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Share Name | Share Symbol | Market | Type |
---|---|---|---|
United States Cellular Corporation | NYSE:UZA | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 25.35 | 0 | 00:00:00 |
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(Mark One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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62-1147325
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Shares, $1 par value
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USM
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New York Stock Exchange
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6.95% Senior Notes due 2060
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UZA
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New York Stock Exchange
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7.25% Senior Notes due 2063
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UZB
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New York Stock Exchange
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7.25% Senior Notes due 2064
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UZC
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New York Stock Exchange
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United States Cellular Corporation
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Quarterly Report on Form 10-Q
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For the Period Ended March 31, 2020
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Index
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Page No.
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United States Cellular Corporation
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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•
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Taking action to keep associates safe, including implementing a work-from-home strategy for employees whose jobs can be performed remotely, including care center functions, supply chain functions, sales and marketing functions, certain engineering functions, finance and other administrative functions. In addition, to keep associates, customers, and communities safe, U.S. Cellular has closed certain retail stores, and stores that remain open have reduced store hours, implemented social distancing, and enhanced cleaning measures. Throughout this period of change, U.S. Cellular has continued serving its customers and ensuring its wireless network remains fully operational.
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•
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Participating in the FCC Keep Americans Connected Pledge not to turn-off service or charge late fees due to a customer’s inability to pay their bill due to circumstances related to COVID-19. This resulted in reduced service revenues and incremental bad debts expense in the three months ended March 31, 2020. U.S. Cellular has extended its commitments under the FCC Pledge through June 30, 2020, which is expected to result in additional defections and negative impacts to U.S. Cellular’s future financial results.
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•
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Waiving overage charges and certain other charges. This resulted in a minimal decrease to Service revenues during the three months ended March 31, 2020 and is expected to result in a decrease to Service revenues in the future.
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•
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Supporting the communities in which U.S. Cellular operates. Through U.S. Cellular’s partnership with the Boys & Girls Clubs, U.S. Cellular has contributed to the Boys & Girls Clubs’ COVID-19 Relief Fund to support children, families and communities. These funds will be dispersed directly to more than 50 Clubs in U.S. Cellular’s service regions to support the most immediate needs of youth in areas of importance such as providing food for children who rely on their Boys & Girls Clubs for their dinner, childcare for essential workers and first responders, and digital learning resources.
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•
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Recognizing income tax benefits associated with the enactment of the CARES Act. This legislation resulted in a reduction to income tax expense for the three months ended March 31, 2020. The CARES Act is also projected to result in a reduction of income tax expense recognized throughout the 2020 tax year as part of the estimated annual effective tax rate, and a cash refund in 2021 of taxes paid in prior years.
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•
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Monitoring its supply chain to assess impacts to availability and costs of device inventory and network equipment and services, including monitoring the dependency on third parties to continue network related projects. Various states' stay-at-home orders could cause delays in municipal permitting and other contractor work. At this time, U.S. Cellular expects to be able to meet customer demand for devices and services and to be able to continue its 4G LTE network modernization and 5G deployment with no significant disruptions.
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•
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Tracking increased customer usage and the impact of the removal of data caps. At this time, U.S. Cellular believes its network capacity is sufficient to accommodate expected increased usage.
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•
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Monitoring roaming behaviors. Both inbound and outbound roaming traffic have been dampened by COVID-19 as wireless customers are adhering to stay-at-home orders. The extent to which roaming traffic will be impacted in the future will depend upon the duration and pervasiveness of stay-at-home orders as well as customer behavior in response to the outbreak.
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Financial Overview — Income tax expense
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•
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Liquidity and Capital Resources
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•
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Risk Factors
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▪
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Serves customers with 4.9 million connections including 4.4 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections
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▪
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Operates in 21 states
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Employs approximately 5,500 associates
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4,184 owned towers
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6,629 cell sites in service
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U.S. Cellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as LTE home internet. In addition, U.S. Cellular is focused on expanding its solutions available to business and government customers, including a growing suite of connected machine-to-machine solutions and software applications across various categories.
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▪
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U.S. Cellular continues to devote efforts to enhance its network capabilities. VoLTE technology is now available to approximately 70% of U.S Cellular's subscribers, and deployments in additional operating markets are expected in 2020 and 2021. VoLTE technology allows customers to utilize a 4G LTE network for both voice and data services and offers enhanced services such as high definition voice and simultaneous voice and data sessions.
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U.S. Cellular has launched commercial 5G services in Iowa and Wisconsin and will continue to launch in additional areas throughout 2020 and beyond. 5G technology is expected to help address customers' growing demand for data services as well as create opportunities for new services requiring high speed, reliability and low latency. U.S. Cellular is working with leading companies in the wireless infrastructure and handset ecosystem to provide rich 5G experiences for customers, initially focused on mobility services and using its low band spectrum. At the same time, as discussed below, U.S. Cellular has begun acquiring high band spectrum to enable the delivery of additional 5G services in the future. In addition to the deployment of 5G technology, U.S. Cellular is also modernizing its 4G LTE network to further enhance 4G LTE speeds.
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U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions. On July 11, 2019, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 37, 39 and 47 GHz bands (Auction 103). On March 12, 2020, the FCC announced by public notice that U.S. Cellular was the provisional winning bidder for 237 wireless spectrum licenses for a purchase price of $146 million. The wireless spectrum licenses are expected to be granted by the FCC in 2020.
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4G LTE – fourth generation Long-Term Evolution, which is a wireless technology that enables more network capacity for more data per user as well as faster access to data compared to third generation (3G) technology.
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5G – fifth generation wireless technology that is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed and reliability as well as low latency.
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Account – represents an individual or business financially responsible for one or multiple associated connections. An account may include a variety of types of connections such as handsets and connected devices.
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Auction 103 – Auction 103 is an FCC auction of 37, 39, and 47 GHz wireless spectrum licenses that started in December 2019 and concluded in March 2020. The spectrum auctioned is expected to be used primarily to deliver 5G technology.
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Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
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Connections – individual lines of service associated with each device activated by a customer. Connections are associated with all types of devices that connect directly to the U.S. Cellular network.
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Connected Devices – non-handset devices that connect directly to the U.S. Cellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.
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Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.
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EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
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FCC Keep Americans Connected Pledge – voluntary FCC initiative in response to the COVID-19 pandemic to ensure that Americans do not lose their broadband or telephone connectivity as a result of the exceptional circumstance.
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Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
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Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
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Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.
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OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
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▪
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Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
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Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.
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Retail Connections – the sum of postpaid connections and prepaid connections.
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Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.
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VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.
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As of March 31,
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2020
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2019
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Retail Connections – End of Period
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Postpaid
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4,359,000
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4,440,000
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Prepaid
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494,000
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503,000
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Total
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4,853,000
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4,943,000
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Q1 2020
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Q1 2019
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Q1 2020 vs.
Q1 2019 |
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Postpaid Activity and Churn
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Gross Additions
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Handsets
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90,000
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102,000
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(12
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)%
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Connected Devices
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42,000
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35,000
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20
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%
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Total Gross Additions
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132,000
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137,000
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(4
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)%
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Net Additions (Losses)
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Handsets
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(20,000
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)
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(14,000
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)
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(43
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)%
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Connected Devices
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(6,000
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)
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(18,000
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)
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67
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%
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Total Net Additions (Losses)
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(26,000
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)
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(32,000
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)
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19
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%
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Churn
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Handsets
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0.95
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%
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0.99
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%
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Connected Devices
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3.11
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%
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3.08
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%
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Total Churn
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1.21
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%
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1.26
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%
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Three Months Ended
March 31, |
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2020
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2019
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2020 vs. 2019
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Average Revenue Per User (ARPU)
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$
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47.23
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$
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45.44
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4
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%
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Average Revenue Per Account (ARPA)
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$
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122.92
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$
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118.84
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3
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%
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Three Months Ended
March 31, |
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2020
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2019
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2020 vs. 2019
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(Dollars in millions)
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Retail service
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$
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671
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$
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659
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2
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%
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Inbound roaming
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37
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34
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10
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%
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Other
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54
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48
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12
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%
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Service revenues
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762
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741
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3
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%
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Equipment sales
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201
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225
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(10
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)%
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Total operating revenues
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963
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966
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–
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System operations (excluding Depreciation, amortization and accretion reported below)
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180
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176
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2
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%
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Cost of equipment sold
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217
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233
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(7
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)%
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Selling, general and administrative
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335
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326
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3
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%
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Depreciation, amortization and accretion
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177
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169
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5
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%
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(Gain) loss on asset disposals, net
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4
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2
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72
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%
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(Gain) loss on sale of business and other exit costs, net
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—
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(2
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)
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N/M
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(Gain) loss on license sales and exchanges, net
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—
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(2
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)
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N/M
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Total operating expenses
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913
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902
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1
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%
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Operating income
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$
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50
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$
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64
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(22
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)%
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Net income
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$
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72
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$
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58
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24
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%
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Adjusted OIBDA (Non-GAAP)1
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$
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231
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$
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231
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–
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Adjusted EBITDA (Non-GAAP)1
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$
|
281
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$
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281
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–
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Capital expenditures2
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$
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236
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$
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102
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N/M
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1
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Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
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2
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Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
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▪
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Retail Service - Charges for voice, data and value added services and recovery of regulatory costs
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▪
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Inbound Roaming - Charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming
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▪
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Other Service - Amounts received from the Federal USF, tower rental revenues, and miscellaneous other service revenues
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▪
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Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors
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Three Months Ended
March 31, |
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2020
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2019
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2020 vs. 2019
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(Dollars in millions)
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|
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|||||
Operating income
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$
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50
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$
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64
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(22
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)%
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|||||
Equity in earnings of unconsolidated entities
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45
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44
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3
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%
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Interest and dividend income
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4
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6
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(33
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)%
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Interest expense
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(24
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)
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(29
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)
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19
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%
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Other, net
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1
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—
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(86
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)%
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Total investment and other income
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26
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21
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23
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%
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|||||
Income before income taxes
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76
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85
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(11
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)%
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Income tax expense
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4
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27
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(86
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)%
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||
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|||||
Net income
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72
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|
58
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|
24
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%
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Less: Net income attributable to noncontrolling interests, net of tax
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1
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|
4
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(69
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)%
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Net income attributable to U.S. Cellular shareholders
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$
|
71
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$
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54
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|
30
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%
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▪
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Enhance and maintain U.S. Cellular's network coverage, including continuing to deploy VoLTE technology in certain markets and providing additional speed and capacity to accommodate increased data usage by current customers;
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▪
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Continue deploying 5G technology in its network; and
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▪
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Invest in information technology to support existing and new services and products.
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▪
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EBITDA
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▪
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Adjusted EBITDA
|
▪
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Adjusted OIBDA
|
▪
|
Free cash flow
|
|
Three Months Ended
March 31, |
||||||
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2020
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|
2019
|
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(Dollars in millions)
|
|
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|
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Net income (GAAP)
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$
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72
|
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|
$
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58
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|
Add back:
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|
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Income tax expense
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4
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|
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27
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Interest expense
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24
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29
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Depreciation, amortization and accretion
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177
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|
169
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|
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EBITDA (Non-GAAP)
|
277
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|
|
283
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Add back or deduct:
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|
||||
(Gain) loss on asset disposals, net
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4
|
|
|
2
|
|
||
(Gain) loss on sale of business and other exit costs, net
|
—
|
|
|
(2
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)
|
||
(Gain) loss on license sales and exchanges, net
|
—
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|
|
(2
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)
|
||
Adjusted EBITDA (Non-GAAP)
|
281
|
|
|
281
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|
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Deduct:
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|
||||
Equity in earnings of unconsolidated entities
|
45
|
|
|
44
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|
||
Interest and dividend income
|
4
|
|
|
6
|
|
||
Other, net
|
1
|
|
|
—
|
|
||
Adjusted OIBDA (Non-GAAP)
|
231
|
|
|
231
|
|
||
Deduct:
|
|
|
|
||||
Depreciation, amortization and accretion
|
177
|
|
|
169
|
|
||
(Gain) loss on asset disposals, net
|
4
|
|
|
2
|
|
||
(Gain) loss on sale of business and other exit costs, net
|
—
|
|
|
(2
|
)
|
||
(Gain) loss on license sales and exchanges, net
|
—
|
|
|
(2
|
)
|
||
Operating income (GAAP)
|
$
|
50
|
|
|
$
|
64
|
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Cash flows from operating activities (GAAP)
|
$
|
342
|
|
|
$
|
287
|
|
Less: Cash paid for additions to property, plant and equipment
|
315
|
|
|
107
|
|
||
Free cash flow (Non-GAAP)
|
$
|
27
|
|
|
$
|
180
|
|
▪
|
The impact of the COVID-19 pandemic on U.S. Cellular's business is uncertain, but depending on its duration and severity it could have a material adverse effect on U.S. Cellular's business, financial condition or results of operations.
|
▪
|
Intense competition in the markets in which U.S. Cellular operates could adversely affect U.S. Cellular’s revenues or increase its costs to compete.
|
▪
|
A failure by U.S. Cellular to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, divestitures and exchanges) or allocate resources or capital effectively could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Uncertainty in U.S. Cellular’s future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, other changes in U.S. Cellular’s performance or market conditions, changes in U.S. Cellular’s credit ratings 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 construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, and/or reduce or cease share repurchases.
|
▪
|
U.S. Cellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
|
▪
|
Changes in roaming practices or other factors could cause U.S. Cellular's roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact U.S. Cellular's ability to service its customers in geographic areas where U.S. Cellular does not have its own network, which could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.
|
▪
|
A failure by U.S. Cellular to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
To the extent conducted by the FCC, U.S. Cellular may participate in FCC auctions for additional spectrum or for funding in certain Universal Service programs in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on U.S. Cellular.
|
▪
|
Failure by U.S. Cellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
An inability to attract people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.
|
▪
|
U.S. Cellular’s assets and revenue are concentrated in the U.S. wireless telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
|
▪
|
U.S. Cellular’s smaller scale relative to larger competitors that may have greater financial and other resources than U.S. Cellular could cause U.S. Cellular to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
|
▪
|
Changes in various business factors, including changes in demand, consumer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Advances or changes in technology could render certain technologies used by U.S. Cellular obsolete, could put U.S. Cellular at a competitive disadvantage, could reduce U.S. Cellular’s revenues or could increase its costs of doing business.
|
▪
|
Complexities associated with deploying new technologies present substantial risk and U.S. Cellular investments in unproven technologies may not produce the benefits that U.S. Cellular expects.
|
▪
|
U.S. Cellular receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Changes in U.S. Cellular’s enterprise value, changes in the market supply or demand for wireless spectrum licenses, adverse developments in the business or the industry in which U.S. Cellular is involved and/or other factors could require U.S. Cellular to recognize impairments in the carrying value of its wireless spectrum licenses and/or physical assets.
|
▪
|
Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of U.S. Cellular’s business could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
A failure by U.S. Cellular to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
|
▪
|
Difficulties involving third parties with which U.S. Cellular does business, including changes in U.S. Cellular's relationships with or financial or operational difficulties of key suppliers or independent agents and third party national retailers who market U.S. Cellular’s services, could adversely affect U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
U.S. Cellular has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on U.S. Cellular’s financial condition or results of operations.
|
▪
|
A failure by U.S. Cellular to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
U.S. Cellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.
|
▪
|
Changes in facts or circumstances, including new or additional information, could require U.S. Cellular to record adjustments to amounts reflected in the financial statements, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede U.S. Cellular’s access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent U.S. Cellular from using necessary technology to provide products or services or subject U.S. Cellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
|
▪
|
There are potential conflicts of interests between TDS and U.S. Cellular.
|
▪
|
Certain matters, such as control by TDS and provisions in the U.S. Cellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of U.S. Cellular or have other consequences.
|
▪
|
The market price of U.S. Cellular’s Common Shares is subject to fluctuations due to a variety of factors.
|
▪
|
Any of the foregoing events or other events could cause revenues, earnings, capital expenditures and/or any other financial or statistical information to vary from U.S. Cellular’s forward-looking estimates by a material amount.
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars and shares in millions, except per share amounts)
|
|
|
|
||||
Operating revenues
|
|
|
|
||||
Service
|
$
|
762
|
|
|
$
|
741
|
|
Equipment sales
|
201
|
|
|
225
|
|
||
Total operating revenues
|
963
|
|
|
966
|
|
||
|
|
|
|
||||
Operating expenses
|
|
|
|
||||
System operations (excluding Depreciation, amortization and accretion reported below)
|
180
|
|
|
176
|
|
||
Cost of equipment sold
|
217
|
|
|
233
|
|
||
Selling, general and administrative (including charges from affiliates of $19 million and $20 million, respectively)
|
335
|
|
|
326
|
|
||
Depreciation, amortization and accretion
|
177
|
|
|
169
|
|
||
(Gain) loss on asset disposals, net
|
4
|
|
|
2
|
|
||
(Gain) loss on sale of business and other exit costs, net
|
—
|
|
|
(2
|
)
|
||
(Gain) loss on license sales and exchanges, net
|
—
|
|
|
(2
|
)
|
||
Total operating expenses
|
913
|
|
|
902
|
|
||
|
|
|
|
||||
Operating income
|
50
|
|
|
64
|
|
||
|
|
|
|
||||
Investment and other income (expense)
|
|
|
|
||||
Equity in earnings of unconsolidated entities
|
45
|
|
|
44
|
|
||
Interest and dividend income
|
4
|
|
|
6
|
|
||
Interest expense
|
(24
|
)
|
|
(29
|
)
|
||
Other, net
|
1
|
|
|
—
|
|
||
Total investment and other income
|
26
|
|
|
21
|
|
||
|
|
|
|
||||
Income before income taxes
|
76
|
|
|
85
|
|
||
Income tax expense
|
4
|
|
|
27
|
|
||
Net income
|
72
|
|
|
58
|
|
||
Less: Net income attributable to noncontrolling interests, net of tax
|
1
|
|
|
4
|
|
||
Net income attributable to U.S. Cellular shareholders
|
$
|
71
|
|
|
$
|
54
|
|
|
|
|
|
||||
Basic weighted average shares outstanding
|
86
|
|
|
86
|
|
||
Basic earnings per share attributable to U.S. Cellular shareholders
|
$
|
0.82
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
||
Diluted weighted average shares outstanding
|
88
|
|
|
88
|
|
||
Diluted earnings per share attributable to U.S. Cellular shareholders
|
$
|
0.81
|
|
|
$
|
0.62
|
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net income
|
$
|
72
|
|
|
$
|
58
|
|
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
|
|
|
|
||||
Depreciation, amortization and accretion
|
177
|
|
|
169
|
|
||
Bad debts expense
|
33
|
|
|
24
|
|
||
Stock-based compensation expense
|
7
|
|
|
9
|
|
||
Deferred income taxes, net
|
52
|
|
|
17
|
|
||
Equity in earnings of unconsolidated entities
|
(45
|
)
|
|
(44
|
)
|
||
Distributions from unconsolidated entities
|
24
|
|
|
18
|
|
||
(Gain) loss on asset disposals, net
|
4
|
|
|
2
|
|
||
(Gain) loss on sale of business and other exit costs, net
|
—
|
|
|
(2
|
)
|
||
(Gain) loss on license sales and exchanges, net
|
—
|
|
|
(2
|
)
|
||
Other operating activities
|
—
|
|
|
1
|
|
||
Changes in assets and liabilities from operations
|
|
|
|
||||
Accounts receivable
|
55
|
|
|
31
|
|
||
Equipment installment plans receivable
|
23
|
|
|
(10
|
)
|
||
Inventory
|
(50
|
)
|
|
(15
|
)
|
||
Accounts payable
|
97
|
|
|
56
|
|
||
Customer deposits and deferred revenues
|
(10
|
)
|
|
7
|
|
||
Accrued taxes
|
(49
|
)
|
|
11
|
|
||
Accrued interest
|
9
|
|
|
9
|
|
||
Other assets and liabilities
|
(57
|
)
|
|
(52
|
)
|
||
Net cash provided by operating activities
|
342
|
|
|
287
|
|
||
|
|
|
|
||||
Cash flows from investing activities
|
|
|
|
||||
Cash paid for additions to property, plant and equipment
|
(315
|
)
|
|
(107
|
)
|
||
Cash paid for licenses
|
(26
|
)
|
|
(1
|
)
|
||
Cash received from investments
|
—
|
|
|
2
|
|
||
Cash paid for investments
|
(1
|
)
|
|
(1
|
)
|
||
Cash received from divestitures and exchanges
|
—
|
|
|
31
|
|
||
Advance payments for license acquisitions
|
—
|
|
|
(135
|
)
|
||
Other investing activities
|
—
|
|
|
(1
|
)
|
||
Net cash used in investing activities
|
(342
|
)
|
|
(212
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities
|
|
|
|
||||
Repayment of long-term debt
|
(2
|
)
|
|
(5
|
)
|
||
Repurchase of Common Shares
|
(21
|
)
|
|
—
|
|
||
Distributions to noncontrolling interests
|
(1
|
)
|
|
(1
|
)
|
||
Net cash used in financing activities
|
(24
|
)
|
|
(6
|
)
|
||
|
|
|
|
||||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(24
|
)
|
|
69
|
|
||
|
|
|
|
||||
Cash, cash equivalents and restricted cash
|
|
|
|
||||
Beginning of period
|
291
|
|
|
583
|
|
||
End of period
|
$
|
267
|
|
|
$
|
652
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Current assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
258
|
|
|
$
|
285
|
|
Accounts receivable
|
|
|
|
||||
Customers and agents, less allowances of $77 and $70, respectively
|
865
|
|
|
919
|
|
||
Roaming
|
24
|
|
|
27
|
|
||
Affiliated
|
1
|
|
|
1
|
|
||
Other, less allowances of $1 and $1, respectively
|
40
|
|
|
63
|
|
||
Inventory, net
|
212
|
|
|
162
|
|
||
Prepaid expenses
|
58
|
|
|
50
|
|
||
Income taxes receivable
|
96
|
|
|
46
|
|
||
Other current assets
|
22
|
|
|
20
|
|
||
Total current assets
|
1,576
|
|
|
1,573
|
|
||
|
|
|
|
||||
Licenses
|
2,502
|
|
|
2,471
|
|
||
|
|
|
|
||||
Investments in unconsolidated entities
|
469
|
|
|
447
|
|
||
|
|
|
|
||||
Property, plant and equipment
|
|
|
|
||||
In service and under construction
|
8,485
|
|
|
8,293
|
|
||
Less: Accumulated depreciation and amortization
|
6,217
|
|
|
6,086
|
|
||
Property, plant and equipment, net
|
2,268
|
|
|
2,207
|
|
||
|
|
|
|
||||
Operating lease right-of-use assets
|
902
|
|
|
900
|
|
||
|
|
|
|
||||
Other assets and deferred charges
|
534
|
|
|
566
|
|
||
|
|
|
|
||||
Total assets1
|
$
|
8,251
|
|
|
$
|
8,164
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars and shares in millions, except per share amounts)
|
|
|
|
||||
Current liabilities
|
|
|
|
||||
Current portion of long-term debt
|
$
|
6
|
|
|
$
|
8
|
|
Accounts payable
|
|
|
|
||||
Affiliated
|
7
|
|
|
8
|
|
||
Trade
|
321
|
|
|
296
|
|
||
Customer deposits and deferred revenues
|
139
|
|
|
148
|
|
||
Accrued taxes
|
27
|
|
|
30
|
|
||
Accrued compensation
|
47
|
|
|
76
|
|
||
Short-term operating lease liabilities
|
109
|
|
|
105
|
|
||
Other current liabilities
|
66
|
|
|
79
|
|
||
Total current liabilities
|
722
|
|
|
750
|
|
||
|
|
|
|
||||
Deferred liabilities and credits
|
|
|
|
||||
Deferred income tax liability, net
|
559
|
|
|
507
|
|
||
Long-term operating lease liabilities
|
865
|
|
|
865
|
|
||
Other deferred liabilities and credits
|
327
|
|
|
319
|
|
||
|
|
|
|
||||
Long-term debt, net
|
1,503
|
|
|
1,502
|
|
||
|
|
|
|
||||
Commitments and contingencies
|
|
|
|
|
|
||
|
|
|
|
||||
Noncontrolling interests with redemption features
|
11
|
|
|
11
|
|
||
|
|
|
|
||||
Equity
|
|
|
|
||||
U.S. Cellular shareholders’ equity
|
|
|
|
||||
Series A Common and Common Shares
|
|
|
|
||||
Authorized 190 shares (50 Series A Common and 140 Common Shares)
|
|
|
|
||||
Issued 88 shares (33 Series A Common and 55 Common Shares)
|
|
|
|
||||
Outstanding 85 shares (33 Series A Common and 52 Common Shares) and 86 shares (33 Series A Common and 53 Common Shares)
|
|
|
|
||||
Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares)
|
88
|
|
|
88
|
|
||
Additional paid-in capital
|
1,636
|
|
|
1,629
|
|
||
Treasury shares, at cost, 3 and 2 Common Shares, respectively
|
(92
|
)
|
|
(70
|
)
|
||
Retained earnings
|
2,620
|
|
|
2,550
|
|
||
Total U.S. Cellular shareholders' equity
|
4,252
|
|
|
4,197
|
|
||
|
|
|
|
||||
Noncontrolling interests
|
12
|
|
|
13
|
|
||
|
|
|
|
||||
Total equity
|
4,264
|
|
|
4,210
|
|
||
|
|
|
|
||||
Total liabilities and equity1
|
$
|
8,251
|
|
|
$
|
8,164
|
|
|
1
|
The consolidated total assets as of March 31, 2020 and December 31, 2019, include assets held by consolidated variable interest entities (VIEs) of $933 million and $930 million, respectively, which are not available to be used to settle the obligations of U.S. Cellular. The consolidated total liabilities as of March 31, 2020 and December 31, 2019, include certain liabilities of consolidated VIEs of $20 million and $22 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of U.S. Cellular. See Note 9 — Variable Interest Entities for additional information.
|
|
U.S. Cellular Shareholders
|
|
|
|
|
||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
|
Additional
paid-in
capital
|
|
Treasury
shares
|
|
Retained
earnings
|
|
Total
U.S. Cellular
shareholders'
equity
|
|
Noncontrolling
interests
|
|
Total equity
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, 2019
|
$
|
88
|
|
|
$
|
1,629
|
|
|
$
|
(70
|
)
|
|
$
|
2,550
|
|
|
$
|
4,197
|
|
|
$
|
13
|
|
|
$
|
4,210
|
|
Net income attributable to U.S. Cellular shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
71
|
|
|
—
|
|
|
71
|
|
|||||||
Repurchase of Common Shares
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
—
|
|
|
(23
|
)
|
|
—
|
|
|
(23
|
)
|
|||||||
Incentive and compensation plans
|
—
|
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation awards
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|||||||
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|||||||
March 31, 2020
|
$
|
88
|
|
|
$
|
1,636
|
|
|
$
|
(92
|
)
|
|
$
|
2,620
|
|
|
$
|
4,252
|
|
|
$
|
12
|
|
|
$
|
4,264
|
|
|
U.S. Cellular Shareholders
|
|
|
|
|
||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
|
Additional
paid-in
capital
|
|
Treasury
shares
|
|
Retained
earnings
|
|
Total
U.S. Cellular
shareholders'
equity
|
|
Noncontrolling
interests
|
|
Total equity
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, 2018
|
$
|
88
|
|
|
$
|
1,590
|
|
|
$
|
(65
|
)
|
|
$
|
2,444
|
|
|
$
|
4,057
|
|
|
$
|
10
|
|
|
$
|
4,067
|
|
Net income attributable to U.S. Cellular shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
54
|
|
|
54
|
|
|
—
|
|
|
54
|
|
|||||||
Net income attributable to noncontrolling interests classified as equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|||||||
Incentive and compensation plans
|
—
|
|
|
—
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
1
|
|
|||||||
Stock-based compensation awards
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|||||||
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|||||||
March 31, 2019
|
$
|
88
|
|
|
$
|
1,599
|
|
|
$
|
(63
|
)
|
|
$
|
2,497
|
|
|
$
|
4,121
|
|
|
$
|
13
|
|
|
$
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Cash and cash equivalents
|
$
|
258
|
|
|
$
|
285
|
|
Restricted cash included in Other current assets
|
9
|
|
|
6
|
|
||
Cash, cash equivalents and restricted cash in the statement of cash flows
|
$
|
267
|
|
|
$
|
291
|
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Revenues from contracts with customers:
|
|
|
|
||||
Retail service
|
$
|
671
|
|
|
$
|
659
|
|
Inbound roaming
|
37
|
|
|
34
|
|
||
Other service
|
35
|
|
|
32
|
|
||
Service revenues from contracts with customers
|
743
|
|
|
725
|
|
||
Equipment sales
|
201
|
|
|
225
|
|
||
Total revenues from contracts with customers
|
944
|
|
|
950
|
|
||
Operating lease income
|
19
|
|
|
16
|
|
||
Total operating revenues
|
$
|
963
|
|
|
$
|
966
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Contract assets
|
$
|
7
|
|
|
$
|
7
|
|
Contract liabilities
|
$
|
146
|
|
|
$
|
154
|
|
|
Service Revenues
|
||
(Dollars in millions)
|
|
||
Remainder of 2020
|
$
|
180
|
|
2021
|
100
|
|
|
Thereafter
|
164
|
|
|
Total
|
$
|
444
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||
|
Level within the Fair Value Hierarchy
|
|
Book Value
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
1
|
|
$
|
258
|
|
|
$
|
258
|
|
|
$
|
285
|
|
|
$
|
285
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
||||||||
Retail
|
2
|
|
917
|
|
|
795
|
|
|
917
|
|
|
943
|
|
||||
Institutional
|
2
|
|
535
|
|
|
527
|
|
|
534
|
|
|
594
|
|
||||
Other
|
2
|
|
83
|
|
|
83
|
|
|
83
|
|
|
83
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Equipment installment plan receivables, gross
|
$
|
964
|
|
|
$
|
1,008
|
|
Allowance for credit losses
|
(90
|
)
|
|
(84
|
)
|
||
Equipment installment plan receivables, net
|
$
|
874
|
|
|
$
|
924
|
|
|
|
|
|
||||
Net balance presented in the Consolidated Balance Sheet as:
|
|
|
|
||||
Accounts receivable — Customers and agents (Current portion)
|
$
|
566
|
|
|
$
|
587
|
|
Other assets and deferred charges (Non-current portion)
|
308
|
|
|
337
|
|
||
Equipment installment plan receivables, net
|
$
|
874
|
|
|
$
|
924
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||||||||||||||||||
|
Lowest Risk
|
|
Lower Risk
|
|
Slight Risk
|
|
Higher Risk
|
|
Total
|
|
Lowest Risk
|
|
Lower Risk
|
|
Slight Risk
|
|
Higher Risk
|
|
Total
|
||||||||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Unbilled
|
$
|
774
|
|
|
$
|
95
|
|
|
$
|
22
|
|
|
$
|
9
|
|
|
$
|
900
|
|
|
$
|
812
|
|
|
$
|
99
|
|
|
$
|
23
|
|
|
$
|
8
|
|
|
$
|
942
|
|
Billed — current
|
35
|
|
|
5
|
|
|
2
|
|
|
1
|
|
|
43
|
|
|
37
|
|
|
5
|
|
|
2
|
|
|
1
|
|
|
45
|
|
||||||||||
Billed — past due
|
11
|
|
|
6
|
|
|
3
|
|
|
1
|
|
|
21
|
|
|
11
|
|
|
6
|
|
|
3
|
|
|
1
|
|
|
21
|
|
||||||||||
Total
|
$
|
820
|
|
|
$
|
106
|
|
|
$
|
27
|
|
|
$
|
11
|
|
|
$
|
964
|
|
|
$
|
860
|
|
|
$
|
110
|
|
|
$
|
28
|
|
|
$
|
10
|
|
|
$
|
1,008
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Total
|
||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
||||||||||
Lowest Risk
|
$
|
15
|
|
|
$
|
200
|
|
|
$
|
480
|
|
|
$
|
125
|
|
|
$
|
820
|
|
Lower Risk
|
1
|
|
|
19
|
|
|
67
|
|
|
19
|
|
|
106
|
|
|||||
Slight Risk
|
—
|
|
|
3
|
|
|
16
|
|
|
8
|
|
|
27
|
|
|||||
Higher Risk
|
—
|
|
|
1
|
|
|
6
|
|
|
4
|
|
|
11
|
|
|||||
Total
|
$
|
16
|
|
|
$
|
223
|
|
|
$
|
569
|
|
|
$
|
156
|
|
|
$
|
964
|
|
|
March 31, 2020
|
|
March 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Allowance for credit losses, beginning of period
|
$
|
84
|
|
|
$
|
77
|
|
Bad debts expense
|
25
|
|
|
18
|
|
||
Write-offs, net of recoveries
|
(19
|
)
|
|
(18
|
)
|
||
Allowance for credit losses, end of period
|
$
|
90
|
|
|
$
|
77
|
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars and shares in millions, except per share amounts)
|
|
|
|
||||
Net income attributable to U.S. Cellular shareholders
|
$
|
71
|
|
|
$
|
54
|
|
|
|
|
|
||||
Weighted average number of shares used in basic earnings per share
|
86
|
|
|
86
|
|
||
Effects of dilutive securities
|
2
|
|
|
2
|
|
||
Weighted average number of shares used in diluted earnings per share
|
88
|
|
|
88
|
|
||
|
|
|
|
||||
Basic earnings per share attributable to U.S. Cellular shareholders
|
$
|
0.82
|
|
|
$
|
0.63
|
|
|
|
|
|
||||
Diluted earnings per share attributable to U.S. Cellular shareholders
|
$
|
0.81
|
|
|
$
|
0.62
|
|
|
Licenses
|
||
(Dollars in millions)
|
|
||
Balance at December 31, 2019
|
$
|
2,471
|
|
Acquisitions
|
30
|
|
|
Capitalized interest
|
1
|
|
|
Balance at March 31, 2020
|
$
|
2,502
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Equity method investments
|
$
|
461
|
|
|
$
|
440
|
|
Measurement alternative method investments
|
8
|
|
|
7
|
|
||
Total investments in unconsolidated entities
|
$
|
469
|
|
|
$
|
447
|
|
|
Three Months Ended
March 31, |
||||||
|
2020
|
|
2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Revenues
|
$
|
1,657
|
|
|
$
|
1,689
|
|
Operating expenses
|
1,162
|
|
|
1,215
|
|
||
Operating income
|
495
|
|
|
474
|
|
||
Other income (expense), net
|
3
|
|
|
(5
|
)
|
||
Net income
|
$
|
498
|
|
|
$
|
469
|
|
▪
|
Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and
|
▪
|
King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
(Dollars in millions)
|
|
|
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
24
|
|
|
$
|
19
|
|
Accounts receivable
|
614
|
|
|
639
|
|
||
Inventory, net
|
4
|
|
|
6
|
|
||
Other current assets
|
11
|
|
|
7
|
|
||
Licenses
|
649
|
|
|
649
|
|
||
Property, plant and equipment, net
|
106
|
|
|
104
|
|
||
Operating lease right-of-use assets
|
44
|
|
|
44
|
|
||
Other assets and deferred charges
|
317
|
|
|
346
|
|
||
Total assets
|
$
|
1,769
|
|
|
$
|
1,814
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Current liabilities
|
$
|
30
|
|
|
$
|
32
|
|
Long-term operating lease liabilities
|
40
|
|
|
41
|
|
||
Other deferred liabilities and credits
|
14
|
|
|
14
|
|
||
Total liabilities
|
$
|
84
|
|
|
$
|
87
|
|
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
|
|||||
January 1 - 31, 2020
|
—
|
|
$
|
—
|
|
—
|
|
5,310,549
|
|
February 1 - 29, 2020
|
59,477
|
|
$
|
30.57
|
|
59,477
|
|
5,251,072
|
|
March 1 - 31, 2020
|
744,359
|
|
$
|
28.87
|
|
744,359
|
|
4,506,713
|
|
Total for or as of the end of the quarter ended March 31, 2020
|
803,836
|
|
$
|
29.00
|
|
803,836
|
|
4,506,713
|
|
Form 10-Q Cross Reference Index
|
|||
Item Number
|
Page No.
|
||
Part I.
|
Financial Information
|
|
|
|
|
|
|
|
|||
|
|
||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
Part II.
|
Other Information
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
UNITED STATES CELLULAR CORPORATION
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
|
|
April 30, 2020
|
|
/s/ Kenneth R. Meyers
|
|
|
|
|
Kenneth R. Meyers
President and Chief Executive Officer
(principal executive officer)
|
|
|
|
|
|
Date:
|
|
April 30, 2020
|
|
/s/ Douglas W. Chambers
|
|
|
|
|
Douglas W. Chambers
Senior Vice President, Chief Financial Officer and Treasurer
(principal financial officer)
|
|
|
|
|
|
Date:
|
|
April 30, 2020
|
|
/s/ Anita J. Kroll
|
|
|
|
|
Anita J. Kroll
Chief Accounting Officer
(principal accounting officer)
|
|
|
|
|
|
Date:
|
|
April 30, 2020
|
|
/s/ Jeffrey S. Hoersch
|
|
|
|
|
Jeffrey S. Hoersch
Vice President and Controller
|
1 Year United States Cellular Chart |
1 Month United States Cellular Chart |
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