includes voice, messaging and data services. Revenue is recognized in Service revenues as wireless service is provided to the customer. Wireless services are generally billed and paid in advance on a monthly basis. | |
Wireless devices and accessories | U.S. Cellular offers a comprehensive range of wireless devices such as handsets, modems, mobile hotspots, home phones and tablets for use by its customers, as well as accessories. U.S. Cellular also sells wireless devices to agents and other third-party distributors for resale. U.S. Cellular frequently discounts wireless devices sold to new and current customers. U.S. Cellular also offers customers the option to purchase certain devices under installment contracts over a specified time period. For certain equipment installment plans, after a specified period of time, the customer may have the right to upgrade to a new device. Such upgrades require the customer to enter into an equipment installment contract for the new device, and transfer the existing device to U.S. Cellular. U.S. Cellular recognizes revenue in Equipment sales revenues when control of the device or accessory is transferred to the customer, which is generally upon delivery. | |
Wireless roaming | U.S. Cellular receives roaming revenues when other wireless carriers’ customers use U.S. Cellular’s wireless systems. U.S. Cellular recognizes revenue in Service revenues when the roaming service is provided to the other carrier’s customer. | |
Wireless Eligible Telecommunications Carrier (ETC) Revenues | Telecommunications companies may be designated by states, or in some cases by the FCC, as an ETC to receive support payments from the Universal Service Fund if they provide specified services in “high cost” areas. ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an ETC in various states. | |
Wireless tower rents | U.S. Cellular receives tower rental revenues when another carrier leases tower space on a U.S. Cellular owned tower. U.S. Cellular recognizes revenue in Service revenues in the period during which the services are provided. | |
Activation fees | U.S. Cellular charges its end customers activation fees in connection with the sale of certain services and equipment. These fees are deferred and recognized over the period benefitted. |
Significant Judgments
U.S. Cellular sells bundled service and equipment offerings. In these instances, U.S. Cellular recognizes its revenue based on the relative standalone selling prices for each distinct service or equipment performance obligation, or bundles thereof. Revenues from sales of equipment are recognized when control has transferred to the customer. Service revenues are recognized as the related service is provided. Services are deemed to be highly interrelated when the method and timing of transfer and performance risk are the same. Highly interrelated services that are determined to not be distinct have been grouped into a single performance obligation. Each month of services promised is a performance obligation. The series of monthly service performance obligations promised over the course of the contract are combined into a single performance obligation for purposes of the allocation.
U.S. Cellular has made judgments regarding transaction price, including but not limited to issues relating to variable consideration, time value of money and returns. When determined to be significant in the context of the contract, these items are considered in the valuation of transaction price at contract inception or modification, as appropriate.
Three Months Ended | |||
March 31, 2018 | |||
(Dollars in millions) | |||
Revenues from contracts with customers: | |||
Retail service | $ | ||
Inbound roaming | |||
Other service | |||
Service revenues from contracts with customers | |||
Equipment sales | |||
Total revenues from contracts with customers 1 | $ | ||
1 | These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations. |
Contract Balances
For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price. When payment is collected in advance of delivery of goods or services, a contract liability is recorded. A contract asset is recorded when revenue is recognized in advance of U.S. Cellular’s right to receive consideration. Once there is an unconditional right to receive the consideration, U.S. Cellular bills the customer under the terms of the respective contract and the amounts are recorded as receivables.
U.S. Cellular recognizes Equipment sales revenue when the equipment is delivered to the customer and a corresponding contract asset or liability is recorded for the difference between the amount of revenue recognized and the amount billed to the customer in cases where discounts are offered. The contract asset or liability is reduced over the contract term as service is provided and billed to the customer.
Three Months Ended | |||
March 31, 2018 | |||
(Dollars in millions) | |||
Accounts receivable | |||
Customer and agents | $ | ||
Roaming | |||
Other | |||
Total 1 | $ | ||
1 | These amounts do not include accounts receivable related to revenues outside the scope of ASU 2014-09; therefore, accounts receivable line items presented in this table will not agree to amounts presented in the Consolidated Balance Sheet. |
The following table provides a rollforward of contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet.
Contract Assets | ||
(Dollars in millions) | ||
Balance at December 31, 2017 | $ | |
Change in accounting policy | ||
Contract additions | ||
Terminated contracts | ||
Bad debts expense | ||
Revenue recognized | ||
Balance at March 31, 2018 | $ |
The following table provides a rollforward of contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.
Contract Liabilities | |||
(Dollars in millions) | |||
Balance at December 31, 2017 | $ | ||
Change in accounting policy - Deferred revenues reclassification 1 | |||
Change in accounting policy - Retained earnings impact | |||
Contract additions | |||
Terminated contracts | |||
Revenue recognized | |||
Balance at March 31, 2018 | $ | ||
1 | This amount represents U.S. Cellular's obligation to transfer goods or services to customers for which it had received payment and classified as deferred revenue at December 31, 2017. |
Transaction price allocated to the remaining performance obligations
|
| Service Revenue | ||
(Dollars in millions) |
|
| ||
Remainder of 2018 | $ | |||
2019 |
| |||
Thereafter |
| |||
| Total | $ | ||
U.S. Cellular has certain contracts in which it bills customers an amount equal to a fixed per-unit price multiplied by a variable quantity. Because U.S. Cellular invoices customers in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, U.S. Cellular may recognize revenue in that amount. As a practical expedient, these contracts will be excluded from the estimate of future revenues expected to be recognized related to performance obligations that are unsatisfied as of the end of a reporting period.
Contract Cost Assets
U.S. Cellular expects that incremental commission fees paid as a result of obtaining contracts are recoverable and therefore U.S. Cellular capitalizes these costs. As a practical expedient, costs with an amortization period of one year or less are not capitalized. The contract cost asset balance related to commission fees was $133 million at March 31, 2018, and was recorded in Other assets and deferred charges in the Consolidated Balance Sheet. Capitalized commission fees are amortized based on the transfer of the goods or services to which the assets relate, typically the contract term. Amortization of contract cost assets was $27 million for the three and nine months ended September 30, 2016, respectively.March 31, 2018, and was included in Selling, general and administrative expense. There was no impairment loss recognized for the three months ended March 31, 2018, related to contract cost assets.
Note 23 Fair Value Measurements
As of September 30, 2017March 31, 2018 and December 31, 2016,2017, U.S. Cellular did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.
The provisions of GAAP 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 the Fair Value Hierarchy |
| September 30, 2017 |
| December 31, 2016 |
|
| Level within the Fair Value Hierarchy |
| March 31, 2018 |
| December 31, 2017 | |||||||||||||||||
|
|
|
| Book Value |
| Fair Value |
| Book Value |
| Fair Value |
|
|
| Book Value |
| Fair Value |
| Book Value |
| Fair Value | ||||||||||
(Dollars in millions) | (Dollars in millions) |
|
|
|
|
|
|
|
|
|
| (Dollars in millions) |
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | Cash and cash equivalents | 1 |
| $ |
| $ |
| $ |
| $ | Cash and cash equivalents | 1 |
| $ |
| $ |
| $ |
| $ | ||||||||||
Short-term Investments | 1 |
|
|
|
|
| ||||||||||||||||||||||||
Short-term investments | Short-term investments | 1 |
|
|
|
|
| |||||||||||||||||||||||
Long-term debt | Long-term debt |
|
|
|
|
|
| Long-term debt |
|
|
|
|
|
| ||||||||||||||||
| Retail | 2 |
|
|
|
|
| Retail | 2 |
|
|
|
|
| ||||||||||||||||
| Institutional | 2 |
|
|
|
|
| Institutional | 2 |
|
|
|
|
| ||||||||||||||||
| Other | 2 |
|
|
|
|
| Other | 2 |
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair valuevalues of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. Long-term debt excludes capital lease obligations, product financingother installment arrangements, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for the 6.95% Senior Notes, 7.25% 2063 Senior Notes and 7.25% 2064 Senior Notes. U.S. Cellular’s “Institutional” debt consists of the 6.7% Senior Notes which are traded over the counter. U.S. Cellular’s “Other” debt consists of a senior term loan credit facility. U.S. Cellular estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 3.90%4.58% to 6.21%6.34% and 3.78%4.74% to 6.93%7.13% at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.
|
Note 34 Equipment Installment Plans
U.S. Cellular sells devices to customers under equipment installment contractsplans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract. U.S. Cellular values this trade-in right as a guarantee liability. The guarantee liability is initially measured at fair value and is determined based on assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the device being traded-in at the time of trade-in. When a customer exercises the trade-in option, both the outstanding receivable and guarantee liability balances related to the respective device are reduced to zero, and the value of the used device that is received in the transaction is recognized as inventory. If the customer does not exercise the trade-in option at the time of eligibility, U.S. Cellular begins amortizing the liability and records this amortization as additional equipment revenue. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the guarantee liability related to these plans was $20 $13million and $33$15 million, respectively, and is reflected in Customer deposits and deferred revenues in the Consolidated Balance Sheet.
U.S. Cellular equipment installment plans do not provide for explicit interest charges. Because equipment installment plans have a duration of greater than twelve months, U.S. Cellular imputes interest. U.S. Cellular records imputed interest as a reduction to the related accounts receivable and recognizes it over the term of the installment agreement. Equipment installment plan receivables had a weighted average effective imputed interest rate of 12.2% and 11.2% as of September 30, 2017 and December 31, 2016, respectively.
| September 30, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 | |||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment installment plan receivables, gross |
| $ |
| $ |
| $ |
| $ | ||||
Deferred interest |
|
|
|
|
|
|
|
| ||||
Equipment installment plan receivables, net of deferred interest |
|
|
|
|
|
|
|
| ||||
Allowance for credit losses |
|
|
|
|
|
|
|
| ||||
Equipment installment plan receivables, net |
| $ |
| $ |
| $ |
| $ | ||||
|
|
|
|
|
|
|
|
| ||||
Net balance presented in the Consolidated Balance Sheet as: |
|
|
|
|
|
|
|
| ||||
Accounts receivable — Customers and agents (Current portion) |
| $ |
| $ |
| $ |
| $ | ||||
Other assets and deferred charges (Non-current portion) |
|
|
|
|
|
|
|
| ||||
Equipment installment plan receivables, net |
| $ |
| $ |
| $ |
| $ |
U.S. Cellular uses various inputs, including internal data, information from the credit bureaus and other sources, to evaluate the credit profiles of its customers. From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any. Customers assigned to credit classes requiring no down payment represent a lower risk category, whereas those assigned to credit classes requiring a down payment represent a higher risk category. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:
| September 30, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 | |||||||||||||||||||||||||||||
|
| Lower Risk |
| Higher Risk |
| Total |
| Lower Risk |
| Higher Risk |
| Total |
| Lower Risk |
| Higher Risk |
| Total |
| Lower Risk |
| Higher Risk |
| Total | ||||||||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||||||
Billed — current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Billed — past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Equipment installment plan receivables, gross |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| March 31, 2018 |
| March 31, 2017 | |||
(Dollars in millions) |
|
|
|
|
|
|
Allowance for credit losses, beginning of period |
| $ |
| $ | ||
Bad debts expense |
|
|
|
| ||
Write-offs, net of recoveries |
|
|
|
| ||
Allowance for credit losses, end of period |
| $ |
| $ |
|
In December 2017, the Tax Act was signed into law. Following the guidance of the FASB’s Accounting Standards Update 2018-05, Income Taxes:Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, tax expense for the nineyear ended December 31, 2017, included a provisional estimate for the impact of the Tax Act on U.S. Cellular’s 2017 depreciation deduction. Tax expense for the three months ended September 30, 2017March 31, 2018, includes an income tax benefit of $3 million related to adjusting this provisional estimate. U.S. Cellular has not completed a full analysis of contracts and 2016,agreements related to fixed assets placed in service during 2017. U.S. Cellular expects any final adjustments to the allowance for credit losses balance forprovisional amounts to be recorded by the equipment installment plan receivables was as follows:third quarter of 2018, which could be material to U.S. Cellular’s financial statements.
| September 30, 2017 |
| September 30, 2016 | |||
(Dollars in millions) |
|
|
|
|
|
|
Allowance for credit losses, beginning of period |
| $ |
| $ | ||
Bad debts expense |
|
|
|
| ||
Write-offs, net of recoveries |
|
|
|
| ||
Allowance for credit losses, end of period |
| $ |
| $ |
Basic earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income (loss) attributable to U.S. Cellular shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income (loss) attributable to U.S. Cellular shareholders by the weighted average number of common shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.
| Three Months Ended |
| Nine Months Ended | |||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss) attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares used in basic earnings (loss) per share |
|
|
|
|
|
|
| |||||
Effects of dilutive securities |
|
|
|
|
|
|
| |||||
Weighted average number of shares used in diluted earnings (loss) per share |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
| ||||
Basic earnings (loss) per share attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
| ||||
Diluted earnings (loss) per share attributable to U.S. Cellular shareholders | $ |
| $ |
| $ |
| $ |
| Three Months Ended | |||||
|
| March 31, | ||||
|
| 2018 |
| 2017 | ||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
| |
Net income attributable to U.S. Cellular shareholders | $ |
| $ | |||
|
|
|
|
| ||
Weighted average number of shares used in basic earnings per share |
|
|
| |||
Effects of dilutive securities |
|
|
| |||
Weighted average number of shares used in diluted earnings per share |
|
|
| |||
|
|
|
|
| ||
Basic earnings per share attributable to U.S. Cellular shareholders | $ |
| $ | |||
|
|
|
|
| ||
Diluted earnings per share attributable to U.S. Cellular shareholders | $ |
| $ |
Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in average diluted shares outstanding for the calculation of Diluted earnings (loss) per share attributable to U.S. Cellular shareholders because their effects were antidilutive. The number of such Common Shares excluded was 32 million shares and 4 million shares for the three and nine months ended September 30, 2017, respectively, and 3 million shares for both the three and nine months ended September 30, 2016.
Note 5 Acquisitions, DivestituresMarch 31, 2018 and Exchanges
In February 2016, U.S. Cellular entered into an agreement with a third party to exchange certain 700 MHz licenses for certain AWS and PCS licenses and $28 million of cash. This license exchange was accomplished in two closings. The first closing occurred in the second quarter of 2016, at which time U.S. Cellular received $13 million of cash and recorded a gain of $9 million. The second closing occurred in the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million.
In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002. Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016 to establish its initial bidding eligibility. In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million. U.S. Cellular paid the remaining $186 million to the FCC and was granted the licenses during the second quarter of 2017.
|
|
| |||
|
|
|
|
|
(Dollars in millions) |
|
| ||
Balance at December 31, | $ | |||
| Acquisitions |
| ||
| Transferred to Assets held for sale |
| ||
| Exchanges - Licenses received |
| ||
| Exchanges - Licenses surrendered |
| ||
Balance | $ |
| ||||
|
| |||
| ||||
|
|
U.S. Cellular did not have any accumulated impairment losses prior to December 31, 2016.
Goodwill Interim Impairment Assessment
U.S. Cellular operates in an intensely competitive wireless industry environment and has experienced declining service revenues in recent periods. Based on recent 2017 developments, including wireless expansion plans announced by other companies and the results of the FCC’s forward auction of 600 MHz spectrum licenses and other FCC actions, U.S. Cellular anticipates increased competition for customers in its primary operating markets from new and existing market participants over the long term. In addition, the widening adoption of unlimited data plans and other data pricing constructs across the industry, including U.S. Cellular’s introduction of unlimited plans earlier in 2017, may limit the industry’s ability to monetize future growth in data usage. These factors when assessed and considered as part of its annual planning process conducted in the third quarter of each year caused management to revise its long-range financial forecast in the third quarter of 2017. Based on the factors noted above, management identified a triggering event and performed a quantitative goodwill impairment test on an interim basis.
As permitted by ASU 2017-04, U.S. Cellular used a one-step quantitative approach that compared the fair value of the U.S. Cellular reporting unit to its carrying value. A discounted cash flow approach was used to value the reporting unit, using value drivers and risks specific to U.S. Cellular and the industry and current economic factors. The cash flow estimates incorporated certain assumptions that market participants would use in their estimates of fair value and may not be indicative of U.S. Cellular specific assumptions. However, the discount rate used in the analysis considers any additional risk a market participant might place on integrating the U.S. Cellular reporting unit into its operations. The most significant assumptions made in this process were the revenue growth rate (shown as a compound annual growth rate in the table below), the terminal revenue growth rate, and the discount rate.
|
|
|
|
|
|
The results of the interim goodwill impairment test indicated that the carrying value of the U.S. Cellular reporting unit exceeded its fair value. Therefore, U.S. Cellular recognized a loss on impairment of goodwill of $370 million to reduce the carrying value of goodwill to zero.
In connection with the interim goodwill impairment test, conditions existed that indicated U.S. Cellular’s long-lived asset group might not be recoverable. As a result, the company performed an interim long-lived asset recoverability assessment related to the U.S. Cellular asset group and determined that no impairment of the long-lived asset group existed as of the interim assessment date.
Note 78 Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S. Cellular holds a noncontrolling interest. These investmentsOn January 1, 2018, U.S. Cellular adopted Accounting Standards Update 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) using the modified retrospective approach. The adoption of ASU 2016-01 did not have a significant impact on U.S. Cellular’s financial position or results of operations.
March 31, |
| December 31, | |||
| 2018 |
| 2017 | ||
(Dollars in millions) |
|
|
|
|
|
Equity method investments | $ |
| $ | ||
Measurement alternative method investments |
|
|
| ||
Total investments in unconsolidated entities | $ |
| $ |
Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues | $ | $ | $ | $ | $ | $ | ||||||||||
Operating expenses |
|
|
|
|
|
| ||||||||||
Operating income |
|
|
|
|
|
| ||||||||||
Other expense, net |
|
|
|
|
|
| ||||||||||
Net income | $ | $ | $ | $ | $ | $ |
Note 89 Variable Interest Entities
Consolidated VIEs
During the first quarter of 2017, U.S. Cellular formed USCC EIP LLC a(Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), special purpose entity (SPE)entities (SPEs), to facilitate a potential securitized borrowing using its equipment installment plan receivables in the future.receivables. Under a Receivables Sale Agreement, U.S. Cellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, will transfer device equipment installment plan contracts to USCC EIP LLC. This SPEthe Seller/Sub-Servicer. The Seller/Sub-Servicer will aggregate device equipment installment plan contracts, for further transfer into a separate bankruptcy remote securitization trust structure,and perform servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts.
USCC EIP LLC’s sole business consists ofThe Seller/Sub-Servicer will sell the acquisition ofeligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which will subsequently sell the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of U.S. Cellular, affiliated entitieswill be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the future transfer ofequipment installment plan receivables into a trust.owned by the Trust. Given that U.S. Cellular has the power to direct the activities of this SPE,these SPEs, and that this SPE lacksthese SPEs lack sufficient equity to finance itstheir activities, U.S. Cellular is deemed to have a controlling financial interest in the SPESPEs and, therefore, consolidates it.
Duringthem. All transactions with third parties (e.g., issuance of the nine months ended September 30, 2017, netasset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan receivables totaling $1,093 million werecontracts as collateral, significant continuing involvement in the transferred toassets, subordinated interests of the newly formed SPE from affiliated entities. There were no receivables transferred ascash flows, and continued evidence of December 31, 2016. Because U.S. Cellular fully consolidates USCC EIP LLC,control of the transfer of receivables into this SPE did not have a material impact to the consolidated financial statements of U.S. Cellular. As of September 30, 2017, U.S. Cellular had not executed a securitized borrowing from a third party specific to its equipment installment plan receivables.
The following VIEs were formed to participate in FCC auctions of wireless spectrum and to fund, establish, and provide wireless service with respect to any FCC licenses won in the auctions:
These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect U.S. Cellular subsidiary, to sell or lease certain licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, U.S. Cellular has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that U.S. Cellular is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated.
In January 2017, Sunshine Spectrum and the other owner of Frequency Advantage (the previous general partner of Advantage Spectrum) completed a series of transactions whereby Frequency Advantage was dissolved and Sunshine Spectrum became the new general partner of Advantage Spectrum. Consistent with its previous treatment of Frequency Advantage and in accordance with GAAP,2018, U.S. Cellular consolidates Sunshine Spectrum in its financial statements. received an initial liquidating distribution of substantially all of the remaining assets of Aquinas Wireless. The final liquidating distribution is expected during the second quarter of 2018, and Aquinas Wireless will then be subsequently dissolved.
U.S. Cellular also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, U.S. Cellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships are also recognized as VIEs and are consolidated under the variable interest model.
The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in U.S. Cellular’s Consolidated Balance Sheet.
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, | |||||
|
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 | ||||
(Dollars in millions) | (Dollars in millions) |
|
|
|
|
| (Dollars in millions) |
|
|
|
|
| ||
Assets | Assets |
|
|
|
| Assets |
|
|
|
| ||||
| Cash and cash equivalents | $ |
| $ | Cash and cash equivalents | $ |
| $ | ||||||
| Accounts receivable |
|
|
| Accounts receivable |
|
|
| ||||||
| Other current assets |
|
| Other current assets |
|
| ||||||||
| Assets held for sale |
|
| Licenses |
|
| ||||||||
| Licenses |
|
| Property, plant and equipment, net |
|
| ||||||||
| Property, plant and equipment, net |
|
| Other assets and deferred charges |
|
| ||||||||
| Other assets and deferred charges |
|
|
| Total assets | $ |
| $ | ||||||
|
| Total assets | $ |
| $ |
|
|
|
| |||||
|
|
|
|
| ||||||||||
Liabilities | Liabilities |
|
| Liabilities |
|
| ||||||||
| Current liabilities | $ |
| $ | Current liabilities | $ |
| $ | ||||||
| Deferred liabilities and credits |
|
|
| Deferred liabilities and credits |
|
|
| ||||||
|
| Total liabilities | $ |
| $ |
| Total liabilities | $ |
| $ |
Unconsolidated VIEs
U.S. Cellular manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.
U.S. Cellular’s total investment in these unconsolidated entities was $4$5 million and $6$4 million at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively, and is included in Investments in unconsolidated entities in U.S. Cellular’s Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by U.S. Cellular in those entities.
During the three months ended March 31, 2018 and 2017, U.S. Cellular made contributions, loans and/or advances to its VIEs totaling $724$19 million and $654 million, respectively; of which $701these amounts $10 million isand $650 million, respectively, are related to USCC EIP LLC as discussed above, and $100 million during the nine months ended September 30, 2017 and September 30, 2016, respectively.above. U.S. Cellular may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of licenses granted in various auctions. U.S. Cellular may finance such amounts with a combination of cash on hand, borrowings under its revolving credit agreement and/or other long-term debt. There is no assurance that U.S. Cellular will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.
During the three months ended March 31, 2018, U.S. Cellular recorded out-of-period adjustments attributable to 2016 and 2017 due to errors in the application of accounting guidance applicable to the calculation of Noncontrolling interests with redemption features related to King Street Wireless, Inc. These out-of-period adjustments had the impact of increasing Net income attributable to noncontrolling interests, net of tax, by $8 million and decreasing Net income attributable to U.S. Cellular shareholders by $8 million for the three months ended March 31, 2018. U.S. Cellular determined that these adjustments were not material to any of the periods impacted.
|
United States Cellular Corporation
Additional Required Information
Evaluation of Disclosure Controls and Procedures
U.S. Cellular maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to U.S. Cellular’s management, including its principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As required by SEC Rules 13a-15(b), U.S. Cellular carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of U.S. Cellular’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, U.S. Cellular’s principal executive officer and principal financial officer concluded that U.S. Cellular’s disclosure controls and procedures were effective as of September 30, 2017,March 31, 2018, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal controls over financial reporting that have occurred during the quarter ended September 30, 2017,March 31, 2018, that have materially affected, or are reasonably likely to materially affect, U.S. Cellular’s internal control over financial reporting.reporting, except as follows: U.S. Cellular implemented internal controls to ensure that, upon adoption of the new revenue recognition accounting standard, ASU 2014-09, effective January 1, 2018, and for all periods thereafter, contracts will be properly evaluated and any impacts to the financial statements will be recognized in accordance with this new accounting standard.
The United States Department of Justice (DOJ) has notified U.S. Cellular and its parent, TDS, that it is conducting an inquiry of U.S. Cellular and TDS under the federal False Claims Act. The DOJ is investigating U.S. Cellular’s participation in spectrum auction 73 conducted by the FCC in 2008. U.S. Cellular is a limited partner in a limited partnership which qualified for the 25% bid credit in the auction. TDS and U.S. Cellular are cooperating with the DOJ’s review. TDS and U.S. Cellular believe that U.S. Cellular’s arrangements with the limited partnership and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, U.S. Cellular cannot predict the outcome of this review.
Refer to the disclosure under Legal Proceedings in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.2017, for additional information. There have been no material changes to such information since December 31, 2016.2017.
Unregistered Sales of Equity Securities and Use of Proceeds
In November 2009, U.S. Cellular announced by Form 8-K that the Board of Directors of U.S. Cellular authorized the repurchase of up to 1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis. In December 2016, the U.S. Cellular Board amended this authorization to provide that, beginning on January 1, 2017, the number of shares authorized for repurchase amount with respect to a particular year will be any amount from zero to 1,300,000, beginning on January 1, 2017, as determined by the Pricing Committee, and that if the Pricing Committee did not specify an amount for any year, such amount would be zero for such year. The Pricing Committee did not specify any amount as of January 1, 2017.2018. The Pricing Committee also was authorized to decrease the cumulative amount of the authorization at any time, but has not taken any action to do so at this time. As a result, there was no change to the cumulative amount of the share repurchase authorization as of January 1, 2017.2018. The authorization provides that share repurchases will be made pursuant to open market purchases, block purchases, private purchases, or otherwise, depending on market prices and other conditions. This authorization does not have an expiration date. U.S. Cellular did not determine to terminate the foregoing Common Share repurchase program, as amended, or cease making further purchases thereunder, during the thirdfirst quarter of 2017.2018.
The following table provides certain information with respect to allmaximum number of shares that may yet be purchased under this program was 5,900,849 as of March 31, 2018. There were no purchases made by or on behalf of U.S. Cellular, and anyno open market purchases made by any “affiliated purchaser” (as defined by the SEC) of U.S. Cellular, of U.S. Cellular Common Shares during the quarter covered by this Form 10-Q.
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||
July 1 – 31, 2017 |
|
| $ |
|
| |||||
August 1 – 31, 2017 |
|
|
|
|
| |||||
September 1 – 30, 2017 |
|
|
|
|
| |||||
| Total for or as of the end of the quarter ended September 30, 2017 |
|
| $ |
|
|
|
The following information is being provided to update prior disclosures made pursuant to the requirements of Form 8-K, Item 2.03 — Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.
U.S. Cellular did not borrow or repay any cash amounts under its revolving credit facility in the thirdfirst quarter of 20172018 or through the filing date of this Form 10-Q. U.S. Cellular had no cash borrowings outstanding under its revolving credit facility as of September 30, 2017,March 31, 2018, or as of the filing date of this Form 10-Q.
Further, U.S. Cellular did not borrow or repay any cash amounts under its receivables securitization facility in the first quarter of 2018 or through the filing date of this Form 10-Q, and had no cash borrowings outstanding under its receivables securitization facility as of March 31, 2018, or as of the filing date of this Form 10-Q.
|
Exhibit Number | Description of Documents |
Exhibit 10.1 | |
Exhibit 10.2 | |
| |
| |
| |
|
|
|
|
Exhibit 11 | |
Exhibit 12 | Statement regarding computation of ratio of earnings to fixed charges. |
| |
Exhibit 31.1 | |
Exhibit 31.2 | |
Exhibit 32.1 | |
Exhibit 32.2 | |
Exhibit 101.INS | XBRL Instance Document |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document |
Exhibit 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
Exhibit 101.CAL | XBRL Taxonomy Calculation Linkbase Document |
Exhibit 101.LAB | XBRL Taxonomy Label Linkbase Document |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
The foregoing exhibits include only the exhibits that relate specifically to this Form 10-Q or that supplement the exhibits identified in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.2017. Reference is made to U.S. Cellular’s Form 10-K for the year ended December 31, 2016,2017, for a complete list of exhibits, which are incorporated herein except to the extent supplemented or superseded above.
|
Form 10-Q Cross Reference Index
| ||||
Item Number
| Page No. | |||
Part I. | Financial Information |
| ||
|
|
|
| |
| ||||
|
| |||
|
|
|
| |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
|
|
|
| |
| ||||
|
|
|
|
|
| ||||
|
|
|
| |
Part II. | Other Information |
| ||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
|
|
| |
| ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
|
|
| |
|
|
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) |
| |
|
|
|
|
|
Date: |
|
|
| |
|
|
| Kenneth R. Meyers President and Chief Executive Officer (principal executive officer) |
|
|
|
|
|
|
Date: |
|
| /s/ Steven T. Campbell | |
|
|
| Steven T. Campbell Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal financial officer) |
|
|
|
|
|
|
Date: |
|
| /s/ Douglas D. Shuma | |
|
|
| Douglas D. Shuma Chief Accounting Officer (principal accounting officer) |
|
|
|
|
|
|
Date: |
|
| /s/ Douglas W. Chambers | |
|
|
| Douglas W. Chambers Vice President and Controller
|
|
|