UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

UNITED STATES

(Mark One)

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 September 30, 2022
OR

For the quarterly period ended September 30, 2017

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
usm-20220930_g1.jpg
UNITED STATES CELLULAR CORPORATION
(Exact name of Registrant as specified in its charter)

For the transition period from                                    to                                   

Delaware
62-1147325

Commission file number 001-09712

UNITED STATES CELLULAR CORPORATION

(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

Securities registered pursuant to Section 12(b) of the Act:

8410 West Bryn Mawr, Chicago, Illinois 60631

Title of each class
Trading SymbolName of each exchange on which registered

(Address of principal executive offices) (Zip code)

Common Shares, $1 par value
USMNew York Stock Exchange

6.25% Senior Notes due 2069

UZD

New York Stock Exchange

Registrant’s telephone number, including area code: (773) 399-8900

5.50% Senior Notes due 2070
UZENew York Stock Exchange

5.50% Senior Notes due 2070

UZF

New York Stock Exchange

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]

Yes

[  ]

No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[x]

Yes

[  ]

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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).

[  ]

Yes

[x]

No

The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2022, is 52,215,600 Common Shares, $1 par value, and 33,005,900 Series A Common Shares, $1 par value.




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 September 30, 2017

Common Shares, $1 par value

52,117,967 Shares

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 September 30, 2017

2022

Index

Page No.

Recent Accounting Pronouncements

20

40

Exhibits

41






Table of Contents


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United States Cellular Corporation

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Executive Overview

The following discussion and analysis compares United States Cellular Corporation’s (U.S. Cellular)(UScellular) financial results for the three and nine months ended September 30, 2017,2022, to the three and nine months ended September 30, 2016.2021. It should be read in conjunction with U.S. Cellular’sUScellular’s interim consolidated financial statements and notes included herein, and with the description of U.S. Cellular’sUScellular’s business, its audited consolidated financial statements and Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations (MD&A) included in U.S. Cellular’sUScellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2016.2021. Certain numbers included herein are rounded to millions for ease of presentation; however, certain 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” 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

UScellular uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A. A discussion of the reason U.S. Cellularreasons UScellular determines these metrics to be useful and a reconciliationreconciliations 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.



1

Table of Contents


General

U.S. Cellular

UScellular owns, operates, and invests in wireless markets throughout the United States. U.S. CellularUScellular 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

OPERATIONS
  • Serves customers with approximately 5.1 million connections including 4.5 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections
  • Operates in 22 states
  • Employs approximately 6,000 associates
  • Headquartered in Chicago, Illinois
  • 6,436 cell sites including 4,051 owned towers in service
usm-20220930_g3.jpg


2

Serves customers with 4.8 million retail connections including 4.3 million postpaid and 0.5 million prepaid connections
Operates in 21 states
Employs approximately 4,900 associates
4,329 owned towers
6,933 cell sites in service



2


Table of Contents


U.S. Cellular

UScellular Mission and Strategy

U.S. Cellular’s

UScellular’s mission is to provideconnect its customers to what matters most to them. This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the mid-sizedmarkets UScellular serves.
UScellular's strategy is to attract and rural markets served.

In 2017, U.S. Cellular continues to execute on its strategies to protect its current customer base, grow revenues by attracting newretain customers through economical offeringsa value proposition comprising a high-quality network, outstanding customer service, and identifying new revenue opportunities,competitive devices, plans and drive improvements in its overall cost structure.pricing - all provided with a community focus. Strategic efforts include:

Significant Financial Matter

Net loss attributableexpand 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.



Table of Contents


Terms Used by U.S. Cellular

The following is a list of definitions of certain industry terms that are used throughout this document:


coming years.

Operational Overview

 

 

 

 

 

Q3

Q3

YTD

YTD

 

 

 

 

 

2017

2016

2017

2016

 

Postpaid Activity and Churn

 

 

 

 

 

 

Gross Additions:

191,000 

174,000 

511,000 

586,000 

 

 

 

 

 

 

Handsets

139,000 

115,000 

357,000 

363,000 

 

 

 

 

 

 

 

 

Connected Devices

52,000 

59,000 

154,000 

223,000 

 

 

 

 

As of September 30,

 

 

Net Additions (Losses):

35,000 

(6,000)

31,000 

75,000 

 

 

 

 

2017 

 

2016 

 

 

 

 

Handsets

29,000 

(27,000)

20,000 

(45,000)

 

 

 

 

 

 

 

Retail Connections – End of Period

 

 

 

 

Connected Devices

6,000 

21,000 

11,000 

120,000 

 

 

 

 

 

Postpaid

4,513,000 

 

4,484,000 

 

 

Churn:

1.16%

1.34%

1.19%

1.27%

 

 

 

 

 

Prepaid

515,000 

 

480,000 

 

 

 

 

Handsets

0.96%

1.22%

0.98%

1.17%

 

 

 

 

 

 

 

Total

5,028,000 

 

4,964,000 

 

 

 

 

Connected Devices

2.33%

2.04%

2.41%

1.97%

 

 

 

 

 

 


The increase in postpaid net additions for the three months ended September 30, 2017, 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 the 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 by lower tablet gross additions and an increase in tablet churn, partially offset by an improvement in handsets net additions largely reflecting a decline in handsets churn.


Table of Contents


Postpaid Revenue

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Average Revenue Per User (ARPU)

$

43.41 

 

$

47.08 

 

$

44.46 

 

$

47.54 

Average Billings Per User (ABPU)1

$

54.71 

 

$

56.79 

 

$

55.21 

 

$

56.34 

 

 

 

 

 

 

 

 

 

 

 

 

Average Revenue Per Account (ARPA)

$

116.36 

 

$

125.31 

 

$

119.26 

 

$

125.21 

Average Billings Per Account (ABPA)1

$

146.65 

 

$

151.16 

 

$

148.12 

 

$

148.37 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 ARPU and Postpaid ARPA decreased for the three and nine months ended September 30, 2017, due primarily to industry-wide price competition resulting in overall price reductions on plan offerings.

Equipment installment plans increase equipment sales revenue as customers pay for their wireless devices in installments at 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 impact of reducing service revenues as certain equipment installment plans provide for reduced monthly service charges. In order to show the trends in total 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, mainly due to increased penetration of equipment installment plans. Postpaid ABPU and ABPA decreased for the three and nine months ended September 30, 2017, when compared to the same periods last year, 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. 



Table of Contents


Financial Overview

 

 

 

 

 

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

 

$

636 

 

$

681 

 

(7)%

 

$

1,940 

 

$

2,044 

 

(5)%

Inbound roaming

 

 

37 

 

 

45 

 

(17)%

 

 

94 

 

 

118 

 

(20)%

Other1

 

 

64 

 

 

58 

 

12%

 

 

189 

 

 

168 

 

13%

  

Service revenues1

 

 

737 

 

 

784 

 

(6)%

 

 

2,223 

 

 

2,330 

 

(5)%

Equipment sales

 

 

226 

 

 

239 

 

(5)%

 

 

639 

 

 

655 

 

(3)%

  

Total operating revenues1

 

 

963 

 

 

1,023 

 

(6)%

 

 

2,862 

 

 

2,985 

 

(4)%

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

System operations (excluding Depreciation, amortization and accretion reported below)

 

  

185 

  

  

196 

  

(6)%

 

  

549 

  

 

572 

 

(4)%

Cost of equipment sold

 

 

261 

 

 

280 

 

(7)%

 

 

749 

 

 

799 

 

(6)%

Selling, general and administrative

 

 

350 

 

 

370 

 

(5)%

 

 

1,041 

 

 

1,089 

 

(4)%

Depreciation, amortization and accretion

 

 

153 

 

 

155 

 

(2)%

 

 

460 

 

 

462 

 

Loss on impairment of goodwill

 

 

370 

 

 

 

 

N/M

 

 

370 

 

 

 

 

N/M

(Gain) loss on asset disposals, net

 

 

5 

 

 

7 

 

(26)%

 

 

14 

 

 

16 

 

(17)%

(Gain) loss on sale of business and other exit costs, net

 

 

(1)

 

 

 

 

N/M

 

 

(1)

 

 

 

 

>(100)%

(Gain) loss on license sales and exchanges, net

 

 

 

 

 

(7)

 

100%

 

 

(19)

 

 

(16)

 

(16)%

  

Total operating expenses

 

 

1,323 

 

 

1,001 

 

32%

 

 

3,163 

 

 

2,922 

 

8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)¹

 

$

(360)

 

$

22 

 

>(100)%

 

$

(301)

 

$

63 

 

>(100)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(298)

 

$

18 

 

>(100)%

 

$

(259)

 

$

54 

 

>(100)%

Adjusted OIBDA (Non-GAAP)1,2

 

$

167 

 

$

177 

 

(6)%

 

$

523 

 

$

525 

 

Adjusted EBITDA (Non-GAAP)2

 

$

204 

 

$

216 

 

(6)%

 

$

631 

 

$

639 

 

(1)%

Capital expenditures

 

$

112 

 

$

103 

 

8%

 

$

257 

 

$

275 

 

(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.



Table of Contents


Service revenues consist of:

  • Retail Service – Charges for access, airtime, roaming, recovery of regulatory costs and value added services, including data services and products
  • Inbound Roaming – Charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming
  • Other Service – Primarily amounts received from the Federal USF, imputed interest recognized on equipment installment plan contracts and tower rental revenues

Equipment revenues consist of:

  • Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors

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, as a result of (i) a decrease in retail service revenues primarily driven by industry-wide price competition resulting in overall price reductions on plan offerings; 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 number of active equipment installment plans.

Federal USF revenue remained flat 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.  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 decreased for the three months ended September 30, 2017, when compared to the same period last year, due 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.  See Note 3 – Equipment Installment Plans in the Notes to Consolidated Financial Statements for additional details regarding the amortization of the guarantee liability.  These impacts were partially offset by a mix shift to higher end smartphone devices as well as an increase in accessories revenues.

Equipment sales revenues decreased for the nine months ended September 30, 2017, when compared to the same period last year, as a result of an overall reduction in the number of devices sold and, as a result of changes in plan offerings, a decrease in guarantee liability amortization for equipment installment contracts and lower device activation fees.  These impacts were partially offset by an increase in the proportion of new device sales made under equipment installment plans, a mix shift from feature phones and connected devices to smartphones and, to a lesser extent, an increase in accessories revenues.


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System operations expenses

System operations 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 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, 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 and phone program expenses together with reductions in numerous other general and administrative categories. 

Loss on impairment of goodwill

During the third quarter of 2017, U.S. Cellular recorded a $370 million loss on impairment related to goodwill.  See Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.  

(Gain) loss on license sales and exchanges, net

Net gains in 2017 and 2016 were due to gains recognized on license exchange transactions with third parties.  See Note 5 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information. 

Components of Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(360)

 

$

22 

 

>(100)%

 

$

(301)

 

$

63 

 

>(100)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

 

35 

 

 

38 

 

(7)%

 

 

101 

 

 

110 

 

(8)%

Interest and dividend income1

 

 

2 

 

 

1 

 

68%

 

 

6 

 

 

4 

 

45%

Interest expense

 

 

(28)

 

 

(28)

 

(2)%

 

 

(85)

 

 

(84)

 

(1)%

Other, net

 

 

 

 

 

 

 

29%

 

 

1 

 

 

 

 

(9)%

Total investment and other income1

 

 

9 

 

 

11 

 

(21)%

 

 

23 

 

 

30 

 

(25)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(351)

 

 

33 

 

>(100)%

 

 

(278)

 

 

93 

 

>(100)%

Income tax expense (benefit)

 

 

(53)

 

 

15 

 

>(100)%

 

 

(19)

 

 

39 

 

>(100)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(298)

 

 

18 

 

>(100)%

 

 

(259)

 

 

54 

 

>(100)%

Less: Net income (loss) attributable to

   noncontrolling interests, net of tax

 

 

1 

 

 

1 

 

(9)%

 

 

2 

 

 

1 

 

>100%

Net income (loss) attributable to U.S. Cellular

  shareholders

 

$

(299)

 

$

17 

 

>(100)%

 

$

(261)

 

$

53 

 

>(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.


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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 million to Equity in earnings of unconsolidated entities for both the three months ended September 30, 2017 and 2016, and $50 million and $57 million for the nine months ended September 30, 2017 and 2016, respectively.  See Note 7 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Income tax expense

U.S. Cellular’s effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30, 2017, was not meaningful due primarily to the recognition 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 annual tax rate, U.S. Cellular calculated income taxes for the nine months ended September 30, 2017, based on an estimated year-to-date tax rate.

A reconciliation of U.S. Cellular’s income tax expense (benefit) computed at the statutory rate to the reported income tax expense (benefit) and effective tax rate is as follows:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

 

Amount

Rate

 

 

Amount

Rate

(Dollars in millions)

 

 

 

 

 

 

 

Pretax income (loss)

$

(278)

N/A

 

$

93 

N/A

 

 

 

 

 

 

 

 

Statutory federal income tax expense (benefit) and rate

 

(97)

35.0 %

 

 

33 

35.0%

Goodwill impairment1

 

76 

(27.3)%

 

 

 

0.0%

Other differences, net

 

2 

(0.7)%

 

 

6 

6.4%

Total tax expense (benefit) and rate

$

(19)

7.0 %

 

$

39 

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.



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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) and this will continue 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.  However, U.S. Cellular believes that existing cash and investment balances, funds available under its revolving credit facility, and expected cash flows from operating and investing activities provide 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 been sub-investment grade since 2014.  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 December 31, 2016, U.S. Cellular’s cash and cash equivalents totaled $586 million compared to $498 million at September 30, 2017. 

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.


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Short-term investments

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 a 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.  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 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 2017 and the next four years represent less than 4% of U.S. Cellular’s total long-term debt obligation as of September 30, 2017.

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, in 2017 and 2016 were as follows:

Capital expenditures for the nine months ended September 30, 2016 and 2017 were $275 million and $257 million, respectively.

Capital expenditures for the full year 2017 are expected to be approximately $500 million.  These expenditures are expected to be for the following general purposes: 

  • Expand and enhance network coverage, including providing additional capacity to accommodate increased network usage, principally data usage, by current customers;
  • Deployment of VoLTE technology in certain markets;
  • Expand and enhance the retail store network;
  • Consolidate and upgrade its office facilities; and
  • Develop and enhance billing and other systems.

U.S. Cellular plans to finance its capital expenditures program for 2017 using primarily Cash flows from operating activities and existing cash balances.

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. CellularUScellular 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 reviewsUScellular actively seeks attractive opportunities to acquire additional wireless operating markets and wireless spectrum, including pursuant to FCC auctions. U.S. Cellular also

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Terms Used by UScellular
The following is a list of definitions of certain industry terms that are used throughout this document:
5G – fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
Account – represents an individual or business financially responsible for one or multiple associated connections. An account may seekinclude a variety of types of connections such as handsets and connected devices.
Auctions 105, 107, 108 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 was an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that started in October 2021 and concluded in January 2022. Auction 108 is an FCC auction of 2.5 GHz wireless spectrum licenses that started in July 2022 and concluded in August 2022.
Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
Connected Devices – non-handset devices that connect directly to divest outrightthe UScellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.
Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.
EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.
OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.
Retail Connections – individual lines of service associated with each device activated by a postpaid or includeprepaid customer. Connections are associated with all types of devices that connect directly to the UScellular network.
Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in exchangesthe United States.
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Operational Overview
usm-20220930_g4.jpg

As of September 30,20222021
Retail Connections – End of Period
Postpaid4,264,000 4,391,000
Prepaid493,000 518,000
Total4,757,000 4,909,000

Q3 2022Q3 2021Q3 2022 vs. Q3 2021YTD 2022YTD 2021YTD 2022 vs. YTD 2021
Postpaid Activity and Churn
Gross Additions
Handsets107,000 105,000 %292,000 309,000 (6)%
Connected Devices44,000 40,000 10 %113,000 118,000 (4)%
Total Gross Additions151,000 145,000 %405,000 427,000 (5)%
Net Additions (Losses)
Handsets(22,000)(5,000)N/M(89,000)(8,000)N/M
Connected Devices(9,000)(3,000)N/M(26,000)(11,000)N/M
Total Net Additions (Losses)(31,000)(8,000)N/M(115,000)(19,000)N/M
Churn
Handsets1.15 %0.95 %1.12 %0.92 %
Connected Devices3.40 %2.59 %2.94 %2.60 %
Total Churn1.42 %1.15 %1.34 %1.13 %
N/M - Percentage change not meaningful
Total postpaid handset net losses increased for the three and nine months ended September 30, 2022, when compared to the same period last year due primarily to higher defections resulting from aggressive industry-wide competition and an increase in non-pay customers.
Total postpaid connected device net losses increased for the three and nine months ended September 30, 2022, when compared to the same period last year due primarily to higher defections of devices activated by schools and local municipalities during the pandemic, which were partly funded by various government subsidies which have since ended.
Macroeconomic factors have caused some supply chain disruption and delays, including constraints on certain devices. These supply constraints are due primarily to component availability, resulting in extended lead times and additional uncertainty, which may negatively impact UScellular in future periods.

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Postpaid Revenue
Three Months Ended
September 30,
Nine Months Ended
September 30,
202220212022 vs. 2021202220212022 vs. 2021
Average Revenue Per User (ARPU)$50.21 $48.12 4 %$49.99 $47.83  %
Average Revenue Per Account (ARPA)$130.27 $125.99 3 %$130.20 $125.50  %
Postpaid ARPU and Postpaid ARPA increased for the three and nine months ended September 30, 2022, when compared to the same period last year, due to (i) favorable plan and product offering mix, (ii) an increase in cost recovery surcharges, (iii) other price plan products and fees and (iv) an increase in device protection plan revenues. These increases were partially offset by an increase in promotional discounts.
2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to a third quarter out-of-period error. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
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Financial Overview
Three Months Ended
September 30,
Nine Months Ended
September 30,
202220212022 vs. 2021202220212022 vs. 2021
(Dollars in millions)   
Retail service1
$696 $697 $2,098 $2,064 %
Inbound roaming17 30 (43)%56 86 (36)%
Other1
68 61 11 %197 183 %
Service revenues781 788 (1)%2,351 2,333 %
Equipment sales302 228 32 %769 720 %
Total operating revenues1,083 1,016 %3,120 3,053 %
System operations (excluding Depreciation, amortization and accretion reported below)197 205 (4)%574 594 (3)%
Cost of equipment sold354 252 40 %887 786 13 %
Selling, general and administrative369 346 %1,032 984 %
Depreciation, amortization and accretion177 160 10 %520 510 %
Loss on impairment of licenses — 3 — N/M
(Gain) loss on asset disposals, net1 (89)%9 15 (43)%
(Gain) loss on sale of business and other exit costs, net — %(1)(1)40 %
Total operating expenses1,098 971 13 %3,024 2,888 %
Operating income (loss)$(15)$45 N/M$96 $165 (42)%
Net income (loss)$(12)$35 N/M$62 $132 (53)%
Adjusted OIBDA (Non-GAAP)2
$163 $213 (23)%$627 $689 (9)%
Adjusted EBITDA (Non-GAAP)2
$205 $262 (22)%$754 $831 (9)%
Capital expenditures3
$136 $185 (27)%$541 $458 18 %
N/M - Percentage change not meaningful
1For the three and nine months ended September 30, 2021, amounts have been adjusted to reclassify $2 million and $5 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other.
2Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
3Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
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Operating Revenues
Three Months Ended September 30, 2022 and 2021
(Dollars in millions)
usm-20220930_g5.jpg
Operating Revenues
Nine Months Ended September 30, 2022 and 2021
(Dollars in millions)
usm-20220930_g6.jpg
Service revenues consist of:
Retail Service - Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges
Inbound Roaming - Charges to other wireless interests those interestscarriers whose customers use UScellular’s wireless systems when roaming
Other Service - Amounts received from the Federal USF, tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT)
Equipment revenues consist of:
Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors
Key components of changes in the statement of operations line items were as follows:
Total operating revenues
Retail service revenues decreased for the three months ended September 30, 2022 partially due to a $9 million out-of-period error that increased revenue recognized in the three months ended September 30, 2021. Excluding this impact, retail service revenues increased primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section, partially offset by a decrease in average postpaid connections.
Retail service revenues increased for the nine months ended September 30, 2022 as a result of an increase in Postpaid ARPU, partially offset by a decrease in average postpaid connections, as well as a $9 million out-of-period error that increased revenue recognized in the nine months ended September 30, 2021. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
Inbound roaming revenues decreased for the three and nine months ended September 30, 2022, primarily driven by lower data revenues resulting from lower rates, partially offset by higher usage. UScellular expects inbound roaming revenues to continue to decline for the remainder of 2022 relative to prior year levels.
Other service revenues increased for the three and nine months ended September 30, 2022, resulting from increases in tower rental revenues, miscellaneous revenues, and IoT revenues.
Equipment sales revenues increased for the three and nine months ended September 30, 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with a higher average price of new smartphone sales.
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In recent periods, wireless service providers have increased promotional aggressiveness to attract new customers and retain existing customers. Operating revenues and Operating income (loss) may be negatively impacted in future periods by the competitive response to offer increased promotional discounts to new and existing customers.
Systems operations expenses
System operations expenses decreased for the three and nine months ended September 30, 2022, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses.
Cost of equipment sold
Cost of equipment sold increased for the three and nine months ended September 30, 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with higher average cost per unit sold.
Selling, general and administrative expenses
Selling, general and administrative expenses increased for the three and nine months ended September 30, 2022, due primarily to increases in bad debts expense, partially offset by a decrease in advertising expense.
Bad debts expense was $42 million and $13 million for the three months ended September 30, 2022 and 2021, respectively, and $93 million and $34 million for the nine months ended September 30, 2022 and 2021, respectively, as customer payment behavior and the corresponding rate of involuntary churn, which had been favorable in the prior year due to the continuing impacts of the pandemic, which included government stimulus payments and higher consumer savings rates, returned to pre-pandemic trends in the 2022 periods. In addition, customers have purchased higher priced devices in recent periods, which has resulted in higher write-off amounts per uncollectible account in the 2022 periods relative to the corresponding 2021 periods.
Depreciation, amortization and accretion
Depreciation, amortization and accretion increased for the three and nine months ended September 30, 2022 due to increased capital expenditures in recent years relative to historical periods.
Components of Other Income (Expense)
Three Months Ended
September 30,
Nine Months Ended
September 30,
202220212022 vs. 2021202220212022 vs. 2021
(Dollars in millions)
Operating income (loss)$(15)$45 N/M$96 $165 (42)%
Equity in earnings of unconsolidated entities40 48 (17)%122 137 (11)%
Interest and dividend income2 37 %5 11 %
Interest expense(42)(45)%(115)(144)20 %
Total investment and other income (expense) N/M12 (2)N/M
Income (loss) before income taxes(15)49 N/M108 163 (34)%
Income tax expense (benefit)(3)14 N/M46 31 48 %
Net income (loss)(12)35 N/M62 132 (53)%
Less: Net income (loss) attributable to noncontrolling interests, net of tax (38)%4 12 %
Net income (loss) attributable to UScellular shareholders$(12)$34 N/M$58 $128 (55)%
N/M - Percentage change not meaningful
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents UScellular’s share of net income from entities in which it has a noncontrolling interest and that are not strategic to its long-term success.

In July 2016,accounted for using the FCC announced U.S. Cellular as a qualified bidderequity method or the net asset value practical expedient. UScellular’s investment in the FCC’s forward auctionLos Angeles SMSA Limited Partnership (LA Partnership) contributed pretax income of 600 MHz spectrum licenses, referred$18 million and $22 million for the three months ended September 30, 2022 and 2021, respectively and $52 million and $63 million for the nine months ended September 30, 2022 and 2021, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to as Auction 1002.  In April 2017,Consolidated Financial Statements for additional information.

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Interest expense
Interest expense decreased for the FCC announcedthree and nine months ended September 30, 2022, due primarily to the write-off of unamortized debt issuance costs related to Senior Notes redeemed during 2021 and replaced by wayother debt facilities with lower interest rates.
Income tax expense
Income tax expense decreased for the three months ended September 30, 2022 due primarily to the decrease in Income (loss) before income taxes.
Income tax expense increased for the nine months ended September 30, 2022 due primarily to the 2021 reduction of public notice that U.S. Cellulartax accruals resulting from expiration of state statutes of limitations of prior tax years, which did not recur in 2022. This was partially offset by the winning bidder for 188 licenses for an aggregate purchase price of $329 million.  Prior to commencementtax effect of the forward auction, U.S. Cellular made an upfront paymentdecrease in Income (loss) before income taxes.
During the nine months ended September 30, 2022, UScellular received a federal income tax refund of $123 million related to the FCC2020 net operating loss carryback enabled by the CARES Act.
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Table of $143 millionContents
Liquidity and Capital Resources
Sources of Liquidity
UScellular operates a capital-intensive business. In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular 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 wireless spectrum licenses. There is no assurance that this will be the case in June 2016.the future. See Market Risk for additional information regarding maturities of long-term debt.
UScellular has incurred negative free cash flow at times in the past and this could occur in the future. However, UScellular believes that existing cash and investment balances, funds available under its financing agreements and expected cash flows from operating and investing activities will provide sufficient liquidity for UScellular to meet its normal day-to-day operating needs and debt service requirements for the foreseeable future. UScellular will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.
UScellular 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, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, repurchases of shares, or making additional investments. It may be necessary from time to time to increase the size of the existing credit facilities, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of UScellular's Cash and cash equivalents investment activities is to preserve principal.

Cash and Cash Equivalents
(Dollars in millions)
usm-20220930_g7.jpg





The majority of UScellular’s Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Cellular paid the remaining $186 millionTreasury or U.S. government agencies. Refer to the FCCConsolidated Cash Flow Analysis for additional information related to changes in Cash and was grantedcash equivalents.
In addition to Cash and cash equivalents, UScellular had undrawn borrowing capacity from the licenses duringfollowing debt facilities at September 30, 2022. See the second quarterFinancing section below for further details.
(Dollars in millions)
Revolving Credit Agreement$300 
Receivables Securitization Agreement250 
Repurchase Agreement140 
Total undrawn borrowing capacity$690 
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Table of 2017.

In February 2016, U.S. Cellular entered intoContents

Financing
Revolving Credit Agreement
UScellular has an unsecured revolving credit agreement with a third partymaximum borrowing capacity of $300 million. Amounts under the revolving credit agreement may be borrowed, repaid and reborrowed from time to exchange certain 700 MHz licensestime until maturity in July 2026. During the nine months ended September 30, 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement. As of September 30, 2022, there were no outstanding borrowings under the revolving credit agreement, and UScellular's unused borrowing capacity was $300 million.
Term Loan Agreements
UScellular has term loan agreements with maximum borrowing capacities of $800 million. The maturity dates for certain AWSthe term loan agreements range from July 2026 to July 2031. During the nine months ended September 30, 2022, UScellular borrowed $500 million under its term loan credit agreements. As of September 30, 2022, UScellular has borrowed the full amount available under the agreements and PCS licensesthe outstanding borrowings were $797 million.
Export Credit Financing Agreement
In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement. During the nine months ended September 30, 2022, UScellular borrowed $150 million, which is the full amount available under the agreement and $28is due in January 2027.
Receivables Securitization Agreement
UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until the maturity date. During the nine months ended September 30, 2022, UScellular repaid $250 million under the agreement. As of cash.  This license exchangeSeptember 30, 2022, the outstanding borrowings under the agreement were $200 million and the unused borrowing capacity under the agreement was accomplished$250 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.
Repurchase Agreement
In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. The transaction is accounted for as a one-month secured borrowing. The expiration date of the repurchase agreement is in two closings.  The first closing occurredJanuary 2023. During the nine months ended September 30, 2022, the repo subsidiary borrowed $110 million and repaid $50 million under the repurchase agreement. As of September 30, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million.
Financial Covenants
UScellular believes that it was in compliance with all of the financial covenants and requirements set forth in its revolving credit agreement, term loan credit agreements, export credit financing agreement and receivables securitization agreement as of September 30, 2022.
Other Long-Term Financing
UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.
See Note 10 — Debt 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 inNotes to Consolidated Financial Statements for additional information related to the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million. 


financing agreements.

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Capital Expenditures
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the nine months ended September 30, 2022 and 2021, were as follows:

Capital Expenditures
(Dollars in millions)
usm-20220930_g8.jpg




Capital expenditures for the full year 2022 are expected to be between $700 million and $800 million. These expenditures are expected to be used principally for the following purposes:
Continue network modernization and 5G deployment;
Enhance and maintain UScellular's network coverage, including providing additional speed and capacity to accommodate increased data usage by current customers; and
Invest in information technology to support existing and new services and products.
Macroeconomic factors may impact the acquisition or cost of products and materials as well as contribute to internal and external labor shortages.
UScellular intends to finance its capital expenditures for 2022 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its existing agreements and/or other forms of financing.
Acquisitions, Divestitures and Exchanges
UScellular 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 licenses (including pursuant to FCC auctions). In general, UScellular may not disclose such transactions until there is a definitive agreement.
Other Obligations
UScellular will require capital for future spending on existing contractual obligations, including long-term debt obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; commitments for wireless spectrum licenses acquired through FCC auctions; and other agreements to purchase goods or services.
Variable Interest Entities

U.S. Cellular

UScellular consolidates certain “variable interest entities” as defined under GAAP. See Note 811 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. U.S. CellularUScellular 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. 

Common Share Repurchase Program
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 has2022, UScellular repurchased and expects to continue to repurchase its1,011,177 Common Shares subjectfor $29 million at an average cost per share of $28.53. As of September 30, 2022, the total cumulative amount of UScellular Common Shares authorized to its repurchase program. Share repurchases made under this program in 2017 and 2016 were as follows:

 

 

Nine Months Ended

 

 

September 30,

 

 

2017

 

2016

Number of shares

 

 

 

 

46,861 

Average cost per share

$

 

 

$

34.77 

Dollar amount (in millions)

$

 

 

$

2 

be repurchased is 2,506,000. 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, 2016 and September 30, 2017, 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.

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.



13



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Consolidated Cash Flow Analysis

U.S. Cellular

UScellular operates a capital- and marketing-intensivecapital-intensive business. U.S. CellularUScellular makes substantial investments to acquire wireless spectrum 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-reducingcost-saving upgrades to U.S. Cellular’sUScellular’s networks.  U.S. Cellular utilizes cash on hand, cash from operating activities, cash proceeds from divestitures and dispositions of investments, 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'sUScellular's cash flow activities for the nine months ended September 30, 20172022 and 2016.

20172021.

2022 Commentary

U.S. Cellular’s

UScellular’s Cash, and cash equivalents decreased $88 million in 2017.and restricted cash increased $90 million. Net cash provided by operating activities was $394$652 million and was offset by Cash flows used for investing activitiesdue to net income of $472$62 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$557 million, distributions received from unconsolidated entities of $85$100 million, including $30$37 million in distributions from the LA Partnership, and changes in working capital items which decreased net cash by $168$67 million. The non-cash items included a $370 million loss on impairment of goodwill.  The decrease resulting from changes in working capital items was due in part to a $164 millionchanges were primarily driven by an increase in equipment installment plancustomer and agent receivables which are expected to continue to increase and further requireincreases in inventory purchases, partially offset by a federal income tax refund of $123 million received during the use of working capital in the near term.  

first quarter.

Cash flows used for investing activities were $472 million. Cash paid in 2017$976 million, which included payments for additions towireless spectrum licenses of $575 million and payments for property, plant and equipment totaled $252of $409 million. Cash payments for property, plant and equipment are lower than the total capital expenditures in the nine months ended September 30, 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid for acquisitions and licenses was $189 million which included the remaining $186over time.
Cash flows provided by financing activities were $414 million, due primarily to $500 million borrowed under the FCC for licenses U.S. Cellular won in Auction 1002. Cash paid for investments was $50term loan facilities, $150 million which includedborrowed under the purchase of short-term Treasury bills.  This wasexport credit financing agreement, $110 million borrowed under the EIP receivables repurchase agreement, and $75 million borrowed under the revolving credit agreement. These were partially offset by Cash received from divestitures$250 million of repayments on the receivables securitization agreement, a $75 million repayment on the revolving credit agreement, a $50 million repayment on the EIP receivables repurchase agreement and exchangesthe repurchase 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$28 million primarily for scheduled repayments of debt.

2016Common Shares.

2021 Commentary

U.S. Cellular’s

UScellular’s Cash, and cash equivalents and restricted cash decreased $41 million in 2016.$1,028 million. Net cash provided by operating activities was $415$667 million in 2016 due to net income of $54$132 million plusadjusted for non-cash items of $450$519 million and distributions received from unconsolidated entities of $55$106 million, including a $10$32 million distributionin distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $144$90 million. The decrease in working capital items was duechanges were primarily influenced by a decrease to a $160 millionaccrued taxes and the timing of vendor payments and an increase in equipment installment plancustomer and agent receivables.This was partially offset by a federal tax refund of $28 million related to an overpayment of the 2015 tax liability, which resulted from the enactment of federal bonus depreciation in December 2015. 

The net cash provided by operating activities was offset by

Cash flows used for investing activities were $1,732 million, which included payments for wireless spectrum licenses of $449 million.  Cash paid in 2016$1,283 million and payments for additions to property, plant and equipment totaled $280of $456 million.  In June 2016, U.S. Cellular made a deposit of $143
Cash flows provided by financing activities were $37 million, due primarily to the FCC for its participation in Auction 1002.  Cash paid for acquisitionsissuance of $500 million of 5.5% Senior Notes, $500 million borrowed under the receivables securitization agreement, and licenses in 2016 was $46$217 million borrowed under the term loan. These were partially offset by Cash received from divestituresthe redemption of $917 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, the repurchase of $21 million of Common Shares and exchangespayment of debt issuance costs of $20 million.

Cash flows used for financing activities were $7 million, reflecting ordinary activity such as scheduled repayments of debt.



14



Table of Contents


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. ChangesNotable balance sheet changes during 2022 were as follows:
Inventory, net
Inventory, net increased $70 million due primarily to increased inventory levels to support new promotions and ensure adequate device supply.
Income taxes receivable
Income taxes receivable decreased $122 million due primarily to a federal income tax refund received related to the 2020 net operating loss carryback enabled by the CARES Act.
Other current liabilities
Other current liabilities increased $187 million due primarily to an increase in financial condition during 2017 are as follows:

Cashthe short-term accrual for Auction 107 relocation fees, net borrowings under the EIP receivables repurchase agreement and cash equivalents

Cashaccruals related to software license agreements.

Other deferred liabilities and cash equivalents decreasedcredits
Other deferred liabilities and credits increased $88 million due primarily to accruals related to software license agreements.
Long-term debt, net
The following table presents the purchasecomponents of $50the $387 million increase in short-term investments.  See the Consolidated Cash Flow analysis above for a discussion of cash and cash equivalents.

Short-term investments

Short-term investments increased $50 million due to the purchase 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, net

Inventory, net decreased $36 million due primarily to overall improvements in inventory planning and procurement practices.

Licenses

Licenses increased $339 million due primarily to an aggregate winning bid of $329 million in FCC Auction 1002.  These licenses were granted by the FCC in the second quarter of 2017.  See Note 5 — 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 Assets in the Notes to Consolidated Financial Statements for additional information.

Accounts payable — Trade

Accounts payable — Trade decreased $50 million due primarily to reduction of expenses in 2017 as well as payment timing differences.

Accrued taxes

Accrued taxes increased $26 million due primarily to the excess of current income tax expense over federal estimated payments made during the nine months ended September 30, 2017.

Long-term debt, net:

15

Long-term debt, net
(Dollars in millions)
Balance at December 31, 2021$2,728 
Borrowings under Revolving Credit Agreements75 
Borrowings under Term Loan Agreements500 
Borrowings under Export Credit Financing Agreement150 
Repayments under Revolving Credit Agreements(75)
Repayments under Receivables Securitization Agreement(250)
Other(13)
Balance at September 30, 2022$3,115 


15


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Supplemental Information Relating to Non-GAAP Financial Measures

U.S. Cellular

UScellular 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 theseSpecifically, UScellular has referred to the following measures in this Form 10-Q Report:
EBITDA
Adjusted EBITDA
Adjusted OIBDA
Free cash flow

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. CellularUScellular 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 Netapplicable GAAP income (loss)measures are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of U.S. Cellular’sUScellular’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’sUScellular’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,measures, Net income (loss) and Operating income (loss).


16


Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(Dollars in millions)
Net income (loss) (GAAP)$(12)$35 $62 $132 
Add back:
Income tax expense (benefit)(3)14 46 31 
Interest expense42 45 115 144 
Depreciation, amortization and accretion177 160 520 510 
EBITDA (Non-GAAP)204 254 743 817 
Add back or deduct:
Loss on impairment of licenses — 3 — 
(Gain) loss on asset disposals, net1 9 15 
(Gain) loss on sale of business and other exit costs, net — (1)(1)
Adjusted EBITDA (Non-GAAP)205 262 754 831 
Deduct:
Equity in earnings of unconsolidated entities40 48 122 137 
Interest and dividend income2 5 
Adjusted OIBDA (Non-GAAP)163 213 627 689 
Deduct:
Depreciation, amortization and accretion177 160 520 510 
Loss on impairment of licenses — 3 — 
(Gain) loss on asset disposals, net1 9 15 
(Gain) loss on sale of business and other exit costs, net — (1)(1)
Operating income (loss) (GAAP)$(15)$45 $96 $165 

16

Table of Contents


 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

2017

 

2016

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) (GAAP)

$

(298)

 

$

18 

 

$

(259)

 

$

54 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(53)

 

 

15 

 

 

(19)

 

 

39 

 

Interest expense

 

28 

 

 

28 

 

 

85 

 

 

84 

 

Depreciation, amortization and accretion

 

153 

 

 

155 

 

 

460 

 

 

462 

EBITDA (Non-GAAP)

 

(170)

 

 

216 

 

 

267 

 

 

639 

Add back or deduct:

 

 

 

 

 

 

 

 

 

 

 

 

Loss on impairment of goodwill

 

370 

 

 

 

 

 

370 

 

 

 

 

(Gain) loss on sale of business and other exit costs, net

 

(1)

 

 

 

 

 

(1)

 

 

 

 

(Gain) loss on license sales and exchanges, net

 

 

 

 

(7)

 

 

(19)

 

 

(16)

 

(Gain) loss on asset disposals, net

 

5 

 

 

7 

 

 

14 

 

 

16 

Adjusted EBITDA (Non-GAAP)

 

204 

 

 

216 

 

 

631 

 

 

639 

Deduct:

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

35 

 

 

38 

 

 

101 

 

 

110 

 

Interest and dividend income1

 

2 

 

 

1 

 

 

6 

 

 

4 

 

Other, net

 

 

 

 

 

 

 

1 

 

 

 

Adjusted OIBDA (Non-GAAP)1

 

167 

 

 

177 

 

 

523 

 

 

525 

Deduct:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

153 

 

 

155 

 

 

460 

 

 

462 

 

Loss on impairment of goodwill

 

370 

 

 

 

 

 

370 

 

 

 

 

(Gain) loss on sale of business and other exit costs, net

 

(1)

 

 

 

 

 

(1)

 

 

 

 

(Gain) loss on license sales and exchanges, net

 

 

 

 

(7)

 

 

(19)

 

 

(16)

 

(Gain) loss on asset disposals, net

 

5 

 

 

7 

 

 

14 

 

 

16 

Operating income (loss) (GAAP)¹

$

(360)

 

$

22 

 

$

(301)

 

$

63 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.


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Free Cash Flow

The following table presents Free cash flow. Management uses Free cash flow, as a liquidity measure and itwhich 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. CellularUScellular 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,

 

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Cash flows from operating activities (GAAP)

$

394 

 

$

415 

Less: Cash paid for additions to property, plant and equipment

 

252 

 

 

280 

 

Free cash flow (Non-GAAP)

$

142 

 

$

135 

Postpaid ABPU and Postpaid ABPA

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment sales 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,

 

2017

 

2016

 

2017

 

2016

(Dollars and connection counts in millions)

 

 

 

 

 

 

 

 

 

 

 

Calculation of Postpaid ARPU

 

 

 

 

 

 

 

 

 

 

 

Postpaid service revenues

$

586 

 

$

635 

 

$

1,791 

 

$

1,910 

Average number of postpaid connections

 

4.50 

 

 

4.49 

 

 

4.48 

 

 

4.46 

Number of months in period

 

3 

 

 

3 

 

 

9 

 

 

9 

 

Postpaid ARPU (GAAP metric)

$

43.41 

 

$

47.08 

 

$

44.46 

 

$

47.54 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Postpaid ABPU

 

 

 

 

 

 

 

 

 

 

 

Postpaid service revenues

$

586 

 

$

635 

 

$

1,791 

 

$

1,910 

Equipment installment plan billings

 

152 

 

 

131 

 

 

433 

 

 

353 

 

Total billings to postpaid connections

$

738 

 

$

766 

 

$

2,224 

 

$

2,263 

Average number of postpaid connections

 

4.50 

 

 

4.49 

 

 

4.48 

 

 

4.46 

Number of months in period

 

3 

 

 

3 

 

 

9 

 

 

9 

 

Postpaid ABPU (Non-GAAP metric)

$

54.71 

 

$

56.79 

 

$

55.21 

 

$

56.34 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Postpaid ARPA

 

 

 

 

 

 

 

 

 

 

 

Postpaid service revenues

$

586 

 

$

635 

 

$

1,791 

 

$

1,910 

Average number of postpaid accounts

 

1.68 

 

 

1.69 

 

 

1.67 

 

 

1.69 

Number of months in period

 

3 

 

 

3 

 

 

9 

 

 

9 

 

Postpaid ARPA (GAAP metric)

$

116.36 

 

$

125.31 

 

$

119.26 

 

$

125.21 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Postpaid ABPA

 

 

 

 

 

 

 

 

 

 

 

Postpaid service revenues

$

586 

 

$

635 

 

$

1,791 

 

$

1,910 

Equipment installment plan billings

 

152 

 

 

131 

 

 

433 

 

 

353 

 

Total billings to postpaid accounts

$

738 

 

$

766 

 

$

2,224 

 

$

2,263 

Average number of postpaid accounts

 

1.68 

 

 

1.69 

 

 

1.67 

 

 

1.69 

Number of months in period

 

3 

 

 

3 

 

 

9 

 

 

9 

 

Postpaid ABPA (Non-GAAP metric)

$

146.65 

 

$

151.16 

 

$

148.12 

 

$

148.37 


18


Nine Months Ended
September 30,
20222021
(Dollars in millions)
Cash flows from operating activities (GAAP)$652 $667 
Less: Cash paid for additions to property, plant and equipment409 456 
Free cash flow (Non-GAAP)$243 $211 

17

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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

$

370 

 

$

 

 

$

370 

 

$

 

 

Tax benefit on impairment of goodwill1

 

(61)

 

 

 

 

 

(61)

 

 

 

 

Goodwill impairment, net of tax (Non-GAAP)

$

309 

 

$

 

 

$

309 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment.



Table of Contents


Application of Critical Accounting Policies and Estimates

U.S. Cellular

UScellular prepares its consolidated financial statements in accordance with GAAP. U.S. Cellular’sUScellular’s significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies, Note 2 — Revenue Recognition and Recent Accounting PronouncementsNote 10 — Leases in the Notes to Consolidated Financial Statements and U.S. Cellular’sUScellular’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’sUScellular’s Form 10-K for the year ended December 31, 2016. 

Effective January 1, 2017, U.S. Cellular elected to change2021. 

Regulatory Matters
Spectrum Auctions
On March 2, 2020, the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenuesFCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses 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 ended3.5 GHz band (Auction 105). On 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.

Regulatory Matters

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 2017,2, 2020, the FCC announced by way of public notice that U.S. CellularUScellular was the provisional winning bidder for 188243 wireless spectrum licenses for an aggregatea purchase price of $329$14 million. Prior to commencement of the forward auction, U.S. Cellular made an upfront payment toOn July 15, 2022, the FCC released a Consent Decree related to its spectrum aggregation and ownership attribution rules in which UScellular agreed to relinquish its rights to 27 wireless spectrum licenses awarded in Auction 105 and subsequently received a full refund of $143 million in June 2016.  U.S. Cellular paid the$2 million. The remaining $186 million to the FCC and was216 wireless spectrum licenses were 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.  The MF2 Order further states that the phase down of legacy support for areas that do not receive 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 are due on January 4, 2018. 

In October 2017, the FCC issued a public notice proposing and seeking comment on detailed challenge procedures and a schedule for the challenge process.  Under this proposal, the challenge window would begin no earlier than four weeks after the January 4 collection date and would last 150 days.  No earlier than five business days after the close of the challenge window, the FCC would open a thirty-day challenge response window.  Following the challenge response window, the FCC would adjudicate any disputes.  This entire process must be completed before an auction can be commenced.  


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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 current level for the remainder of 2017.

FCC Notice of Proposed Rulemaking – “Restoring Internet Freedom”

In May 2017, the FCC adopted a Notice of Proposed Rulemaking (NPRM) proposing to revise decisions made in the FCC’s 2015 Open Internet and Title II Order (Restoring Internet Freedom). If adopted as proposed, the item would reverse the FCC’s decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II of the Telecommunications Act. The NPRM also sought comment on blocking, throttling, paid prioritization, and transparency rules adopted as part 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 proposedon July 26, 2022.

On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the NPRM. Also, there may be legal proceedings challenging any rule changes3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by way of public notice that are ultimately adopted. U.S. Cellular cannot predictUScellular was the outcomeprovisional winning bidder for 254 wireless spectrum licenses for $1,283 million. UScellular paid $30 million of these proceedings orthis amount in 2020 and the impact on its business. 

Other Regulatory Matters

Inremainder 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 approved2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $185 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, and adjusted as necessary if the estimated obligation changes. UScellular paid $36 million and $8 million related to the additional costs in October 2016 governing consumer privacy2021 and September 2022, respectively. The spectrum must be cleared by broadband Internet service providers.incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The President approvedwireless spectrum licenses from Auction 110 were granted by the resolutionFCC on May 4, 2022.
On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in April 2017.the 2.5 GHz band (Auction 108). On September 1, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 34 wireless spectrum licenses for $3 million. The repeal removedwireless spectrum licenses from Auction 108 have not yet been granted by 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. 

FCC.

21

18




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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. CellularUScellular 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, but are not limited to, those set forth below, as more fully described under “Risk Factors” in U.S. Cellular’sUScellular’s Form 10-K for the year ended December 31, 2016.2021 and in this Form 10-Q. Each of the following risks could have a material adverse effect on U.S. Cellular’sUScellular’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. CellularUScellular 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’sUScellular’s Form 10-K for the year ended December 31, 2016,2021, 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’sUScellular’s business, financial condition or results of operations.

Operational Risk Factors


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Advances or changes in technology could render certain technologies used by U.S. CellularUScellular obsolete, could put U.S. CellularUScellular at a competitive disadvantage, could reduce U.S. Cellular’sUScellular’s revenues or could increase its costs of doing business.
  • Complexities associated with deploying new technologies present substantial risk and U.S. CellularUScellular investments in unproven technologies may not produce the benefits that U.S. CellularUScellular expects.
  • U.S. Cellular receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations. 
  • Performance under device purchase agreements could have a material adverse impact on U.S. Cellular's business, financial condition or results of operations. 
  • Changes in U.S. Cellular’s enterprise value, changes in the market supply or demand for wireless licenses, adverse developments in the business or the industry in which U.S. Cellular is involved and/or other factors could require U.S. Cellular to recognize impairments in the carrying value of its licenses, goodwill and/or physical assets.
  • Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of U.S. Cellular’sUScellular’s business could have an adverse effect on U.S. Cellular’sUScellular’s business, financial condition or results of operations.
  • U.S. Cellular offers customers the option to purchase certain devices under installment contracts which, compared to fixed-term service contracts, includes risks that U.S. Cellular may possibly incur greater churn, lower cash flows, increased costs and/or increased bad debts expense due to differences in contract terms, which could have an adverse impact on U.S. Cellular’s financial condition or results of operations.
  • A failure by U.S. CellularUScellular to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
  • Difficulties involving third parties with which U.S. CellularUScellular does business, including changes in U.S. Cellular'sUScellular's relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third partythird-party national retailers who market U.S. Cellular’sUScellular’s services, could adversely affect U.S. Cellular’sUScellular's business, financial condition or results of operations.
  • A failure by UScellular to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations.
    19

    Financial Risk Factors
    Uncertainty in UScellular’s future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in UScellular’s performance or market conditions, changes in UScellular’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which could require UScellular to reduce its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, and/or reduce or cease share repurchases.
    UScellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
    UScellular’s assets and revenue are concentrated in the U.S. Cellularwireless telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
    UScellular has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on U.S. Cellular’sUScellular’s financial condition or results of operations.
  • A failure
  • Regulatory, Legal and Governance Risk Factors
    Failure by U.S. CellularUScellular to maintain flexible and capable telecommunication networkstimely or information technology, fully comply with any existing applicable legislative and/or a material disruption thereof,regulatory requirements or changes thereto could have an adverse effect on U.S. Cellular’sadversely affect UScellular’s business, financial condition or results of operations.
  • U.S. Cellular has experienced
  • UScellular receives significant regulatory support, and inis also subject to numerous surcharges and fees from federal, state and local governments – the future, expectsapplicability and the amount of the support and fees are subject to experience cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, whichgreat uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on U.S. Cellular'sUScellular’s business, financial condition or results of operations.
  • The market price of U.S. Cellular’s Common Shares is subject to fluctuations due to a variety of factors.
  • Changes in facts or circumstances, including new or additional information, could require U.S. Cellular to record charges in excess of amounts accrued in the financial statements, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
  • Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede U.S. Cellular’s access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
  • Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on U.S. Cellular’sUScellular’s business, financial condition or results of operations.
  • The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers,or frequencies used by other industries, could have an adverse effect on U.S. Cellular’sUScellular's business, financial condition or results of operations.



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    There are potential conflicts of interests between TDS and U.S. Cellular. 
  • UScellular.
  • Certain matters, such as control by TDS and provisions in the U.S. CellularUScellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of UScellular or have other consequences.
    General Risk Factors
    UScellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on UScellular's business, financial condition or results of operations.
    Disruption in credit or other financial markets, a deterioration of U.S. Cellular.
  • Any of the foregoing eventsor global economic conditions or other events could, causeamong other things, impede UScellular’s access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues earnings, capital expenditures and/and lower operating income and cash flows, which would have an adverse effect on UScellular’s business, financial condition or any other financial or statistical information to vary from U.S. Cellular’s forward-looking estimates byresults of operations.
  • The impact of public health emergencies, such as the COVID-19 pandemic, on UScellular's business is uncertain, but depending on duration and severity could have a material amount.adverse effect on UScellular's business, financial condition or results of operations.
    20


    Table of Contents
    Risk Factors

    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 onUScellular’s Form 10-K for the year ended December 31, 2016,2021, which could materially affect U.S. Cellular’sUScellular’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, 2016,2021, may not be the only risks that could affect U.S. Cellular.UScellular. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect U.S. Cellular’sUScellular’s business, financial condition and/or operating results. Subject to the foregoing, U.S. CellularUScellular has not identified for disclosure any material changes to the risk factors as previously disclosed in U.S. Cellular’s Annual Report onUScellular’s Form 10-K for the year ended December 31, 2016.

    2021.

    Quantitative and Qualitative Disclosures about Market Risk

    Market Risk

    Refer

    As of September 30, 2022, approximately 60% of UScellular's long-term debt was in fixed-rate senior notes and approximately 40% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the disclosure under Market Risk in U.S. Cellular’s Form 10-K forfair value of fixed-rate notes and interest expense on variable-rate debt.
    The following table presents the year ended December 31, 2016, for additional information, including information regarding requiredscheduled principal payments on long-term debt, lease obligations, and the related weighted average interest rates by maturity dates at September 30, 2022.
    Principal Payments Due by Period
    Long-Term Debt Obligations1
    Weighted-Avg. Interest Rates on Long-Term Debt Obligations2
    (Dollars in millions)
    Remainder of 2022$5.4 %
    202313 4.7 %
    202413 4.7 %
    202513 4.7 %
    2026283 4.3 %
    Thereafter2,671 5.8 %
    Total$2,994 5.6 %
    1The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, unamortized discounts related to U.S. Cellular’s Long-term debt.  There have been no material changes to such information since December 31, 2016. 

    the 6.7% Senior Notes, and outstanding borrowings under the receivables securitization agreement, which principal repayments are not scheduled but are instead based on actual receivable collections.

    2Represents the weighted average stated interest rates at September 30, 2022, for debt maturing in the respective periods.
    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’sUScellular’s Long-term debt as of September 30, 2017.

    2022.

    24

    21




    Table of Contents


    Financial Statements

    United States Cellular Corporation

    Consolidated Statement of Operations

    (Unaudited)

     

     

     

     

    Three Months Ended

     

    Nine Months Ended

     

     

     

     

    September 30,

     

    September 30,

     

    2017

     

    2016

     

    2017

     

    2016

    (Dollars and shares in millions, except per share amounts)

     

     

     

     

     

     

     

     

     

     

     

    Operating revenues

     

     

     

     

     

     

     

     

     

     

     

     

    Service

    $

    737 

     

    $

    784 

     

    $

    2,223 

     

    $

    2,330 

     

    Equipment sales

     

    226 

     

     

    239 

     

     

    639 

     

     

    655 

     

     

    Total operating revenues

     

    963 

     

     

    1,023 

     

     

    2,862 

     

     

    2,985 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Operating expenses

     

     

     

     

     

     

     

     

     

     

     

     

    System operations (excluding Depreciation,

      amortization and accretion reported below)

     

    185 

     

     

    196 

     

     

    549 

     

     

    572 

     

    Cost of equipment sold

     

    261 

     

     

    280 

     

     

    749 

     

     

    799 

     

    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)

     

    350 

     

     

    370 

     

     

    1,041 

     

     

    1,089 

     

    Depreciation, amortization and accretion

     

    153 

     

     

    155 

     

     

    460 

     

     

    462 

     

    Loss on impairment of goodwill

     

    370 

     

     

     

     

     

    370 

     

     

     

     

    (Gain) loss on asset disposals, net

     

    5 

     

     

    7 

     

     

    14 

     

     

    16 

     

    (Gain) loss on sale of business and other exit costs, net

     

    (1)

     

     

     

     

     

    (1)

     

     

     

     

    (Gain) loss on license sales and exchanges, net

     

     

     

     

    (7)

     

     

    (19)

     

     

    (16)

     

     

    Total operating expenses

     

    1,323 

     

     

    1,001 

     

     

    3,163 

     

     

    2,922 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Operating income (loss)

     

    (360)

     

     

    22 

     

     

    (301)

     

     

    63 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Investment and other income (expense)

     

     

     

     

     

     

     

     

     

     

     

     

    Equity in earnings of unconsolidated entities

     

    35 

     

     

    38 

     

     

    101 

     

     

    110 

     

    Interest and dividend income

     

    2 

     

     

    1 

     

     

    6 

     

     

    4 

     

    Interest expense

     

    (28)

     

     

    (28)

     

     

    (85)

     

     

    (84)

     

    Other, net

     

     

     

     

     

     

     

    1 

     

     

     

     

     

    Total investment and other income

     

    9 

     

     

    11 

     

     

    23 

     

     

    30 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Income (loss) before income taxes

     

    (351)

     

     

    33 

     

     

    (278)

     

     

    93 

     

    Income tax expense (benefit)

     

    (53)

     

     

    15 

     

     

    (19)

     

     

    39 

    Net income (loss)

     

    (298)

     

     

    18 

     

     

    (259)

     

     

    54 

    Less: Net income (loss) attributable to noncontrolling

      interests, net of tax

     

    1 

     

     

    1 

     

     

    2 

     

     

    1 

    Net income (loss) attributable to U.S. Cellular shareholders

    $

    (299)

     

    $

    17 

     

    $

    (261)

     

    $

    53 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Basic weighted average shares outstanding

     

    85 

     

     

    85 

     

     

    85 

     

     

    85 

    Basic earnings (loss) per share attributable to

      U.S. Cellular shareholders

    $

    (3.51)

     

    $

    0.20 

     

    $

    (3.07)

     

    $

    0.63 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted weighted average shares outstanding

     

    85 

     

     

    85 

     

     

    85 

     

     

    85 

    Diluted earnings (loss) per share attributable to

      U.S. Cellular shareholders

    $

    (3.51)

     

    $

    0.20 

     

    $

    (3.07)

     

    $

    0.63 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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


    25


    Three Months Ended
    September 30,
    Nine Months Ended
    September 30,
    2022202120222021
    (Dollars and shares in millions, except per share amounts)
    Operating revenues
    Service$781 $788 $2,351 $2,333 
    Equipment sales302 228 769 720 
    Total operating revenues1,083 1,016 3,120 3,053 
    Operating expenses
    System operations (excluding Depreciation, amortization and accretion reported below)197 205 574 594 
    Cost of equipment sold354 252 887 786 
    Selling, general and administrative369 346 1,032 984 
    Depreciation, amortization and accretion177 160 520 510 
    Loss on impairment of licenses — 3 — 
    (Gain) loss on asset disposals, net1 9 15 
    (Gain) loss on sale of business and other exit costs, net — (1)(1)
    Total operating expenses1,098 971 3,024 2,888 
    Operating income (loss)(15)45 96 165 
    Investment and other income (expense)
    Equity in earnings of unconsolidated entities40 48 122 137 
    Interest and dividend income2 5 
    Interest expense(42)(45)(115)(144)
    Total investment and other income (expense) 12 (2)
    Income (loss) before income taxes(15)49 108 163 
    Income tax expense (benefit)(3)14 46 31 
    Net income (loss)(12)35 62 132 
    Less: Net income attributable to noncontrolling interests, net of tax 4 
    Net income (loss) attributable to UScellular shareholders$(12)$34 $58 $128 
    Basic weighted average shares outstanding85 86 86 87 
    Basic earnings (loss) per share attributable to UScellular shareholders$(0.15)$0.39 $0.68 $1.48 


    Diluted weighted average shares outstanding85 87 87 88 
    Diluted earnings (loss) per share attributable to UScellular shareholders$(0.15)$0.38 $0.67 $1.46 
    The accompanying notes are an integral part of these consolidated financial statements.
    22


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    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)

    $

    (259)

     

    $

    54 

     

    Add (deduct) adjustments to reconcile net income (loss) to net cash flows

     

     

     

     

     

     

     

    from operating activities

     

     

     

     

     

     

     

     

    Depreciation, amortization and accretion

     

    460 

     

     

    462 

     

     

     

    Bad debts expense

     

    64 

     

     

    69 

     

     

     

    Stock-based compensation expense

     

    21 

     

     

    19 

     

     

     

    Deferred income taxes, net

     

    (73)

     

     

    11 

     

     

     

    Equity in earnings of unconsolidated entities

     

    (101)

     

     

    (110)

     

     

     

    Distributions from unconsolidated entities

     

    85 

     

     

    55 

     

     

     

    Loss on impairment of goodwill

     

    370 

     

     

     

     

     

     

    (Gain) loss on asset disposals, net

     

    14 

     

     

    16 

     

     

     

    (Gain) loss on sale of business and other exit costs, net

     

    (1)

     

     

     

     

     

     

    (Gain) loss on license sales and exchanges, net

     

    (19)

     

     

    (16)

     

     

     

    Noncash interest

     

    1 

     

     

    1 

     

     

     

    Other operating activities

     

     

     

     

    (2)

     

    Changes in assets and liabilities from operations

     

     

     

     

     

     

     

     

    Accounts receivable

     

    (16)

     

     

    1 

     

     

     

    Equipment installment plans receivable

     

    (164)

     

     

    (160)

     

     

     

    Inventory

     

    36 

     

     

    2 

     

     

     

    Accounts payable

     

    (58)

     

     

    45 

     

     

     

    Customer deposits and deferred revenues

     

    (13)

     

     

    (41)

     

     

     

    Accrued taxes

     

    31 

     

     

    38 

     

     

     

    Accrued interest

     

    9 

     

     

    7 

     

     

     

    Other assets and liabilities

     

    7 

     

     

    (36)

     

     

     

     

    Net cash provided by operating activities

     

    394 

     

     

    415 

     

     

     

     

     

     

     

     

     

     

    Cash flows from investing activities

     

     

     

     

     

     

    Cash paid for additions to property, plant and equipment

     

    (252)

     

     

    (280)

     

    Cash paid for licenses

     

    (189)

     

     

    (46)

     

    Cash paid for investments

     

    (50)

     

     

     

     

    Cash received from divestitures and exchanges

     

    19 

     

     

    20 

     

    Federal Communications Commission deposit

     

     

     

     

    (143)

     

     

     

     

    Net cash used in investing activities

     

    (472)

     

     

    (449)

     

     

     

     

     

     

     

     

     

     

    Cash flows from financing activities

     

     

     

     

     

     

    Repayment of long-term debt

     

    (9)

     

     

    (8)

     

    Common shares reissued for benefit plans, net of tax payments

     

    1 

     

     

    4 

     

    Common shares repurchased

     

     

     

     

    (2)

     

    Payment of debt issuance costs

     

     

     

     

    (2)

     

    Distributions to noncontrolling interests

     

    (2)

     

     

    (1)

     

    Other financing activities

     

     

     

     

    2 

     

     

     

     

    Net cash used in financing activities

     

    (10)

     

     

    (7)

     

     

     

     

     

     

     

     

     

     

    Net decrease in cash and cash equivalents

     

    (88)

     

     

    (41)

     

     

     

     

     

     

     

     

     

     

    Cash and cash equivalents

     

     

     

     

     

     

    Beginning of period

     

    586 

     

     

    715 

     

    End of period

    $

    498 

     

    $

    674 

     

     

     

     

     

     

     

     

     

     

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


    26

    Nine Months Ended
    September 30,
    20222021
    (Dollars in millions)
    Cash flows from operating activities
    Net income$62 $132 
    Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
    Depreciation, amortization and accretion520 510 
    Bad debts expense93 34 
    Stock-based compensation expense18 20 
    Deferred income taxes, net31 47 
    Equity in earnings of unconsolidated entities(122)(137)
    Distributions from unconsolidated entities100 106 
    Loss on impairment of licenses3 — 
    (Gain) loss on asset disposals, net9 15 
    (Gain) loss on sale of business and other exit costs, net(1)(1)
    Other operating activities6 31 
    Changes in assets and liabilities from operations
    Accounts receivable(54)19 
    Equipment installment plans receivable(131)(44)
    Inventory(71)10 
    Accounts payable(7)(33)
    Customer deposits and deferred revenues27 10 
    Accrued taxes134 (36)
    Accrued interest10 
    Other assets and liabilities25 (23)
    Net cash provided by operating activities652 667 
    Cash flows from investing activities
    Cash paid for additions to property, plant and equipment(409)(456)
    Cash paid for licenses(575)(1,263)
    Cash received from investments 
    Cash received from divestitures and exchanges8 
    Advance payments for license acquisitions (20)
    Other investing activities 
    Net cash used in investing activities(976)(1,732)
    Cash flows from financing activities
    Issuance of long-term debt725 1,217 
    Repayment of long-term debt(327)(1,117)
    Issuance of short-term debt110 — 
    Repayment of short-term debt(50)— 
    Common Shares reissued for benefit plans, net of tax payments(5)(16)
    Repurchase of Common Shares(28)(21)
    Payment of debt issuance costs(1)(20)
    Distributions to noncontrolling interests(3)(2)
    Other financing activities(7)(4)
    Net cash provided by financing activities414 37 
    Net increase (decrease) in cash, cash equivalents and restricted cash90 (1,028)
    Cash, cash equivalents and restricted cash
    Beginning of period199 1,291 
    End of period$289 $263 



    The accompanying notes are an integral part of these consolidated financial statements.
    23


    Table of Contents


    United States Cellular Corporation

    Consolidated Balance Sheet — Assets

    (Unaudited)

     

    September 30,

     

    December 31,

     

    2017

     

    2016

    (Dollars in millions)

     

     

     

     

     

    Current assets

     

     

     

     

     

     

    Cash and cash equivalents

    $

    498 

     

    $

    586 

     

    Short-term investments

     

    50 

     

     

     

     

    Accounts receivable

     

     

     

     

     

     

     

    Customers and agents, less allowances of $52 and $51, respectively

     

    691 

     

     

    658 

     

     

    Roaming

     

    25 

     

     

    16 

     

     

    Affiliated

     

     

     

     

    2 

     

     

    Other, less allowances of $1 and $1, respectively

     

    41 

     

     

    51 

     

    Inventory, net

     

    102 

     

     

    138 

     

    Prepaid expenses

     

    76 

     

     

    84 

     

    Other current assets

     

    21 

     

     

    23 

     

     

     

    Total current assets

     

    1,504 

     

     

    1,558 

     

     

     

     

     

     

     

     

     

    Assets held for sale

     

    5 

     

     

    8 

     

     

     

     

     

     

     

     

     

    Licenses

     

    2,225 

     

     

    1,886 

    Goodwill

     

     

     

     

    370 

    Investments in unconsolidated entities

     

    429 

     

     

    413 

     

     

     

     

     

     

     

     

     

    Property, plant and equipment

     

     

     

     

     

     

    In service and under construction

     

    7,576 

     

     

    7,712 

     

    Less: Accumulated depreciation and amortization

     

    5,313 

     

     

    5,242 

     

     

     

    Property, plant and equipment, net

     

    2,263 

     

     

    2,470 

     

     

     

     

     

     

     

     

     

    Other assets and deferred charges

     

    354 

     

     

    405 

     

     

     

     

     

     

     

     

     

    Total assets1

    $

    6,780 

     

    $

    7,110 

     

     

     

     

     

     

     

     

     

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



    27


    September 30, 2022December 31, 2021
    (Dollars in millions)
    Current assets
    Cash and cash equivalents$254 $156 
    Accounts receivable
    Customers and agents, less allowances of $66 and $57, respectively987 976 
    Roaming7 
    Other, less allowances of $2 and $2, respectively81 63 
    Inventory, net243 173 
    Prepaid expenses61 58 
    Income taxes receivable1 123 
    Other current assets41 49 
    Total current assets1,675 1,605 
    Assets held for sale29 18 
    Licenses4,680 4,088 
    Investments in unconsolidated entities461 439 
    Property, plant and equipment
    In service and under construction9,410 9,056 
    Less: Accumulated depreciation and amortization6,779 6,450 
    Property, plant and equipment, net2,631 2,606 
    Operating lease right-of-use assets932 959 
    Other assets and deferred charges648 626 
    Total assets1
    $11,056 $10,341 
    The accompanying notes are an integral part of these consolidated financial statements.

    24

    Table of Contents


    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

    $

    18 

     

    $

    11 

     

    Accounts payable

     

     

     

     

     

     

     

    Affiliated

     

    11 

     

     

    12 

     

     

    Trade

     

    259 

     

     

    309 

     

    Customer deposits and deferred revenues

     

    176 

     

     

    190 

     

    Accrued taxes

     

    65 

     

     

    39 

     

    Accrued compensation

     

    68 

     

     

    73 

     

    Other current liabilities

     

    76 

     

     

    84 

     

     

     

    Total current liabilities

     

    673 

     

     

    718 

     

     

     

     

     

     

     

     

     

    Deferred liabilities and credits

     

     

     

     

     

     

    Deferred income tax liability, net

     

    753 

     

     

    826 

     

    Other deferred liabilities and credits

     

    321 

     

     

    302 

     

     

     

     

     

     

     

     

     

    Long-term debt, net

     

    1,626 

     

     

    1,618 

     

     

     

     

     

     

     

     

     

    Commitments and contingencies

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Noncontrolling interests with redemption features

     

    1 

     

     

    1 

     

     

     

     

     

     

     

     

     

    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)

     

    88 

     

     

    88 

     

     

    Additional paid-in capital

     

    1,543 

     

     

    1,522 

     

     

    Treasury shares, at cost, 3 Common Shares

     

    (120)

     

     

    (136)

     

     

    Retained earnings

     

    1,884 

     

     

    2,160 

     

     

     

    Total U.S. Cellular shareholders' equity

     

    3,395 

     

     

    3,634 

     

     

     

     

     

     

     

     

     

     

    Noncontrolling interests

     

    11 

     

     

    11 

     

     

     

     

     

     

     

     

     

     

     

    Total equity

     

    3,406 

     

     

    3,645 

     

     

     

     

     

     

     

     

     

    Total liabilities and equity1

    $

    6,780 

     

    $

    7,110 

     

     

     

     

     

     

     

     

     

    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.

     

     

     

     

     


    28

    September 30, 2022December 31, 2021
    (Dollars and shares in millions, except per share amounts)
    Current liabilities
    Current portion of long-term debt$11 $
    Accounts payable
    Affiliated8 14 
    Trade340 346 
    Customer deposits and deferred revenues218 191 
    Accrued taxes36 33 
    Accrued compensation62 83 
    Short-term operating lease liabilities133 129 
    Other current liabilities291 104 
    Total current liabilities1,099 903 
    Deferred liabilities and credits
    Deferred income tax liability, net705 674 
    Long-term operating lease liabilities859 889 
    Other deferred liabilities and credits661 573 
    Long-term debt, net3,115 2,728 
    Commitments and contingencies
    Noncontrolling interests with redemption features12 11 
    Equity
    UScellular 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) and 86 shares (33 Series A Common and 53 Common Shares), respectively
    Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares)88 88 
    Additional paid-in capital1,696 1,678 
    Treasury shares, at cost, 3 and 2 Common Shares, respectively(85)(68)
    Retained earnings2,890 2,849 
    Total UScellular shareholders' equity4,589 4,547 
    Noncontrolling interests16 16 
    Total equity4,605 4,563 
    Total liabilities and equity1
    $11,056 $10,341 

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



    1     The consolidated total assets as of September 30, 2022 and December 31, 2021, include assets held by consolidated variable interest entities (VIEs) of $1,269 million and $1,482 million, respectively, which are not available to be used to settle the obligations of UScellular. The consolidated total liabilities as of September 30, 2022 and December 31, 2021, include certain liabilities of consolidated VIEs of $23 million for which the creditors of the VIEs have no recourse to the general credit of UScellular. See Note 11 — Variable Interest Entities for additional information.
    25


    Table of Contents


    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

    $

    88 

     

    $

    1,522 

     

    $

    (136)

     

    $

    2,160 

     

    $

    3,634 

     

    $

    11 

     

    $

    3,645 

    Net loss attributable to U.S. Cellular shareholders

     

     

     

     

     

     

     

     

     

     

    (261)

     

     

    (261)

     

     

     

     

     

    (261)

    Net income attributable to noncontrolling interests

      classified as equity

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    2 

     

     

    2 

    Incentive and compensation plans

     

     

     

     

     

     

     

    16 

     

     

    (15)

     

     

    1 

     

     

     

     

     

    1 

    Stock-based compensation awards

     

     

     

     

    21 

     

     

     

     

     

     

     

     

    21 

     

     

     

     

     

    21 

    Distributions to noncontrolling interests

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (2)

     

     

    (2)

    Balance, September 30, 2017

    $

    88 

     

    $

    1,543 

     

    $

    (120)

     

    $

    1,884 

     

    $

    3,395 

     

    $

    11 

     

    $

    3,406 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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



    29

    UScellular Shareholders
    Series A
    Common and
    Common
    shares
    Additional
    paid-in
    capital
    Treasury
    shares
    Retained
    earnings
    Total
    UScellular
    shareholders'
    equity
    Noncontrolling
    interests
    Total equity
    (Dollars in millions)
    June 30, 2022$88 $1,692 $(75)$2,903 $4,608 $16 $4,624 
    Net income (loss) attributable to UScellular shareholders— — — (12)(12)— (12)
    Net income attributable to noncontrolling interests classified as equity— — — — — 
    Repurchase of Common Shares— — (10)— (10)— (10)
    Incentive and compensation plans— — (1)— 
    Distributions to noncontrolling interests— — — — — (1)(1)
    September 30, 2022$88 $1,696 $(85)$2,890 $4,589 $16 $4,605 


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

    26

    Table of Contents


    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, 2015

    $

    88 

     

    $

    1,497 

     

    $

    (157)

     

    $

    2,133 

     

    $

    3,561 

     

    $

    10 

     

    $

    3,571 

    Net income attributable to U.S. Cellular shareholders

     

     

     

     

     

     

     

     

     

     

    53 

     

     

    53 

     

     

     

     

     

    53 

    Net income attributable to noncontrolling interests

      classified as equity

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    1 

     

     

    1 

    Repurchase of Common shares

     

     

     

     

     

     

     

    (2)

     

     

     

     

     

    (2)

     

     

     

     

     

    (2)

    Incentive and compensation plans

     

     

     

     

     

     

     

    23 

     

     

    (19)

     

     

    4 

     

     

     

     

     

    4 

    Stock-based compensation awards

     

     

     

     

    19 

     

     

     

     

     

     

     

     

    19 

     

     

     

     

     

    19 

    Distributions to noncontrolling interests

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (1)

     

     

    (1)

    Balance, September 30, 2016

    $

    88 

     

    $

    1,516 

     

    $

    (136)

     

    $

    2,167 

     

    $

    3,635 

     

    $

    10 

     

    $

    3,645 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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


    (Unaudited)

    UScellular Shareholders
    Series A
    Common and
    Common
    shares
    Additional
    paid-in
    capital
    Treasury
    shares
    Retained
    earnings
    Total
    UScellular
    shareholders'
    equity
    Noncontrolling
    interests
    Total equity
    (Dollars in millions)
    June 30, 2021$88 $1,663 $(42)$2,794 $4,503 $16 $4,519 
    Net income attributable to UScellular shareholders— — — 34 34 — 34 
    Net income attributable to noncontrolling interests classified as equity— — — — — 
    Repurchase of Common Shares— — (19)— (19)— (19)
    Incentive and compensation plans— (6)— 
    Distributions to noncontrolling interests— — — — — (1)(1)
    September 30, 2021$88 $1,671 $(58)$2,822 $4,523 $16 $4,539 

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

    27

    Table of Contents


    United States Cellular Corporation

    Consolidated Statement of Changes in Equity
    (Unaudited)
    UScellular Shareholders
    Series A
    Common and
    Common
    shares
    Additional
    paid-in
    capital
    Treasury
    shares
    Retained
    earnings
    Total
    UScellular
    shareholders'
    equity
    Noncontrolling
    interests
    Total equity
    (Dollars in millions)
    December 31, 2021$88 $1,678 $(68)$2,849 $4,547 $16 $4,563 
    Net income attributable to UScellular shareholders— — — 58 58 — 58 
    Net income attributable to noncontrolling interests classified as equity— — — — — 
    Repurchase of Common Shares— — (29)— (29)— (29)
    Incentive and compensation plans— 18 12 (17)13 — 13 
    Distributions to noncontrolling interests— — — — — (3)(3)
    September 30, 2022$88 $1,696 $(85)$2,890 $4,589 $16 $4,605 
    The accompanying notes are an integral part of these consolidated financial statements.
    28

    Table of Contents
    United States Cellular Corporation
    Consolidated Statement of Changes in Equity
    (Unaudited)
    UScellular Shareholders
    Series A
    Common and
    Common
    shares
    Additional
    paid-in
    capital
    Treasury
    shares
    Retained
    earnings
    Total
    UScellular
    shareholders'
    equity
    Noncontrolling
    interests
    Total equity
    (Dollars in millions)
    December 31, 2020$88 $1,651 $(67)$2,739 $4,411 $15 $4,426 
    Net income attributable to UScellular shareholders— — — 128 128 — 128 
    Net income attributable to noncontrolling interests classified as equity— — — — — 
    Repurchase of Common Shares— — (21)— (21)— (21)
    Incentive and compensation plans— 20 30 (45)— 
    Distributions to noncontrolling interests— — — — — (2)(2)
    September 30, 2021$88 $1,671 $(58)$2,822 $4,523 $16 $4,539 
    The accompanying notes are an integral part of these consolidated financial statements.
    29

    Table of Contents
    United States Cellular Corporation
    Notes to Consolidated Financial Statements


    Note 1 Basis of Presentation

    United States Cellular Corporation (U.S. Cellular)(UScellular), a Delaware corporation,Corporation, is an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).

    The accounting policies of U.S. CellularUScellular conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Unless otherwise specified, references to accounting provisions and GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements include the accounts of U.S. Cellular,UScellular, subsidiaries in which it has a controlling financial interest, general partnerships in which U.S. CellularUScellular has a majority partnership interest and certain entities in which U.S. CellularUScellular has a variable interest that requirerequires consolidation under GAAP. All material intercompanyIntercompany accounts and transactions have been eliminated.

    The unaudited consolidated financial statements included herein have been prepared by U.S. CellularUScellular pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, U.S. CellularUScellular believes that the disclosures included herein are adequate to make the information presented not misleading. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in U.S. Cellular’sUScellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2016.

    2021.

    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’sUScellular’s financial position as of September 30, 20172022 and December 31, 2016,2021 and its results of operations and changes in equity for the three and nine months ended September 30, 20172022 and 2016,2021, and its cash flows and changes in equity for the nine months ended September 30, 20172022 and 2016.2021. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and nine months ended September 30, 20172022 and 2016,2021, equaled net income. These results are not necessarily indicative of the results to be expected for the full year. U.S. CellularUScellular has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2016, except2021.
    Software License Agreements
    Certain software licenses are recorded as described below.

    Equipment Installment Plans

    U.S. Cellularacquisitions of property, plant and equipment revenue under equipment installment plan contracts is recognized at the time the device is delivered to the end-user customer for the selling price of the device, net of any deferred imputed interest or trade-in right, if applicable.  Imputed interest is reflected as a reduction to the receivable balance and recognized over the duration of the plan as Service revenues.  See Note 3 — Equipment Installment Plans.  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.  U.S. Cellular believes this classification is preferable because financing of devices as part of enrolling customers for service is an activity that is central to U.S. Cellular’s operations, and it is consistent with the presentation by others in the industry.  Comparative financial statements of prior years have been adjusted to apply the new classification retrospectively.  As a result of this change in classification, Service revenues for the three and nine months ended September 30, 2016, increased by $13 million and $37 million, respectively, from previously reported amounts, with a corresponding decrease in Interest and dividend income.  In comparison, Service revenues for the three and nine months ended September 30, 2017, include $19 million and $52 million, respectively, of equipment installment plan interest income.  This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three or nine months ended September 30, 2016, nor did it have a cumulative impact to Retained earnings as of any date presented.

    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.


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    Recently Issued Accounting Pronouncements Not Yet Adopted

    In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09) and has since amended the standard with Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.  These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.  ASU 2014-09, as amended, impacts U.S. Cellular’s revenue recognition related to the allocation of contract revenues between various services and equipment, and the timing of when those revenues are recognized.  In addition, ASU 2014-09 requires deferral of incremental contract acquisition, and fulfillment costs and subsequent expense recognition over the contract period or expected customer life.  Upon adoption, the cumulative effect adjustment is expected to include the establishment of contract asset and contract liability accounts with a corresponding adjustment to retained earnings to reflect the reallocation of revenues between service and equipment performance obligations for which control is transferred to customers in different periods.  Reallocation impacts generally arise when bundle discounts are provided in a contract arrangement that includes equipment and service performance obligations.  In these cases, the revenue will be reallocated according to the relative stand-alone selling prices of the performance obligations included in the bundle and this may be different than how the revenue is billed to the customer and recognized under current guidance.  In addition, contract cost assets will be established to reflect costs that will be deferredtreated as incremental contract acquisition costs.  Incremental contract acquisition costs generally relate to commissions paid to sales associates.  U.S. Cellular is required to adopt ASU 2014-09, as amended, on January 1, 2018.  Early adoption as of January 1, 2017, is permitted; however, U.S. Cellular did not adopt early.  U.S. Cellular expects to transition to the new standard under the modified retrospective transition method whereby a cumulative effect adjustment to retained earnings is recognized upon adoption and the guidance is applied prospectively.  U.S. Cellular has identified that new systems, processes and controls are required to adopt ASU 2014-09, as amended.  U.S. Cellular has substantially completed the design and development of new systems to perform revenue recognition accounting under the provisions of ASU 2014-09, as amended, and is currently engaged in the process of testing these new systems.  U.S. Cellular is evaluating the effects that adoption of ASU 2014-09, as amended, will have on its financial position and results of operations.

    In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (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.  U.S. Cellular is required to adopt ASU 2016-02 on January 1, 2019.  Early adoption is permitted.  Upon adoption of ASU 2016-02, U.S. Cellular expects a substantial increase to assets and liabilities on its balance sheet.  U.S. Cellular is evaluating the full effect that adoption of ASU 2016-02 will have on its financial condition, results of operations and disclosures.

    In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (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.  Early adoption as of January 1, 2019 is permitted.  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.


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    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 expensesnon-cash activity in the Consolidated Statement of Operations.  The amounts recorded gross in revenuesCash Flows. Such acquisitions of software licenses that are billednot reflected as Cash paid for additions to customersproperty, plant and remitted to governmental authorities totaled $14equipment were $135 million and $42$15 million for the nine months ended September 30, 2022 and 2021, respectively.

    Restricted Cash
    UScellular presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 10 — Debt for additional information related to the receivables securitization agreement. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.
    September 30, 2022December 31, 2021
    (Dollars in millions)
    Cash and cash equivalents$254 $156 
    Restricted cash included in Other current assets35 43 
    Cash, cash equivalents and restricted cash in the statement of cash flows$289 $199 
    30

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    Note 2 Revenue Recognition
    Disaggregation of Revenue
    In the following table, UScellular's revenues are disaggregated by type of service, which represents the relevant categorization of revenues for UScellular, and timing of recognition. Service revenues are recognized over time and Equipment sales are point in time. 
    Three Months Ended
    September 30,
    Nine Months Ended
    September 30,
    2022202120222021
    (Dollars in millions)
    Revenues from contracts with customers:
    Retail service1,2
    $696 $697 $2,098 $2,064 
    Inbound roaming17 30 56 86 
    Other service1
    45 40 129 122 
    Service revenues from contracts with customers758 767 2,283 2,272 
    Equipment sales302 228 769 720 
    Total revenues from contracts with customers1,060 995 3,052 2,992 
    Operating lease income23 21 68 61 
    Total operating revenues$1,083 $1,016 $3,120 $3,053 
    1For the three and nine months ended September 30, 2021, amounts have been adjusted to reclassify $2 million and $5 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other service.
    2During the three months ended September 30, 2021, UScellular recorded a $9 million out-of-period error related to the timing of recognition of regulatory fee billings. This adjustment had the impact of increasing Service revenue by $9 million for the three and nine months ended September 30, 2017, respectively,2021. UScellular determined that this adjustment was not material to any of the periods impacted.
    Contract Balances
    The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and $15Other assets and deferred charges in the Consolidated Balance Sheet, and 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.
     September 30, 2022December 31, 2021
    (Dollars in millions) 
    Contract assets$5 $
    Contract liabilities$309 $243 

    Revenue recognized related to contract liabilities existing at January 1, 2022 was $154 million for the nine months ended September 30, 2022.

    Transaction price allocated to the remaining performance obligations
    The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when wireless services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of September 30, 2022 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates. 
    Service Revenues
    (Dollars in millions)
    Remainder of 2022$125 
    2023159 
    Thereafter128 
    Total$412 
    31

    Table of Contents
    Contract Cost Assets
    UScellular expects that commission fees paid as a result of obtaining contracts are recoverable and therefore UScellular defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. The contract cost asset balance related to commission fees and other costs was $128 million at September 30, 2022, and $126 million at December 31, 2021, and was recorded in Other assets and deferred charges in the Consolidated Balance Sheet. Deferred commission fees are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Amortization of contract cost assets was $24 million and $49$72 million for the three and nine months ended September 30, 2016, respectively.

    2022, respectively, and $24 million and $75 million for the three and nine months ended September 30, 2021, respectively, and was included in Selling, general and administrative expenses.

    Note 23 Fair Value Measurements

    As of September 30, 20172022 and December 31, 2016, U.S. Cellular2021, UScellular 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.

    U.S. Cellular

    UScellular has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

     

     

     

    Level within the Fair Value Hierarchy

     

    September 30, 2017

     

    December 31, 2016

     

     

     

     

    Book Value

     

    Fair Value

     

    Book Value

     

    Fair Value

    (Dollars in millions)

     

     

     

     

     

     

     

     

     

     

     

     

     

    Cash and cash equivalents

    1

     

    $

    498 

     

    $

    498 

     

    $

    586 

     

    $

    586 

    Short-term Investments

    1

     

     

    50 

     

     

    50 

     

     

     

     

     

     

    Long-term debt

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Retail

    2

     

     

    917 

     

     

    970 

     

     

    917 

     

     

    929 

     

    Institutional

    2

     

     

    534 

     

     

    572 

     

     

    533 

     

     

    532 

     

    Other

    2

     

     

    194 

     

     

    194 

     

     

    203 

     

     

    203 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    The fair value of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. 

    Level within the Fair Value HierarchySeptember 30, 2022December 31, 2021
    Book ValueFair ValueBook ValueFair Value
    (Dollars in millions)
    Long-term debt
    Retail2$1,500 $1,155 $1,500 $1,594 
    Institutional2536 399 535 659 
    Other21,136 1,136 746 746 
    Long-term debt excludes capital lease obligations, product financing 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%UScellular Senior Notes, 7.25% 2063 Senior Notes and 7.25% 2064 Senior Notes.  U.S. Cellular’swhich are traded on the New York Stock Exchange. UScellular’s “Institutional” debt consists of the 6.7% Senior Notes which are traded over the counter. U.S. Cellular’sUScellular’s “Other” debt consists of a senior term loan credit facility.  U.S. Cellularagreements, receivables securitization agreement and in 2022, export credit financing agreement. UScellular 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%3.70% to 6.21%8.06% and 3.78%1.31% to 6.93%4.40% at September 30, 20172022 and December 31, 2016,2021, respectively.


    33

    The fair values of Cash and cash equivalents, restricted cash and short-term debt approximate their book values due to the short-term nature of these financial instruments.


    32

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    Note 34 Equipment Installment Plans

    U.S. Cellular

    UScellular 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, 2017 and December 31, 2016, the guarantee liability related to these plans was $20 million and $33 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.

    The following table summarizes equipment installment plan receivables as of September 30, 2017 and December 31, 2016.

     

     

    September 30, 2017

     

    December 31, 2016

    (Dollars in millions)

     

     

     

     

     

     

    Equipment installment plan receivables, gross

     

    $

    776 

     

    $

    628 

    Deferred interest

     

     

    (69)

     

     

    (53)

    Equipment installment plan receivables, net of deferred interest

     

     

    707 

     

     

    575 

    Allowance for credit losses

     

     

    (58)

     

     

    (50)

    Equipment installment plan receivables, net

     

    $

    649 

     

    $

    525 

     

     

     

     

     

     

     

    Net balance presented in the Consolidated Balance Sheet as:

     

     

     

     

     

     

    Accounts receivable — Customers and agents (Current portion)

     

    $

    387 

     

    $

    345 

    Other assets and deferred charges (Non-current portion)

     

     

    262 

     

     

    180 

    Equipment installment plan receivables, net

     

    $

    649 

     

    $

    525 

    U.S. Cellularreceivables.

    September 30, 2022December 31, 2021
    (Dollars in millions)
    Equipment installment plan receivables, gross$1,161 $1,085 
    Allowance for credit losses(87)(72)
    Equipment installment plan receivables, net$1,074 $1,013 
    Net balance presented in the Consolidated Balance Sheet as:
    Accounts receivable — Customers and agents (Current portion)$642 $639 
    Other assets and deferred charges (Non-current portion)432 374 
    Equipment installment plan receivables, net$1,074 $1,013 
    UScellular 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 toThese credit classes requiring no down payment represent aare grouped into four credit categories: lowest risk, lower risk, category, whereas thoseslight risk and higher risk. A customer's assigned to credit classes requiringclass is reviewed periodically and a down payment represent a higher risk category.  change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. 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

     

     

    Lower Risk

     

    Higher Risk

     

    Total

     

    Lower Risk

     

    Higher Risk

     

    Total

    (Dollars in millions)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Unbilled

     

    $

    713 

     

    $

    24 

     

    $

    737 

     

    $

    553 

     

    $

    38 

     

    $

    591 

    Billed — current

     

     

    26 

     

     

    1 

     

     

    27 

     

     

    23 

     

     

    2 

     

     

    25 

    Billed — past due

     

     

    10 

     

     

    2 

     

     

    12 

     

     

    10 

     

     

    2 

     

     

    12 

    Equipment installment plan receivables, gross

     

    $

    749 

     

    $

    27 

     

    $

    776 

     

    $

    586 

     

    $

    42 

     

    $

    628 


    September 30, 2022December 31, 2021
    Lowest RiskLower RiskSlight RiskHigher RiskTotalLowest RiskLower RiskSlight RiskHigher RiskTotal
    (Dollars in millions)
    Unbilled$974 $93 $23 $5 $1,095 $896 $94 $24 $$1,019 
    Billed — current39 5 1  45 40 47 
    Billed — past due11 6 3 1 21 10 19 
    Total$1,024 $104 $27 $6 $1,161 $946 $105 $27 $$1,085 

    TableThe balance of Contents


    the equipment installment plan receivables as of September 30, 2022 on a gross basis by year of origination were as follows:

    2019202020212022Total
    (Dollars in millions)
    Lowest Risk$$87 $380 $556 $1,024 
    Lower Risk— 40 58 104 
    Slight Risk— 20 27 
    Higher Risk— — 6 
    Total$$94 $428 $638 $1,161 
    Activity for the nine months ended September 30, 20172022 and 2016,2021, in the allowance for credit losses balance for the equipment installment plan receivables was as follows:

     

     

    September 30, 2017

     

    September 30, 2016

    (Dollars in millions)

     

     

     

     

     

     

    Allowance for credit losses, beginning of period

     

    $

    50 

     

    $

    26 

    Bad debts expense

     

     

    42 

     

     

    46 

    Write-offs, net of recoveries

     

     

    (34)

     

     

    (28)

    Allowance for credit losses, end of period

     

    $

    58 

     

    $

    44 

    September 30, 2022September 30, 2021
    (Dollars in millions)
    Allowance for credit losses, beginning of period$72 $78 
    Bad debts expense69 21 
    Write-offs, net of recoveries(54)(29)
    Allowance for credit losses, end of period$87 $70 
    33

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    Note 5 Income Taxes
    The effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30, 2022 was 23.3% and 42.5%, respectively. These effective tax rates reflect a combined rate of federal and state taxes, adjusted for impacts of nondeductible compensation and interest expense. The effective tax rates also varied during the interim periods due to fluctuations in Income (loss) before income taxes.
    The effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30, 2021 was 29.6% and 19.1%, respectively. The effective tax rate for the nine months ended September 30, 2021 was lower than normal due primarily to the reduction of tax accruals resulting from expirations of state statutes of limitations for prior tax years.

    Note 46 Earnings Per Share

    Basic earnings (loss) per share attributable to U.S. CellularUScellular shareholders is computed by dividing Net income (loss) attributable to U.S. CellularUScellular shareholders by the weighted average number of common sharesCommon Shares outstanding during the period. Diluted earnings (loss) per share attributable to U.S. CellularUScellular shareholders is computed by dividing Net income (loss) attributable to U.S. CellularUScellular shareholders by the weighted average number of common sharesCommon 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.

    The amounts used in computing basic and diluted earnings (loss) per common share and the effects of potentially dilutive securities on the weighted average number of common sharesattributable to UScellular shareholders were as follows:

     

     

    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

    $

    (299)

     

    $

    17 

     

    $

    (261)

     

    $

    53 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Weighted average number of shares used in basic

      earnings (loss) per share

     

    85 

     

     

    85 

     

     

    85 

     

     

    85 

    Effects of dilutive securities

     

     

     

     

     

     

     

     

     

     

     

    Weighted average number of shares used in diluted

      earnings (loss) per share

     

    85 

     

     

    85 

     

     

    85 

     

     

    85 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Basic earnings (loss) per share attributable to U.S. Cellular

      shareholders

    $

    (3.51)

     

    $

    0.20 

     

    $

    (3.07)

     

    $

    0.63 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted earnings (loss) per share attributable to

      U.S. Cellular shareholders

    $

    (3.51)

     

    $

    0.20 

     

    $

    (3.07)

     

    $

    0.63 

    Three Months Ended
    September 30,
    Nine Months Ended
    September 30,
    2022202120222021
    (Dollars and shares in millions, except per share amounts)
    Net income (loss) attributable to UScellular shareholders$(12)$34 $58 $128 
    Weighted average number of shares used in basic earnings (loss) per share85 86 86 87 
    Effects of dilutive securities 1 
    Weighted average number of shares used in diluted earnings (loss) per share85 87 87 88 
    Basic earnings (loss) per share attributable to UScellular shareholders$(0.15)$0.39 $0.68 $1.48 
    Diluted earnings (loss) per share attributable to UScellular shareholders$(0.15)$0.38 $0.67 $1.46 
    Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings (loss) per share attributable to U.S. CellularUScellular shareholders because their effects were antidilutive. The number of such Common Shares excluded was 31 million shares and 4less than 1 million shares for the three and nine months ended September 30, 2017,2022, respectively, and 31 million shares for both the three and nine months ended September 30, 2016.

    Note 5 Acquisitions, Divestitures 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.


    2021.

    Table of Contents


    Note 67 Intangible Assets

    Activity related to Licenses and Goodwill for the nine months ended September 30, 2017,2022, is presented below. 

    below:

    Licenses

    Licenses

    (Dollars in millions)

    Balance at December 31, 2016

    2021

    $

    1,886

    4,088 

    Acquisitions

    Acquisitions

    588 

    331

    Impairment

    (3)

    Transferred to Assets held for sale

    (5)

    Exchanges - Licenses received

    18

    Exchanges - Licenses surrendered

    (5)

    Capitalized interest

    Balance at September 30, 2017

    2022

    $

    2,225

    4,680 

    Goodwill

    (Dollars in millions)

    Balance December 31, 2016

    $

    370

    Loss on impairment

    (370)

    Balance September 30, 2017

    $

    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

    34

    In February 2021, the FCC announced by other companiesway of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the results of the FCC’s forward auction of 600 MHzremainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $185 million in total from 2021 through 2024 related to relocation costs and other FCC actions, U.S. Cellular anticipates increased competition for customers in its primary operating markets from newaccelerated relocation incentive payments. Such additional costs were accrued and existing market participants overcapitalized at the long term.  In addition,time the widening adoption of unlimited data planslicenses were granted, and other data pricing constructs acrossadjusted as necessary if 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 assessedestimated obligation changes. UScellular paid $36 million 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 following table represents key assumptions used in estimating the fair value of the U.S. Cellular reporting unit using the discounted cash flow approach. 

    Key assumptions

    Revenue growth rate

    0.8%

    Terminal revenue growth rate

    2.0%

    Discount rate

    9.5%

    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$8 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 groupadditional costs in October 2021 and determinedSeptember 2022, respectively. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

    In January 2022, the FCC announced by way of public notice that no impairmentUScellular was the provisional winning bidder for 380 wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110) for $580 million. UScellular paid $20 million of this amount in 2021 and the long-lived asset group existed as ofremainder in January and February 2022. The advance payment was included in Other assets and deferred charges in the interim assessment date.



    December 31, 2021 Consolidated Balance Sheet. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.

    Note 78 Investments in Unconsolidated Entities

    Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S. CellularUScellular holds a noncontrolling interest. These investmentsUScellular’s Investments in unconsolidated entities are accounted for using either the equity method, measurement alternative method or net asset value practical expedient method as shown in the table below. The carrying value of measurement alternative method investments represents cost method.

    minus any impairments plus or minus any observable price changes.

    The following table, which is based on unaudited information provided in part on information provided by third parties, summarizes the combined results of operations of U.S. Cellular’sUScellular’s equity method investments.

     

    Three Months Ended September 30,

     

    Nine Months Ended September 30,

     

    2017

     

    2016

     

    2017

     

    2016

    (Dollars in millions)

     

     

     

     

     

     

     

     

     

     

     

    Revenues

    $

    1,590 

     

    $

    1,674 

     

    $

    4,830 

     

    $

    4,992 

    Operating expenses

     

    1,180 

     

     

    1,249 

     

     

    3,615 

     

     

    3,647 

    Operating income

     

    410 

     

     

    425 

     

     

    1,215 

     

     

    1,345 

    Other expense, net

     

     

     

     

    (2)

     

     

    (2)

     

     

    (9)

    Net income

    $

    410 

     

    $

    423 

     

    $

    1,213 

     

    $

    1,336 

    Three Months Ended
    September 30,
    Nine Months Ended
    September 30,
    2022202120222021
    (Dollars in millions)
    Revenues$1,829 $1,756 $5,410 $5,225 
    Operating expenses1,397 1,244 4,158 3,735 
    Operating income432 512 1,252 1,490 
    Other income (expense), net(6)(12)15 
    Net income$426 $518 $1,240 $1,505 
    35

    Note 9 Asset Retirement Obligations
    Asset retirement obligations are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.
    During the three months ended September 30, 2022, UScellular performed a review of the assumptions and estimated future costs related to asset retirement obligations. The results of the review and other changes in asset retirement obligations during the nine months ended September 30, 2022 were as follows:
    Asset Retirement Obligations
    (Dollars in millions)
    Balance at December 31, 2021$315 
    Additional liabilities accrued
    Revisions in estimated cash outflows12 
    Disposition of assets(1)
    Accretion expense13 
    Balance at September 30, 2022$342 
    Note 10 Debt
    Revolving Credit Agreement
    The following table summarizes the revolving credit agreement as of September 30, 2022:
    (Dollars in millions)
    Maximum borrowing capacity$300 
    Letters of credit outstanding$— 
    Amount borrowed$— 
    Amount available for use$300 
    Borrowings under the UScellular revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus 1.60%.
    During the nine months ended September 30, 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement.
    UScellular believes that it was in compliance with all of the financial and other covenants and requirements set forth in its revolving credit agreement as of September 30, 2022.
    Term Loan Agreements
    The following table summarizes the term loan credit agreements as of September 30, 2022:
    (Dollars in millions)
    Maximum borrowing capacity$800 
    Amount borrowed and outstanding$797 
    Amount borrowed and repaid$
    Amount available for use$— 
    Borrowings under the UScellular term loan agreements bear interest at a rate of SOFR plus 1.60%, SOFR plus 2.10% or SOFR plus 2.60%. The maturity dates of the UScellular term loan agreements are July 2026, July 2028 and July 2031. During the nine months ended September 30, 2022, UScellular borrowed $500 million under the term loan agreements.
    UScellular believes that it was in compliance with all of the financial and other covenants and requirements set forth in its term loan credit agreements as of September 30, 2022.
    Export Credit Financing Agreement
    In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable on the five-year anniversary of the first borrowing, which is in January 2027. During the nine months ended September 30, 2022, UScellular borrowed $150 million, which is the full amount available under the agreement.
    36

    UScellular believes that it was in compliance with all of the financial and other covenants and requirements set forth in its export credit financing agreement as of September 30, 2022.
    Receivables Securitization Agreement
    UScellular, through its subsidiaries, has a receivables securitization agreement for securitized borrowings using its equipment installment receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. There were no significant changes to other terms of the receivable securitization agreement. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until the maturity date, which may be extended from time to time as specified therein. The outstanding borrowings bear interest at a rate that approximates SOFR plus 0.90%. During the nine months ended September 30, 2022, UScellular repaid $250 million under the agreement. As of September 30, 2022, the outstanding borrowings under the agreement were $200 million and the unused borrowing capacity under the agreement was $250 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of September 30, 2022, the USCC Master Note Trust held $386 million of assets available to be pledged as collateral for the receivables securitization agreement.
    UScellular believes that it was in compliance with all of the financial and other covenants and requirements set forth in its receivables securitization agreement as of September 30, 2022.
    Repurchase Agreement
    In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. The transaction form involves the sale of receivables by the repo subsidiary and the commitment to repurchase at the end of the applicable repurchase term, which may extend up to one month. The transaction is accounted for as a one-month secured borrowing. The outstanding borrowings bear interest at a rate of SOFR plus 1.25%. Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control and collection risk of the receivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing. UScellular will continue to report equipment installment plan receivables and any related balances on the Consolidated Balance Sheet. The expiration date of the repurchase agreement is in January 2023. During the nine months ended September 30, 2022, the repo subsidiary borrowed $110 million and repaid $50 million under the repurchase agreement. As of September 30, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million. The outstanding borrowings are included in Other current liabilities in the September 30, 2022 Consolidated Balance Sheet. As of September 30, 2022, UScellular held $558 million of assets available for inclusion in the repurchase facility; these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement.

    Consolidated VIEs

    U.S. Cellular

    UScellular formed USCC EIP LLC a(Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the 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. CellularUScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to USCC EIP LLC.  This SPE will aggregatethe Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, for further transfer into a separate bankruptcy remote securitization trust structure, performand performs 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 sells the acquisition ofeligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from U.S. Cellular affiliated entitiesthe creditors of UScellular, will 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. CellularUScellular 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. CellularUScellular 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 licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions:

    Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc. (Sunshine Spectrum), the general partner of Advantage Spectrum (former general partner was Frequency Advantage, L.P. (Frequency Advantage));
  • Aquinas Wireless, L.P. (Aquinas Wireless);Spectrum; and
  • King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.

    37

    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. CellularUScellular subsidiary, to sell or lease certain wireless spectrum 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. CellularUScellular has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that U.S. CellularUScellular 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, U.S. Cellular consolidates Sunshine Spectrum in its financial statements. 

    U.S. CellularUScellular 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. CellularUScellular 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 also 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’sUScellular’s Consolidated Balance Sheet.

     

     

     

    September 30,

     

    December 31,

     

     

     

    2017

     

    2016

    (Dollars in millions)

     

     

     

     

     

    Assets

     

     

     

     

     

     

    Cash and cash equivalents

    $

    1 

     

    $

    2 

     

    Accounts receivable

     

    433 

     

     

    44 

     

    Other current assets

     

    6 

     

     

    6 

     

    Assets held for sale

     

    3 

     

     

    2 

     

    Licenses

     

    652 

     

     

    652 

     

    Property, plant and equipment, net

     

    97 

     

     

    105 

     

    Other assets and deferred charges

     

    265 

     

     

    16 

     

     

    Total assets

    $

    1,457 

     

    $

    827 

     

     

     

     

     

     

     

     

    Liabilities

     

     

     

     

     

     

    Current liabilities

    $

    39 

     

    $

    21 

     

    Deferred liabilities and credits

     

    13 

     

     

    13 

     

     

    Total liabilities

    $

    52 

     

    $

    34 

    September 30, 2022December 31, 2021
    (Dollars in millions)
    Assets
    Cash and cash equivalents$23 $22 
    Accounts receivable701 693 
    Inventory, net4 
    Other current assets35 44 
    Licenses640 639 
    Property, plant and equipment, net132 124 
    Operating lease right-of-use assets45 47 
    Other assets and deferred charges441 383 
    Total assets$2,021 $1,954 
    Liabilities
    Current liabilities$93 $30 
    Long-term operating lease liabilities40 41 
    Other deferred liabilities and credits30 25 
    Total liabilities1
    $163 $96 
    1    Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 10 – Debt for additional information.
    Unconsolidated VIEs

    U.S. Cellular

    UScellular 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

    UScellular’s total investment in these unconsolidated entities was $4$5 million and $6$4 million at September 30, 20172022 and December 31, 2016,2021, respectively, and is included in Investments in unconsolidated entities in U.S. Cellular’sUScellular’s Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by U.S. CellularUScellular in those entities. 

    Other Related Matters

    U.S. Cellular

    UScellular made contributions, loans and/or advances to its VIEs totaling $724$291 million of which $701 million is related to USCC EIP LLC as discussed above, and $100$64 million, during the nine months ended September 30, 20172022 and September 30, 2016, respectively.  U.S. Cellular2021, respectively, of which $269 million in 2022 and $32 million in 2021, are related to USCC EIP LLC as discussed above. UScellular 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 wireless spectrum licenses granted in various auctions. U.S. CellularUScellular may finance such amounts with a combination of cash on hand, borrowings under its revolving credit agreementor receivables securitization agreements and/or other long-term debt. There is no assurance that U.S. CellularUScellular will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.



    38


    The limited partnership agreement of Advantage Spectrum also provides the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of UScellular, to purchase its interest in the limited partnership. In June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage Spectrum will now be exercisable in the third quarter of 2023, and if not exercised at that time, will be exercisable in the third quarter of 2024. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to UScellular, is recorded as Noncontrolling interests with redemption features in UScellular’s Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put option, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in UScellular’s Consolidated Statement of Operations.
    39

    United States Cellular Corporation

    Additional Required Information

    Controls and Procedures

    Evaluation of Disclosure Controls and Procedures

    U.S. Cellular

    UScellular 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’sUScellular’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. CellularUScellular 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’sUScellular’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, U.S. Cellular’sUScellular’s principal executive officer and principal financial officer concluded that U.S. Cellular’sUScellular’s disclosure controls and procedures were effective as of September 30, 2017,2022, 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 quarterthree months ended September 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, U.S. Cellular’sUScellular’s internal control over financial reporting.

    Legal Proceedings

    In April 2018, the United States Department of Justice (DOJ) notified UScellular and its parent, TDS, that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is/was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed UScellular and TDS that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. UScellular believes that its arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, UScellular cannot predict the outcome of any proceeding.
    Refer to the disclosure under Legal Proceedings in U.S. Cellular’sUScellular’s Form 10-K for the year ended December 31, 2016.2021, for additional information. There have been no material changes to such information since December 31, 2016.

    2021.
    40


    Unregistered Sales of Equity Securities and Use of Proceeds

    In November 2009, U.S. CellularUScellular announced by Form 8-K that the Board of Directors of U.S. CellularUScellular authorized the repurchase of up to 1,300,000 additional Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis. In December 2016, the U.S. CellularUScellular Board amended this authorization to provide that, beginning on January 1, 2017, the number of sharesincrease in the 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,Common Shares, as determined by the Pricing Committee of the Board of Directors, and that if the Pricing Committee did not specify an additional amount for any year, such additional amount would be zero for such year. The Pricing Committee didhas not specifyspecified any amount as of January 1, 2017.increase in the authorization since that time. 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. 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. CellularUScellular did not determine to terminate the foregoing Common Share repurchase program, as amended, or cease making further purchases thereunder, during the third quarter of 2017.

    2022.

    The following table provides certain information with respect to all purchases made by or on behalf of U.S. Cellular,UScellular, and any open market purchases made by any “affiliated purchaser”"affiliated purchaser" (as defined by the SEC) of U.S. Cellular,UScellular, of U.S. CellularUScellular Common Shares during the quarter covered by this Form 10-Q.

    Period

     

    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

     

     

     

    $

     

     

     

     

    5,900,849 

    August 1 – 31, 2017

     

     

     

     

     

     

     

     

    5,900,849 

    September 1 – 30, 2017

     

     

     

     

     

     

     

     

    5,900,849 

     

    Total for or as of the end of the quarter ended September 30, 2017

     

     

     

    $

     

     

     

     

    5,900,849 



    39

    PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
    July 1 - 31, 2022230,012$28.41 230,0122,628,171
    August 1 - 31, 2022$— 2,628,171
    September 1 - 30, 2022122,623$26.93 122,6232,505,548
    Total for or as of the end of the quarter ended September 30, 2022352,635$27.89 352,6352,505,548


    41

    Other Information

    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 third quarter of 2017 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, or as of the filing date of this Form 10-Q. 


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    Exhibits



    Exhibits

    Exhibit

    Number

    Description of Documents

    Exhibit 10.1

    3.1

    Exhibit 10.2

    Form of 2013 Long-Term Incentive Plan 2017 Restricted Stock Unit Award Agreement for Officers other than the President and CEO is hereby incorporated by reference to Exhibit 10.2 to U.S. Cellular’s Current Report on Form 8-K dated March 13, 2017.

    Exhibit 10.3

    Form of 2013 Long-Term Incentive Plan 2017 Performance Award Agreement for the President and CEO is hereby incorporated by reference to Exhibit 10.1 to U.S. Cellular’s Current Report on Form 8-K dated April 3, 2017.

    Exhibit 10.4

    Form of 2013 Long-Term Incentive Plan 2017 Restricted Stock Unit Award Agreement for the President and CEO is hereby incorporated by reference to Exhibit 10.2 to U.S. Cellular’s Current Report on Form 8-K dated April 3, 2017.

    Exhibit 10.5

    U.S. Cellular 2017 Executive Officer Annual Incentive Plan effective January 1, 2017, is hereby incorporated by reference to Exhibit 10.1 to U.S. Cellular’s Current Report on Form 8-K dated May 15, 2017.

    Exhibit 10.6

    Offer Letter dated June 6, 2017, between U.S. Cellular and Jay Spenchian.

    Exhibit 10.7

    U.S. Cellular Amended and Restated Compensation Plan for Non-Employee Directors.

    Exhibit 11

    Statement regarding computation of per share earnings is included herein as Note 4 — Earnings Per Share in the Notes to Consolidated Financial Statements.

    Exhibit 12

    Statement regarding computation of ratio of earnings to fixed charges.

    Exhibit 18

    Preferability letter from Independent Registered Public Accounting Firm is hereby incorporated by reference to Exhibit 18 to U.S. Cellular’s Quarterly Report on Form 10-Q for the period ended March 31, 2017.

    Exhibit 31.1

    Exhibit 31.2

    Exhibit 32.1

    Exhibit 32.2

    Exhibit 101.INS

    XBRL Instance Document

    - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

    Exhibit 101.SCH

    Inline XBRL Taxonomy Extension Schema Document

    Exhibit 101.PRE

    Inline XBRL Taxonomy Presentation Linkbase Document

    Exhibit 101.CAL

    Inline XBRL Taxonomy Calculation Linkbase Document

    Exhibit 101.LAB

    Inline XBRL Taxonomy Label Linkbase Document

    Exhibit 101.DEF

    Inline XBRL Taxonomy Extension Definition Linkbase Document

    Exhibit 104Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the inline 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.  Reference is made to U.S. Cellular’s Form 10-K for the year ended December 31, 2016, for a complete list of exhibits, which are incorporated herein except to the extent supplemented or superseded above.


    41

    42




    Form 10-Q Cross Reference Index

    Item Number

    Page No.

    Part I.

    Financial Information

    Part II.

    Other Information

    Item 5.

    Other Information

    40


    42

    43




    SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    UNITED STATES CELLULAR CORPORATION

    (Registrant)

    (Registrant)

    Date:

    November 8, 2017

    3, 2022

    //s/ Kenneth R. Meyers

    Laurent C. Therivel

    Kenneth R. Meyers

    Laurent C. Therivel
    President and Chief Executive Officer

    (principal executive officer)

    Date:

    November 8, 2017

    3, 2022

    /s/ Steven T. Campbell

    Douglas W. Chambers

    Steven T. Campbell

    Douglas W. Chambers
    Executive Vice President-Finance,

    President, Chief Financial Officer and Treasurer


    (principal financial officer)

    Date:

    November 8, 2017

    /s/ Douglas D. Shuma

    Douglas D. Shuma

    Chief Accounting Officer

    (principal accounting officer)

    Date:

    November 8, 2017

    /s/ Douglas W. Chambers

    Douglas W. Chambers

    Vice President and Controller


    44