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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||||||||
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(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||||||||||||||||||
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| Trading Symbol | Name of each exchange on which registered | |||||||||||||||||||||||||||||||||||
| USM | New York Stock Exchange | |||||||||||||||||||||||||||||||||||
| 6.25% Senior Notes due 2069 | UZD | New York Stock Exchange | |||||||||||||||||||||||||||||||||||
| UZE | New York Stock Exchange | |||||||||||||||||||||||||||||||||||
| 5.50% Senior Notes due 2070 | UZF | New York Stock Exchange | |||||||||||||||||||||||||||||||||||
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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. |
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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. | ||||||||||||||||||||||||||||||||||||
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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. |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
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United States Cellular Corporation | |||||||
Quarterly Report on Form 10-Q | |||||||
For the Period Ended September 30, | |||||||
Index | Page No. | ||||||
 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
U.S. Cellular
U.S. Cellular
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 | ||
U.S. Cellular’s
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:
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.
The following is a list of definitions of certain industry terms that are used throughout this document:
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| 2017 | 2016 | 2017 | 2016 | |||||
| Postpaid Activity and Churn |
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As of September 30, |
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Retail Connections – End of Period |
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| Postpaid |
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| Churn: | 1.16% | 1.34% | 1.19% | 1.27% | ||||
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| Prepaid |
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| Handsets | 0.96% | 1.22% | 0.98% | 1.17% | ||
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| Total |
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| Connected Devices | 2.33% | 2.04% | 2.41% | 1.97% | ||
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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.
| Three Months Ended |
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| Nine Months Ended | ||||||||
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| September 30, |
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| September 30, | |||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Average Revenue Per User (ARPU) | $ |
| $ |
| $ |
| $ | |||||
Average Billings Per User (ABPU)1 | $ |
| $ |
| $ |
| $ | |||||
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Average Revenue Per Account (ARPA) | $ |
| $ |
| $ |
| $ | |||||
Average Billings Per Account (ABPA)1 | $ |
| $ |
| $ |
| $ | |||||
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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.
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| Three Months Ended |
| Nine Months Ended | |||||||||||||
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| September 30, |
| September 30, | ||||||||||||
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| 2017 vs. |
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(Dollars in millions) |
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Retail service |
| $ |
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| (7)% |
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Inbound roaming |
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Other1 |
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| 12% |
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| Service revenues1 |
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Equipment sales |
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| Total operating revenues1 |
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System operations (excluding Depreciation, amortization and accretion reported below) |
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Cost of equipment sold |
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Selling, general and administrative |
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| (5)% |
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Depreciation, amortization and accretion |
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Loss on impairment of goodwill |
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| N/M |
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(Gain) loss on asset disposals, net |
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| (26)% |
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| (17)% | |||||||
(Gain) loss on sale of business and other exit costs, net |
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(Gain) loss on license sales and exchanges, net |
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| 100% |
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| (16)% | |||||||
| Total operating expenses |
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| 32% |
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| 8% | ||||||
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Operating income (loss)¹ |
| $ |
| $ |
| >(100)% |
| $ |
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Net income (loss) |
| $ |
| $ |
| >(100)% |
| $ |
| $ |
| >(100)% | |||||||
Adjusted OIBDA (Non-GAAP)1,2 |
| $ |
| $ |
| (6)% |
| $ |
| $ |
| – | |||||||
Adjusted EBITDA (Non-GAAP)2 |
| $ |
| $ |
| (6)% |
| $ |
| $ |
| (1)% | |||||||
Capital expenditures |
| $ |
| $ |
| 8% |
| $ |
| $ |
| (7)% | |||||||
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N/M - Percentage change not meaningful | |||||||||||||||||||
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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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2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. | ||||||||||||||||||
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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.
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.
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| Three Months Ended | Nine Months Ended | |||||||||||||
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| September 30, |
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| 2017 vs. |
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(Dollars in millions) |
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Operating income (loss)¹ |
| $ |
| $ |
| >(100)% | $ |
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| >(100)% | ||||||||
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Equity in earnings of unconsolidated entities |
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| (7)% |
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| (8)% | ||||||||
Interest and dividend income1 |
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| 68% |
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| 45% | ||||||||
Interest expense |
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| (2)% |
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| (1)% | ||||||||
Other, net |
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| 29% |
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| (9)% | ||||||||
Total investment and other income1 |
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| (21)% |
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Income (loss) before income taxes |
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| >(100)% | ||||||||
Income tax expense (benefit) |
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| >(100)% |
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Net income (loss) |
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| >(100)% |
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| >(100)% | ||||||||
Less: Net income (loss) attributable to noncontrolling interests, net of tax |
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| (9)% |
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| >100% | ||||||||
Net income (loss) attributable to U.S. Cellular shareholders |
| $ |
| $ |
| >(100)% | $ |
| $ |
| >(100)% | ||||||||
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1 | Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. | ||||||||||||||||||
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents U.S. Cellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for by the equity method. U.S. Cellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed $17 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:
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| Nine Months Ended | ||||||
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| September 30, | |||||
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| Amount | Rate |
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| Amount | Rate |
(Dollars in millions) |
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Pretax income (loss) | $ | N/A |
| $ | N/A | |||
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Statutory federal income tax expense (benefit) and rate |
| 35.0 % |
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| 35.0% | |||
Goodwill impairment1 |
| (27.3)% |
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| 0.0% | |||
Other differences, net |
| (0.7)% |
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| 6.4% | |||
Total tax expense (benefit) and rate | $ | 7.0 % |
| $ | 41.4% | |||
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1 | Goodwill impairment reflects an adjustment to increase federal and state income tax expense by $76 million related to a portion of the goodwill impairment U.S. Cellular recorded which is nondeductible for tax purposes. See Note 6 - Intangible Assets for a detailed discussion regarding the goodwill impairment. | |||||||
Liquidity and Capital Resources
Sources of Liquidity
U.S. Cellular operates a capital-intensive business. Historically, U.S. Cellular has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes. In the past, U.S. Cellular’s existing cash and investment balances, funds available under its revolving credit facility, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating, certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for U.S. Cellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of spectrum licenses. There is no assurance that this will be the case in the future. See Market Risk for additional information regarding maturities of long-term debt.
Although U.S. Cellular currently has a significant cash balance, in certain recent periods, U.S. Cellular has incurred negative free cash flow (non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment) 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.
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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:
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|
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. Cellular▪UScellular 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
| As of September 30, | 2022 | 2021 | |||||||||||||||
| Retail Connections – End of Period | |||||||||||||||||
| Postpaid | 4,264,000 | 4,391,000 | |||||||||||||||
| Prepaid | 493,000 | 518,000 | |||||||||||||||
| Total | 4,757,000 | 4,909,000 | |||||||||||||||
| Q3 2022 | Q3 2021 | Q3 2022 vs. Q3 2021 | YTD 2022 | YTD 2021 | YTD 2022 vs. YTD 2021 | |||||||||||||||||||||||||||
| Postpaid Activity and Churn | ||||||||||||||||||||||||||||||||
| Gross Additions | ||||||||||||||||||||||||||||||||
| Handsets | 107,000 | 105,000 | 2 | % | 292,000 | 309,000 | (6) | % | ||||||||||||||||||||||||
| Connected Devices | 44,000 | 40,000 | 10 | % | 113,000 | 118,000 | (4) | % | ||||||||||||||||||||||||
| Total Gross Additions | 151,000 | 145,000 | 4 | % | 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 | ||||||||||||||||||||||||||||||||
| Handsets | 1.15 | % | 0.95 | % | 1.12 | % | 0.92 | % | ||||||||||||||||||||||||
| Connected Devices | 3.40 | % | 2.59 | % | 2.94 | % | 2.60 | % | ||||||||||||||||||||||||
| Total Churn | 1.42 | % | 1.15 | % | 1.34 | % | 1.13 | % | ||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||
| Average Revenue Per User (ARPU) | $ | 50.21 | $ | 48.12 | 4 % | $ | 49.99 | $ | 47.83 | 5 | % | ||||||||||||||||||||||||
| Average Revenue Per Account (ARPA) | $ | 130.27 | $ | 125.99 | 3 % | $ | 130.20 | $ | 125.50 | 4 | % | ||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
Retail service1 | $ | 696 | $ | 697 | — | $ | 2,098 | $ | 2,064 | 2 | % | ||||||||||||||||||||||||
| Inbound roaming | 17 | 30 | (43) | % | 56 | 86 | (36) | % | |||||||||||||||||||||||||||
Other1 | 68 | 61 | 11 | % | 197 | 183 | 8 | % | |||||||||||||||||||||||||||
| Service revenues | 781 | 788 | (1) | % | 2,351 | 2,333 | 1 | % | |||||||||||||||||||||||||||
| Equipment sales | 302 | 228 | 32 | % | 769 | 720 | 7 | % | |||||||||||||||||||||||||||
| Total operating revenues | 1,083 | 1,016 | 7 | % | 3,120 | 3,053 | 2 | % | |||||||||||||||||||||||||||
| System operations (excluding Depreciation, amortization and accretion reported below) | 197 | 205 | (4) | % | 574 | 594 | (3) | % | |||||||||||||||||||||||||||
| Cost of equipment sold | 354 | 252 | 40 | % | 887 | 786 | 13 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 369 | 346 | 7 | % | 1,032 | 984 | 5 | % | |||||||||||||||||||||||||||
| Depreciation, amortization and accretion | 177 | 160 | 10 | % | 520 | 510 | 2 | % | |||||||||||||||||||||||||||
| Loss on impairment of licenses | — | — | — | 3 | — | N/M | |||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net | 1 | 8 | (89) | % | 9 | 15 | (43) | % | |||||||||||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net | — | — | 8 | % | (1) | (1) | 40 | % | |||||||||||||||||||||||||||
| Total operating expenses | 1,098 | 971 | 13 | % | 3,024 | 2,888 | 5 | % | |||||||||||||||||||||||||||
| 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 | % | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Operating income (loss) | $ | (15) | $ | 45 | N/M | $ | 96 | $ | 165 | (42) | % | ||||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 40 | 48 | (17) | % | 122 | 137 | (11) | % | |||||||||||||||||||||||||||
| Interest and dividend income | 2 | 1 | 37 | % | 5 | 5 | 11 | % | |||||||||||||||||||||||||||
| Interest expense | (42) | (45) | 6 | % | (115) | (144) | 20 | % | |||||||||||||||||||||||||||
| Total investment and other income (expense) | — | 4 | N/M | 12 | (2) | N/M | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | (15) | 49 | N/M | 108 | 163 | (34) | % | ||||||||||||||||||||||||||||
| Income tax expense (benefit) | (3) | 14 | N/M | 46 | 31 | 48 | % | ||||||||||||||||||||||||||||
| Net income (loss) | (12) | 35 | N/M | 62 | 132 | (53) | % | ||||||||||||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests, net of tax | — | 1 | (38) | % | 4 | 4 | 12 | % | |||||||||||||||||||||||||||
| Net income (loss) attributable to UScellular shareholders | $ | (12) | $ | 34 | N/M | $ | 58 | $ | 128 | (55) | % | ||||||||||||||||||||||||
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.
| (Dollars in millions) | ||||||||
| Revolving Credit Agreement | $ | 300 | ||||||
| Receivables Securitization Agreement | 250 | |||||||
| Repurchase Agreement | 140 | |||||||
| Total undrawn borrowing capacity | $ | 690 | ||||||
U.S. Cellular
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
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 | |||||
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| September 30, | ||||
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| 2017 |
| 2016 | ||
Number of shares |
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| ||||
Average cost per share | $ |
| $ | |||
Dollar amount (in millions) | $ |
| $ | |||
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.
U.S. Cellular
20172021.
U.S. Cellular’s
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 financing activities were $10$28 million primarily for scheduled repayments of debt.
2016Common Shares.
U.S. Cellular’s
The net cash provided by operating activities was offset by
Cash flows used for financing activities were $7 million, reflecting ordinary activity such as scheduled repayments of debt.
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.
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 | |||||
| (Dollars in millions) | |||||
| Balance at December 31, 2021 | $ | 2,728 | |||
| Borrowings under Revolving Credit Agreements | 75 | ||||
| Borrowings under Term Loan Agreements | 500 | ||||
| Borrowings under Export Credit Financing Agreement | 150 | ||||
| Repayments under Revolving Credit Agreements | (75) | ||||
| Repayments under Receivables Securitization Agreement | (250) | ||||
| Other | (13) | ||||
| Balance at September 30, 2022 | $ | 3,115 | |||
U.S. Cellular
Following are explanations of each of these measures.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income (loss) (GAAP) | $ | (12) | $ | 35 | $ | 62 | $ | 132 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income tax expense (benefit) | (3) | 14 | 46 | 31 | |||||||||||||||||||
| Interest expense | 42 | 45 | 115 | 144 | |||||||||||||||||||
| Depreciation, amortization and accretion | 177 | 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, net | 1 | 8 | 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 entities | 40 | 48 | 122 | 137 | |||||||||||||||||||
| Interest and dividend income | 2 | 1 | 5 | 5 | |||||||||||||||||||
| Adjusted OIBDA (Non-GAAP) | 163 | 213 | 627 | 689 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 177 | 160 | 520 | 510 | |||||||||||||||||||
| Loss on impairment of licenses | — | — | 3 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 1 | 8 | 9 | 15 | |||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net | — | — | (1) | (1) | |||||||||||||||||||
| Operating income (loss) (GAAP) | $ | (15) | $ | 45 | $ | 96 | $ | 165 | |||||||||||||||
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Operating income (loss) (GAAP)¹ | $ |
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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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Less: Cash paid for additions to property, plant and equipment |
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| Free cash flow (Non-GAAP) | $ |
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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.
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(Dollars and connection counts in millions) |
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Calculation of Postpaid ARPU |
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Postpaid service revenues | $ |
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| Total billings to postpaid connections | $ |
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Calculation of Postpaid ABPA |
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Postpaid service revenues | $ |
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| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in millions) | |||||||||||
| Cash flows from operating activities (GAAP) | $ | 652 | $ | 667 | |||||||
| Less: Cash paid for additions to property, plant and equipment | 409 | 456 | |||||||||
| Free cash flow (Non-GAAP) | $ | 243 | $ | 211 | |||||||
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, | ||||||||
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| 2016 | 2017 |
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Goodwill impairment: |
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| Loss on impairment of goodwill | $ |
| $ |
| $ |
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| Tax benefit on impairment of goodwill1 |
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| Goodwill impairment, net of tax (Non-GAAP) | $ |
| $ |
| $ |
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1 | Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment. | |||||||||||
Effective January 1, 2017, U.S. Cellular elected to change2021.
Goodwill Interim Impairment Assessment
U.S. Cellular adopted ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment,in the third quarter of 2017 and applied the guidance to interim goodwill impairment tests. During the third quarter of 2017, U.S. Cellular recorded a loss on impairment of goodwill of $370 million. Further, U.S. Cellular’s asset group was assessed for recoverability, which resulted in no impairment. See Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements for additional details.
Management continues to monitor industry conditions and other economic factors such as the success of new and existing products and services, competition, and/or operational difficulties for negative trends. Such trends if identified, could adversely influence future forecasted cash flows, market prices on key assets such as spectrum licenses or recoverability of long-lived assets, which could result in possible impairments of such assets in future periods.
Recent Accounting Pronouncements
See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.
FCC Auction 1002
U.S. Cellular was a bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002, which concluded in March 2017. In April 2017,2, 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.
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.
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.
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. 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 $ $ $ $ Equipment sales Total operating revenues Operating expenses System operations (excluding Depreciation, amortization and accretion reported below) Cost of equipment sold Selling, general and administrative (including charges from affiliates of $20 million and $21 million, respectively, for the three months, and $62 million and $69 million, respectively, for the nine months) Depreciation, amortization and accretion Loss on impairment of goodwill (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges, net Total operating expenses Operating income (loss) Investment and other income (expense) Equity in earnings of unconsolidated entities Interest and dividend income Interest expense Other, net Total investment and other income Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Less: Net income (loss) attributable to noncontrolling interests, net of tax Net income (loss) attributable to U.S. Cellular shareholders $ $ $ $ Basic weighted average shares outstanding Basic earnings (loss) per share attributable to U.S. Cellular shareholders $ $ $ $ Diluted weighted average shares outstanding Diluted earnings (loss) per share attributable to U.S. Cellular shareholders $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements.Quantitative and Qualitative Disclosures about Market RiskMarket RiskReferAs 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 Obligations1Weighted-Avg. Interest Rates on Long-Term Debt Obligations2(Dollars in millions) Remainder of 2022 $ 1 5.4 % 2023 13 4.7 % 2024 13 4.7 % 2025 13 4.7 % 2026 283 4.3 % Thereafter 2,671 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. 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.Financial StatementsConsolidated Statement of Operations(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Dollars and shares in millions, except per share amounts) | |||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||
| Service | $ | 781 | $ | 788 | $ | 2,351 | $ | 2,333 | |||||||||||||||
| Equipment sales | 302 | 228 | 769 | 720 | |||||||||||||||||||
| Total operating revenues | 1,083 | 1,016 | 3,120 | 3,053 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| System operations (excluding Depreciation, amortization and accretion reported below) | 197 | 205 | 574 | 594 | |||||||||||||||||||
| Cost of equipment sold | 354 | 252 | 887 | 786 | |||||||||||||||||||
| Selling, general and administrative | 369 | 346 | 1,032 | 984 | |||||||||||||||||||
| Depreciation, amortization and accretion | 177 | 160 | 520 | 510 | |||||||||||||||||||
| Loss on impairment of licenses | — | — | 3 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 1 | 8 | 9 | 15 | |||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net | — | — | (1) | (1) | |||||||||||||||||||
| Total operating expenses | 1,098 | 971 | 3,024 | 2,888 | |||||||||||||||||||
| Operating income (loss) | (15) | 45 | 96 | 165 | |||||||||||||||||||
| Investment and other income (expense) | |||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 40 | 48 | 122 | 137 | |||||||||||||||||||
| Interest and dividend income | 2 | 1 | 5 | 5 | |||||||||||||||||||
| Interest expense | (42) | (45) | (115) | (144) | |||||||||||||||||||
| Total investment and other income (expense) | — | 4 | 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 | — | 1 | 4 | 4 | |||||||||||||||||||
| Net income (loss) attributable to UScellular shareholders | $ | (12) | $ | 34 | $ | 58 | $ | 128 | |||||||||||||||
| Basic weighted average shares outstanding | 85 | 86 | 86 | 87 | |||||||||||||||||||
| Basic earnings (loss) per share attributable to UScellular shareholders | $ | (0.15) | $ | 0.39 | $ | 0.68 | $ | 1.48 | |||||||||||||||
| Diluted weighted average shares outstanding | 85 | 87 | 87 | 88 | |||||||||||||||||||
| Diluted earnings (loss) per share attributable to UScellular shareholders | $ | (0.15) | $ | 0.38 | $ | 0.67 | $ | 1.46 | |||||||||||||||
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| Nine Months Ended | |||||
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| September 30, | ||||
| 2017 |
| 2016 | ||||||
(Dollars in millions) |
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Cash flows from operating activities |
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| Net income (loss) | $ |
| $ | |||||
| Add (deduct) adjustments to reconcile net income (loss) to net cash flows |
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| from operating activities |
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| Depreciation, amortization and accretion |
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| Bad debts expense |
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| Stock-based compensation expense |
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| Deferred income taxes, net |
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| Equity in earnings of unconsolidated entities |
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| Distributions from unconsolidated entities |
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| Loss on impairment of goodwill |
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| (Gain) loss on asset disposals, net |
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| (Gain) loss on sale of business and other exit costs, net |
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| (Gain) loss on license sales and exchanges, net |
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| Noncash interest |
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| Other operating activities |
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| Changes in assets and liabilities from operations |
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| Accounts receivable |
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| Equipment installment plans receivable |
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| Inventory |
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| Accounts payable |
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| Customer deposits and deferred revenues |
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| Accrued taxes |
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| Accrued interest |
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| Other assets and liabilities |
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| Net cash provided by operating activities |
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Cash flows from investing activities |
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| Cash paid for additions to property, plant and equipment |
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| Cash paid for licenses |
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| Cash paid for investments |
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| Cash received from divestitures and exchanges |
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| Federal Communications Commission deposit |
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| Net cash used in investing activities |
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Cash flows from financing activities |
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| Repayment of long-term debt |
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| Common shares reissued for benefit plans, net of tax payments |
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| Common shares repurchased |
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| |||||
| Payment of debt issuance costs |
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| |||||
| Distributions to noncontrolling interests |
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| Other financing activities |
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| |||||
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| Net cash used in financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents |
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| Beginning of period |
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| |||||
| End of period | $ |
| $ | |||||
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The accompanying notes are an integral part of these consolidated financial statements. | |||||||||
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (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 accretion | 520 | 510 | |||||||||
| Bad debts expense | 93 | 34 | |||||||||
| Stock-based compensation expense | 18 | 20 | |||||||||
| Deferred income taxes, net | 31 | 47 | |||||||||
| Equity in earnings of unconsolidated entities | (122) | (137) | |||||||||
| Distributions from unconsolidated entities | 100 | 106 | |||||||||
| Loss on impairment of licenses | 3 | — | |||||||||
| (Gain) loss on asset disposals, net | 9 | 15 | |||||||||
| (Gain) loss on sale of business and other exit costs, net | (1) | (1) | |||||||||
| Other operating activities | 6 | 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 revenues | 27 | 10 | |||||||||
| Accrued taxes | 134 | (36) | |||||||||
| Accrued interest | 10 | 7 | |||||||||
| Other assets and liabilities | 25 | (23) | |||||||||
| Net cash provided by operating activities | 652 | 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 | — | 3 | |||||||||
| Cash received from divestitures and exchanges | 8 | 2 | |||||||||
| Advance payments for license acquisitions | — | (20) | |||||||||
| Other investing activities | — | 2 | |||||||||
| Net cash used in investing activities | (976) | (1,732) | |||||||||
| Cash flows from financing activities | |||||||||||
| Issuance of long-term debt | 725 | 1,217 | |||||||||
| Repayment of long-term debt | (327) | (1,117) | |||||||||
| Issuance of short-term debt | 110 | — | |||||||||
| 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 activities | 414 | 37 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 90 | (1,028) | |||||||||
| Cash, cash equivalents and restricted cash | |||||||||||
| Beginning of period | 199 | 1,291 | |||||||||
| End of period | $ | 289 | $ | 263 | |||||||
September 30, |
| December 31, | ||||||
| 2017 |
| 2016 | |||||
(Dollars in millions) |
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| |||
Current assets |
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| |||
| Cash and cash equivalents | $ |
| $ | ||||
| Short-term investments |
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| ||||
| Accounts receivable |
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| ||||
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| Customers and agents, less allowances of $52 and $51, respectively |
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| |||
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| Roaming |
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| Affiliated |
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| Other, less allowances of $1 and $1, respectively |
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| |||
| Inventory, net |
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| Prepaid expenses |
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| Other current assets |
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| Total current assets |
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Assets held for sale |
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Licenses |
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Goodwill |
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Investments in unconsolidated entities |
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Property, plant and equipment |
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| In service and under construction |
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| ||||
| Less: Accumulated depreciation and amortization |
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| ||||
|
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| Property, plant and equipment, net |
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Other assets and deferred charges |
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Total assets1 | $ |
| $ | |||||
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The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| (Dollars in millions) | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 254 | $ | 156 | |||||||
| Accounts receivable | |||||||||||
| Customers and agents, less allowances of $66 and $57, respectively | 987 | 976 | |||||||||
| Roaming | 7 | 7 | |||||||||
| Other, less allowances of $2 and $2, respectively | 81 | 63 | |||||||||
| Inventory, net | 243 | 173 | |||||||||
| Prepaid expenses | 61 | 58 | |||||||||
| Income taxes receivable | 1 | 123 | |||||||||
| Other current assets | 41 | 49 | |||||||||
| Total current assets | 1,675 | 1,605 | |||||||||
| Assets held for sale | 29 | 18 | |||||||||
| Licenses | 4,680 | 4,088 | |||||||||
| Investments in unconsolidated entities | 461 | 439 | |||||||||
Property, plant and equipment | |||||||||||
| In service and under construction | 9,410 | 9,056 | |||||||||
| Less: Accumulated depreciation and amortization | 6,779 | 6,450 | |||||||||
| Property, plant and equipment, net | 2,631 | 2,606 | |||||||||
| Operating lease right-of-use assets | 932 | 959 | |||||||||
| Other assets and deferred charges | 648 | 626 | |||||||||
Total assets1 | $ | 11,056 | $ | 10,341 | |||||||
September 30, |
| December 31, | ||||||
| 2017 |
| 2016 | |||||
(Dollars and shares in millions, except per share amounts) |
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| |||
Current liabilities |
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| |||
| Current portion of long-term debt | $ |
| $ | ||||
| Accounts payable |
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| ||||
|
| Affiliated |
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| |||
|
| Trade |
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|
| |||
| Customer deposits and deferred revenues |
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| ||||
| Accrued taxes |
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| ||||
| Accrued compensation |
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| ||||
| Other current liabilities |
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| Total current liabilities |
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| ||
Deferred liabilities and credits |
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| |||||
| Deferred income tax liability, net |
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| ||||
| Other deferred liabilities and credits |
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| ||
Long-term debt, net |
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Commitments and contingencies |
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Noncontrolling interests with redemption features |
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| ||
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) |
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|
| ||
|
|
| Outstanding 85 shares (33 Series A Common and 52 Common Shares) |
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|
| ||
|
|
| Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares) |
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| ||
|
| Additional paid-in capital |
|
|
| |||
|
| Treasury shares, at cost, 3 Common Shares |
|
|
| |||
|
| Retained earnings |
|
|
| |||
|
|
| Total U.S. Cellular shareholders' equity |
|
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| ||
|
|
|
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|
| ||
| Noncontrolling interests |
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|
| ||||
|
|
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| ||
|
| Total equity |
|
|
| |||
|
|
|
|
|
|
| ||
Total liabilities and equity1 | $ |
| $ | |||||
|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
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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. | |||||||
| ||||||||
|
| |||||||
|
| |||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| (Dollars and shares in millions, except per share amounts) | |||||||||||
| Current liabilities | |||||||||||
| Current portion of long-term debt | $ | 11 | $ | 3 | |||||||
| Accounts payable | |||||||||||
| Affiliated | 8 | 14 | |||||||||
| Trade | 340 | 346 | |||||||||
| Customer deposits and deferred revenues | 218 | 191 | |||||||||
| Accrued taxes | 36 | 33 | |||||||||
| Accrued compensation | 62 | 83 | |||||||||
| Short-term operating lease liabilities | 133 | 129 | |||||||||
| Other current liabilities | 291 | 104 | |||||||||
| Total current liabilities | 1,099 | 903 | |||||||||
| Deferred liabilities and credits | |||||||||||
| Deferred income tax liability, net | 705 | 674 | |||||||||
| Long-term operating lease liabilities | 859 | 889 | |||||||||
| Other deferred liabilities and credits | 661 | 573 | |||||||||
| Long-term debt, net | 3,115 | 2,728 | |||||||||
| Commitments and contingencies | |||||||||||
| Noncontrolling interests with redemption features | 12 | 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 capital | 1,696 | 1,678 | |||||||||
| Treasury shares, at cost, 3 and 2 Common Shares, respectively | (85) | (68) | |||||||||
| Retained earnings | 2,890 | 2,849 | |||||||||
| Total UScellular shareholders' equity | 4,589 | 4,547 | |||||||||
| Noncontrolling interests | 16 | 16 | |||||||||
| Total equity | 4,605 | 4,563 | |||||||||
Total liabilities and equity1 | $ | 11,056 | $ | 10,341 | |||||||
| U.S. Cellular Shareholders |
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Balance, December 31, 2016 | $ |
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Balance, September 30, 2017 | $ |
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The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||||||
| 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 | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | — | (10) | — | (10) | — | (10) | ||||||||||||||||||||||||||||||||||
| Incentive and compensation plans | — | 4 | — | (1) | 3 | — | 3 | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | 88 | $ | 1,696 | $ | (85) | $ | 2,890 | $ | 4,589 | $ | 16 | $ | 4,605 | |||||||||||||||||||||||||||
(Unaudited)
| U.S. Cellular Shareholders |
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| Total U.S. Cellular shareholders' equity |
| Noncontrolling interests |
| Total equity | |||||||
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Balance, December 31, 2015 | $ |
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Net income attributable to U.S. Cellular shareholders |
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Balance, September 30, 2016 | $ |
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The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||||||
| 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 | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | — | (19) | — | (19) | — | (19) | ||||||||||||||||||||||||||||||||||
| Incentive and compensation plans | — | 8 | 3 | (6) | 5 | — | 5 | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | $ | 88 | $ | 1,671 | $ | (58) | $ | 2,822 | $ | 4,523 | $ | 16 | $ | 4,539 | |||||||||||||||||||||||||||
| 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 | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||
| 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 | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | — | (21) | — | (21) | — | (21) | ||||||||||||||||||||||||||||||||||
| Incentive and compensation plans | — | 20 | 30 | (45) | 5 | — | 5 | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (2) | (2) | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | $ | 88 | $ | 1,671 | $ | (58) | $ | 2,822 | $ | 4,523 | $ | 16 | $ | 4,539 | |||||||||||||||||||||||||||
2021. 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 $ $ $ $ Short-term Investments 1 Long-term debt Retail 2 Institutional 2 Other 2 Note 1 Basis of PresentationUnited 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.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 AgreementsCertain software licenses are recorded as described below.Equipment Installment PlansRecently Adopted Accounting PronouncementsIn December 2016, the FASB issued Accounting Standards Update 2016-19 Technical Corrections and Improvements (ASU 2016-19). ASU 2016-19 includes an amendment to Accounting Standards Codification Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which clarifies that a software license within the scope of the Subtopic will be accounted for as the acquisition of an intangible asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition. U.S. Cellular adopted this standard prospectively for all arrangements entered into or materially modified after January 1, 2017.In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 eliminates Step 2 of the current goodwill impairment test. Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted. U.S. Cellular elected to early adopt ASU 2017-04 and applied the new guidance to interim goodwill impairment testing performed during the third quarter of 2017. See Note 6 – Intangible Assets for the discussion of U.S. Cellular’s goodwill impairment.Recently Issued Accounting Pronouncements Not Yet AdoptedIn 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.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 AuthoritiesU.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 CashUScellular 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, 2022 December 31, 2021 (Dollars in millions) Cash and cash equivalents $ 254 $ 156 Restricted cash included in Other current assets 35 43 Cash, cash equivalents and restricted cash in the statement of cash flows $ 289 $ 199 30Note 2 Revenue RecognitionDisaggregation of RevenueIn 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 30,2022 2021 2022 2021 (Dollars in millions) Revenues from contracts with customers: Retail service1,2$ 696 $ 697 $ 2,098 $ 2,064 Inbound roaming 17 30 56 86 Other service145 40 129 122 Service revenues from contracts with customers 758 767 2,283 2,272 Equipment sales 302 228 769 720 Total revenues from contracts with customers 1,060 995 3,052 2,992 Operating lease income 23 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 BalancesThe 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, 2022 December 31, 2021 (Dollars in millions) Contract assets $ 5 $ 7 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 obligationsThe 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 2023 159 Thereafter 128 Total $ 412 31Contract Cost AssetsUScellular 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 MeasurementsAs 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.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.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 Hierarchy September 30, 2022 December 31, 2021 Book Value Fair Value Book Value Fair Value (Dollars in millions) Long-term debt Retail 2 $ 1,500 $ 1,155 $ 1,500 $ 1,594 Institutional 2 536 399 535 659 Other 2 1,136 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.
September 30, 2017 December 31, 2016 (Dollars in millions) Equipment installment plan receivables, gross $ $ Deferred interest Equipment installment plan receivables, net of deferred interest Allowance for credit losses Equipment installment plan receivables, net $ $ Net balance presented in the Consolidated Balance Sheet as: Accounts receivable — Customers and agents (Current portion) $ $ Other assets and deferred charges (Non-current portion) Equipment installment plan receivables, net $ $ September 30, 2017 December 31, 2016 Lower Risk Higher Risk Total Lower Risk Higher Risk Total (Dollars in millions) Unbilled $ $ $ $ $ $ Billed — current Billed — past due Equipment installment plan receivables, gross $ $ $ $ $ $ September 30, 2017 September 30, 2016 (Dollars in millions) Allowance for credit losses, beginning of period $ $ Bad debts expense Write-offs, net of recoveries Allowance for credit losses, end of period $ $ Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 (Dollars and shares in millions, except per share amounts) Net income (loss) attributable to U.S. Cellular shareholders $ $ $ $ Weighted average number of shares used in basic earnings (loss) per share Effects of dilutive securities Weighted average number of shares used in diluted earnings (loss) per share Basic earnings (loss) per share attributable to U.S. Cellular shareholders $ $ $ $ Diluted earnings (loss) per share attributable to U.S. Cellular shareholders $ $ $ $ (Dollars in millions) Balance at December 31, $ (3) Capitalized interest $ minus any impairments plus or minus any observable price changes. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 (Dollars in millions) Revenues $ $ $ $ Operating expenses Operating income Other expense, net Net income $ $ $ $ September 30, December 31, 2017 2016 (Dollars in millions) Assets Cash and cash equivalents $ $ Accounts receivable Other current assets Assets held for sale Licenses Property, plant and equipment, net Other assets and deferred charges Total assets $ $ Liabilities Current liabilities $ $ Deferred liabilities and credits Total liabilities $ $ 2022. Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs July 1 – 31, 2017 $ August 1 – 31, 2017 September 1 – 30, 2017 Total for or as of the end of the quarter ended September 30, 2017 $ Description of Documents Exhibit 31.1 XBRL Instance Document Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Presentation Linkbase Document Inline XBRL Taxonomy Calculation Linkbase Document Inline XBRL Taxonomy Label Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Page No. Part I. Financial Information Part II. Other Information Date: Date: /s/ President, Chief Financial Officer and TreasurerNote 34 Equipment Installment PlansU.S. CellularUScellular 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.U.S. Cellularreceivables.September 30, 2022 December 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, 2022 December 31, 2021 Lowest Risk Lower Risk Slight Risk Higher Risk Total Lowest Risk Lower Risk Slight Risk Higher Risk Total (Dollars in millions) Unbilled $ 974 $ 93 $ 23 $ 5 $ 1,095 $ 896 $ 94 $ 24 $ 5 $ 1,019 Billed — current 39 5 1 — 45 40 5 1 1 47 Billed — past due 11 6 3 1 21 10 6 2 1 19 Total $ 1,024 $ 104 $ 27 $ 6 $ 1,161 $ 946 $ 105 $ 27 $ 7 $ 1,085
the equipment installment plan receivables as of September 30, 2022 on a gross basis by year of origination were as follows:2019 2020 2021 2022 Total (Dollars in millions) Lowest Risk $ 1 $ 87 $ 380 $ 556 $ 1,024 Lower Risk — 6 40 58 104 Slight Risk — 1 6 20 27 Higher Risk — — 2 4 6 Total $ 1 $ 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, 2022 September 30, 2021 (Dollars in millions) Allowance for credit losses, beginning of period $ 72 $ 78 Bad debts expense 69 21 Write-offs, net of recoveries (54) (29) Allowance for credit losses, end of period $ 87 $ 70 33Note 5 Income TaxesThe 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 ShareBasic 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
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 (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 share 85 86 86 87 Effects of dilutive securities — 1 1 1 Weighted average number of shares used in diluted earnings (loss) per share 85 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 ExchangesIn 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 $186 million to the FCC and was granted the licenses during the second quarter of 2017.
2021.Activity related to Licenses and Goodwill for the nine months ended September 30, 2017,2022, is presented below. below:Licenses 20164,088 Acquisitions AcquisitionsImpairment Transferred to Assets held for sale 1 Exchanges - Licenses received 1 Exchanges - Licenses surrendered5 Balance at September 30, 201720224,680 (Dollars in millions)Balance December 31, 2016$Loss on impairmentBalance September 30, 2017$U.S. Cellular did not have any accumulated impairment losses prior to December 31, 2016. Goodwill Interim Impairment AssessmentU.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 plans34In 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.Revenue growth rate0.8%Terminal revenue growth rate2.0%Discount rate9.5%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 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 EntitiesInvestments 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.September 30, 2022 December 31, 2021 (Dollars in millions) Equity method investments $ 448 $ 431 Measurement alternative method investments 4 8 Investments recorded using the net asset value practical expedient 9 — Total investments in unconsolidated entities $ 461 $ 439 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 30,2022 2021 2022 2021 (Dollars in millions) Revenues $ 1,829 $ 1,756 $ 5,410 $ 5,225 Operating expenses 1,397 1,244 4,158 3,735 Operating income 432 512 1,252 1,490 Other income (expense), net (6) 6 (12) 15 Net income $ 426 $ 518 $ 1,240 $ 1,505 35Note 9 Asset Retirement ObligationsAsset 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 3 Revisions in estimated cash outflows 12 Disposition of assets (1) Accretion expense 13 Balance at September 30, 2022 $ 342 Note 10 DebtRevolving Credit AgreementThe 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 AgreementsThe 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 $ 3 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 AgreementIn 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.36UScellular 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 AgreementUScellular, 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 AgreementIn 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.Note 811 Variable Interest EntitiesConsolidated VIEsUScellular consolidates variable interest entities (VIEs)VIEs in which it has a controlling financial interestas defined by GAAP and is therefore deemed the primary beneficiary. AUScellular reviews the criteria for a controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. U.S. Cellular reviews these criteria initially at the time it enters into agreements and subsequently when events warranting reconsideration occur.These VIEshave risks similar to those described in the “Risk Factors” in U.S. Cellular’sthis Form 10-Q and UScellular’s Form 10-K for the year ended December 31, 2016.During the first quarter of 2017, U.S. Cellular2021.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.37These 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, 2022 December 31, 2021 (Dollars in millions) Assets Cash and cash equivalents $ 23 $ 22 Accounts receivable 701 693 Inventory, net 4 2 Other current assets 35 44 Licenses 640 639 Property, plant and equipment, net 132 124 Operating lease right-of-use assets 45 47 Other assets and deferred charges 441 383 Total assets $ 2,021 $ 1,954 Liabilities Current liabilities $ 93 $ 30 Long-term operating lease liabilities 40 41 Other deferred liabilities and credits 30 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 VIEsU.S. CellularUScellular 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’sUScellular’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 MattersU.S. CellularUScellular 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.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.39United States Cellular CorporationControls and ProceduresEvaluation of Disclosure Controls and ProceduresU.S. CellularUScellular 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 ReportingThere 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 ProceedingsIn 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, 2016.2021.40Unregistered Sales of Equity Securities and Use of ProceedsIn 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.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, 2022 230,012 $ 28.41 230,012 2,628,171 August 1 - 31, 2022 — $ — — 2,628,171 September 1 - 30, 2022 122,623 $ 26.93 122,623 2,505,548 Total for or as of the end of the quarter ended September 30, 2022 352,635 $ 27.89 352,635 2,505,548 41The 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. ExhibitNumberExhibit 10.13.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Offer Letter dated June 6, 2017, between U.S. Cellular and Jay Spenchian.Exhibit 10.7U.S. Cellular Amended and Restated Compensation Plan for Non-Employee Directors.Exhibit 11Exhibit 12Statement regarding computation of ratio of earnings to fixed charges.Exhibit 18Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Exhibit 101.INS Exhibit 101.SCH Exhibit 101.PRE Exhibit 101.CAL Exhibit 101.LAB Exhibit 101.DEF Exhibit 104 Cover 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.Form 10-Q Cross Reference IndexItem NumberSIGNATURESPursuant 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) November 8, 20173, 2022//s/ Kenneth R. MeyersKenneth R. MeyersLaurent C. TherivelPresident and Chief Executive Officer(principal executive officer)November 8, 20173, 2022Steven T. CampbellSteven T. CampbellDouglas W. Chambers
Executive Vice President-Finance,
(principal financial officer)Date:November 8, 2017/s/ Douglas D. ShumaDouglas D. ShumaChief Accounting Officer(principal accounting officer)Date:November 8, 2017/s/ Douglas W. ChambersDouglas W. ChambersVice President and Controller44
