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What changed in ARRAY DIGITAL INFRASTRUCTURE, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ARRAY DIGITAL INFRASTRUCTURE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+254 added−239 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-16)

Top changes in ARRAY DIGITAL INFRASTRUCTURE, INC.'s 2023 10-K

254 paragraphs added · 239 removed · 199 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

32 edited+9 added−7 removed18 unchanged
Biggest changeThe culture at UScellular is based upon the fundamental belief that UScellular’s long-term success is inextricably tied to associate engagement and high ethical standards. UScellular's Code of Conduct sets forth expectations for ethical behavior across the enterprise and provides the guiding principles by which all associates must abide in all business activities.
Biggest changeUScellular's Code of Conduct sets forth expectations for ethical behavior across the enterprise and provides the guiding principles by which all associates must abide in all business activities. UScellular provides a competitive wage and benefits package, a safe workplace, and an environment where associates feel engaged and a sense of belonging.
Sales and Distribution Channels UScellular supports a multi-faceted distribution program, including retail sales, direct sales, telesales, ecommerce, indirect sales, independent agents and third-party national retailers. Company retail store locations are designed to market wireless services and products to the consumer and small business segments in a setting familiar to these types of customers.
Sales and Distribution Channels UScellular supports a multi-faceted distribution program, including retail sales, direct sales, telesales, ecommerce, indirect sales including resellers, independent agents and third-party national retailers. Company retail store locations are designed to market wireless services and products to the consumer and small business segments in a setting familiar to these types of customers.
Item 1. Business General United States Cellular Corporation (UScellular) provides wireless telecommunications services to customers with 4.7 million retail connections in portions of 21 states collectively representing a total population of 32 million. UScellular operates in one reportable segment, and all of its wireless operating markets are in the United States.
Item 1. Business General United States Cellular Corporation (UScellular) provides wireless telecommunications services to customers with 4.6 million retail connections in portions of 21 states collectively representing a total population of 32 million. UScellular operates in one reportable segment, and all of its wireless operating markets are in the United States.
In 2022, UScellular continued exploring ways to leverage its assets, brand, partnerships, and resources to close the digital divide with a focus on helping to ensure youth in its markets have reliable and fast internet access in school and at home through the After School Access Project.
In 2023, UScellular continued exploring ways to leverage its assets, brand, partnerships, and resources to close the digital divide with a focus on helping to ensure youth in its markets have reliable and fast internet access in school and at home through the After School Access Project .
The map below highlights areas of operation of UScellular’s wireless operating markets. 1 Table of Contents Operating Strategy and Community Focus UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. UScellular operates a regional wireless network.
The map below highlights UScellular’s areas of operations. 1 Table of Contents Operating Strategy and Community Focus UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service and competitive devices, plans and pricing - all provided with a community focus. UScellular operates a regional wireless network.
In addition, UScellular continues to contribute to the TDS Environmental, Social and Governance (ESG) program. UScellular believes in serving as a good steward of the environment and enacting governance practices that align with its corporate values and commitment to its customers, associates and its communitie s. Customers, Services, Products and Seasonality Customers.
In addition, UScellular continues to participate in the TDS Environmental, Social and Governance (ESG) program. UScellular believes in serving as a good steward of the environment and enacting governance practices that align with its corporate values and commitment to its customers, associates, communitie s and shareholders. Customers, Services, Products and Seasonality Customers.
Local communities are at the center of UScellular’s business, and it takes great pride in giving back to the people and places that contribute to its sustainability and long-term success. Company Information UScellular’s website address is www.uscellular.com.
Local communities are at the center of UScellular’s businesses, and UScellular takes great pride in giving back to the people and places that contribute to its sustainability and long-term success. Company Information UScellular’s website address is www.uscellular.com.
UScellular’s interests in wireless spectrum licenses include both direct interests whereby UScellular is the licensee and investment interests in entities which are licensees; together, these direct and investment interests involve operating and non-operating wireless spectrum licenses covering portions of 30 states and a total population of approximately 51 million at December 31, 2022.
UScellular’s interests in wireless spectrum licenses include both direct interests whereby UScellular is the licensee and investment interests in entities which are licensees; together, these direct and investment interests involve operating and non-operating wireless spectrum licenses covering portions of 30 states and a total population of approximately 51 million as of December 31, 2023.
UScellular offers advanced wireless solutions to consumers and business and government customers including "home and business internet", a fast-growing and expansive suite of connected Internet of things (IoT) solutions and software applications across the categories of monitor and control (e.g., sensors and cameras), business automation/operations (e.g., e-forms, office solutions), communication (e.g., enterprise messaging, primary and back-up internet connectivity for business continuity), fleet and asset management, smart water solutions, private cellular networks and custom, bespoke end-to-end IoT solutions et al.
UScellular offers advanced wireless solutions to consumers and business and government customers including an expansive suite of connected Internet of things (IoT) solutions and software applications across the categories of monitor and control (e.g., sensors and cameras), business automation/operations (e.g., e-forms, office solutions), communication (e.g., enterprise messaging, primary and back-up internet connectivity for business continuity), fleet and asset management, smart water solutions, private cellular networks (PCN) and custom, bespoke end-to-end IoT solutions et al.
UScellular is a majority-owned subsidiary of Telephone and Data Systems, Inc. As of December 31, 2022, TDS owns 84% of UScellular’s Common Shares, has the voting power to elect all of the directors of UScellular and controls 96% of the voting power in matters other than the election of directors of UScellular.
UScellular is a majority-owned subsidiary of Telephone and Data Systems, Inc. As of December 31, 2023, TDS owns 83% of UScellular’s Common Shares, has the voting power to elect all of the directors of UScellular and controls 96% of the voting power in matters other than the election of directors of UScellular.
The public may also view electronic filings of UScellular by accessing SEC filings at www.sec.gov. 4 Table of Contents
The public may also view electronic filings of UScellular by accessing SEC filings at www.sec.gov. 5 Table of Contents
UScellular focuses on consumer, business and government customers located in its operating markets. These customers are served primarily through UScellular’s retail, digital platform, as well as its direct and indirect sales channels. Services. UScellular provides a wide variety of wireless services accessible on a broad range of devices. Customers can obtain wireless services on a postpaid or prepaid basis.
UScellular focuses on consumer, business and government customers located in its operating markets. These customers are served primarily through UScellular’s retail stores and digital platform, as well as its direct and indirect sales channels. Services. UScellular provides a wide variety of wireless services accessible on a broad range of devices.
Since each of these competitors operates on systems using spectrum licensed by the FCC and has comparable technology and facilities, competition among wireless service providers for customers is principally on the basis of types of services and products, price, brand, size of area covered, network quality, network speed and responsiveness of customer service.
Since each of these competitors has access to comparable technology and facilities, competition among wireless service providers for customers is principally on the basis of types of services and products, price, brand, size of area covered, network quality, network speed and responsiveness of customer service.
Additionally, for first responders, UScellular offers a suite of critical connectivity solutions that includes Wireless Priority Services (WPS) and Quality Priority and Preemption (QPP) options. UScellular intends to continue to further enhance these offerings in 2023 and beyond. Products.
The business organization also offers a suite of professional and managed services. Lastly, for first responders, UScellular offers a suite of critical connectivity solutions that includes Wireless Priority Services (WPS) and Quality Priority and Preemption (QPP) options. UScellular intends to continue to further enhance these offerings in 2024 and beyond. Products.
UScellular has relationships with exclusive and non-exclusive agents (collectively “agents”), which are independent businesses that obtain customers for UScellular on a commission basis. UScellular’s agents are generally in the business of selling wireless devices, wireless service plans and other related products. UScellular provides support and training to its agents to increase customer satisfaction and to ensure a consistent customer experience.
UScellular has relationships with exclusive and non-exclusive agents (collectively “agents”), which are independent businesses that obtain customers for UScellular on a commission basis. UScellular’s agents are generally in the business of selling wireless devices, wireless service plans and other related products to consumer and business and government customers.
As part of its business development strategy, UScellular may periodically be engaged in negotiations relating to strategic partnerships and/or the acquisition, exchange or disposition of companies, strategic properties, investment interests or wireless spectrum, including through Federal Communications Commission (FCC) auctions. The FCC conducts auctions through which additional spectrum is made available for the provision of wireless services.
As part of its business development strategy, UScellular may periodically be engaged in negotiations relating to strategic partnerships and/or the acquisition, exchange or disposition of companies, strategic properties, and investment interests. Additionally, UScellular may be engaged in negotiations related to wireless spectrum, including participation in Federal Communications Commission (FCC) auctions.
Service offerings vary from time to time based on customer needs, technology changes and market conditions - and may be provided as standard plans or as part of limited time promotional offers. UScellular offers home and business internet throughout the footprint via fixed wireless access. Options include an in-home self-installed device and externally-mounted professionally-installed equipment with an internal router.
Service offerings vary from time to time based on customer needs, technology changes and market conditions - and may be provided as standard plans or as part of limited time promotional offers. UScellular offers home and business internet throughout the footprint via fixed wireless access.
Further, the Federal Aviation Administration also regulates the siting, lighting and construction of transmitter towers and antennae. Reference is made to Item 7 of this Form 10-K under “Regulatory Matters” for information regarding any other significant recent developments and proposals relating to regulatory matters. Human Capital Resources UScellular had approximately 4,900 full-time and part-time associates as of December 31, 2022.
Further, the Federal Aviation Administration also regulates the siting, lighting and construction of transmitter towers and antennae. Reference is made to Item 7 of this Form 10-K under “Regulatory Matters” for information regarding any other significant recent developments and proposals relating to regulatory matters.
Historically, UScellular has participated in certain FCC auctions both directly and indirectly through its limited partnership interests. UScellular has a longstanding commitment to supporting its local communities through donations and volunteerism.
The FCC has historically conducted auctions through which additional spectrum is made available for the provision of wireless services. Historically, UScellular has participated in certain FCC auctions both directly and indirectly through its limited partnership interests. UScellular has a longstanding commitment to supporting its local communities through donations and volunteerism.
UScellular also offers services that enable customers to replace or repair their devices, including the Device Protection+ program, which provides as soon as next-day delivery of a replacement device for damaged, lost and stolen devices, and AppleCare services for Apple iOS customers. UScellular's Device Protection+ Advanced program also includes local or on-demand repair for eligible devices.
UScellular allows customers to purchase certain devices and accessories on installment plans, allowing for customers to pay over a specified period of time. 2 Table of Contents UScellular also offers services that enable customers to replace or repair their devices, including the Device Protection+ program, which provides as soon as next-day delivery of a replacement device for damaged, lost and stolen devices, and AppleCare services for Apple iOS customers.
In addition, UScellular offers a Trade-In program through which UScellular buys customers' used equipment. 2 Table of Contents UScellular purchases devices and accessory products from a number of original equipment manufacturers and distributors.
UScellular's Device Protection+ Advanced program also includes local or on-demand repair for eligible devices. In addition, UScellular offers a Trade-In program through which UScellular buys customers' used equipment. UScellular purchases devices and accessory products from a number of original equipment manufacturers and distributors.
In order to expand its retail presence, UScellular also maintains relationships with national retailers, primarily selling prepaid devices. Competition The wireless telecommunication industry is highly competitive. UScellular competes directly with several wireless service providers in each of its markets.
UScellular provides support and training to its agents to increase customer satisfaction and to ensure a consistent customer experience. To expand its retail presence, UScellular also maintains a relationship with a large national retailer, selling postpaid and prepaid devices. Competition The wireless telecommunication industry is highly competitive. UScellular competes directly with several wireless service providers in each of its markets.
UScellular’s prepaid service enables individuals to obtain services without credit verification by paying for all services in advance. Approximately 90% of retail connections were postpaid connections as of December 31, 2022. UScellular offers various service plans with nationwide coverage tailored to the needs of customers.
Approximately 90% of retail connections were postpaid connections as of December 31, 2023. UScellular offers various service plans with nationwide coverage tailored to the needs of customers.
A single account may include monthly wireless services for a variety of handsets, connected devices and IoT Solutions. A postpaid connection represents an individual line of service for a device for which a customer is generally billed one month in advance for a monthly access charge in return for access to and usage of network services.
A postpaid connection represents an individual line of service for a device for which a customer is generally billed one month in advance for a monthly access charge in return for access to and usage of network services. UScellular’s prepaid service enables individuals to obtain services without credit verification by paying for all services in advance.
As of December 31, 2022, there were 6,945 cell sites in service and UScellular owned 4,336 towers. 3 Table of Contents Regulation UScellular’s operations are subject to federal, state and local regulation. Key regulatory considerations are discussed below.
UScellular receives tower rental revenues when another carrier leases tower space on a UScellular owned tower. As of December 31, 2023, there were 7,000 cell sites in service of which UScellular owned 4,373. Regulation UScellular’s operations are subject to federal, state and local regulation. Key regulatory considerations are discussed below.
Inter-carrier roaming agreements are negotiated between wireless operators to enable customers to use wireless services outside of their home service area. UScellular has entered into roaming agreements with a number of wireless companies in order to offer its customers nationwide services, including 4G LTE, VoLTE and 5G, as well as a variety of international roaming options. Towers .
UScellular has entered into roaming agreements with a number of wireless companies so that it can offer its customers nationwide services, including 4G LTE, VoLTE and 5G, as well as a variety of international roaming options. 3 Table of Contents Towers. UScellular owns and leases cell towers to provide service to its customers throughout its footprint.
UScellular provides job specific, diversity and inclusion, safety, and fraud awareness training for all associates – and also offers programs to further develop its associates including educational assistance, developmental assignments, and mentoring programs.
UScellular provides job specific, diversity and inclusion, safety, and fraud awareness training for all associates – and also offers programs that further develop its associates including educational assistance, developmental assignments, and mentoring programs. 4 Table of Contents Community UScellular is committed to supporting and enhancing the communities it serves through local and philanthropic initiatives that enrich the lives of those living where it operates and where its associates live, work and play.
UScellular also operates a VoLTE network. VoLTE technology allows customers to utilize a 4G LTE and 5G network for voice and 4G LTE data services which offers enhanced services such as high definition voice and simultaneous voice and data sessions. Roaming.
UScellular also operates a VoLTE network, which allows customers to utilize a 4G LTE enabled mobile device for voice and data services, including high-definition voice and simultaneous voice and data sessions. As a result of its continued investment and modernization of its network, UScellular decommissioned its third-generation (3G) CDMA network in the first quarter of 2024. Roaming.
UScellular's low-band and high-band spectrum is currently supporting mobility and fixed wireless services. UScellular has acquired mid-band spectrum which it will deploy in the future to further enable the delivery of 5G services. UScellular has launched commercial 5G services in portions of substantially all of its markets and will continue to launch in additional areas in the coming years.
UScellular supports mobility and fixed wireless services through a combination of low-band, mid-band and high-band spectrum. UScellular's initial 5G deployment has predominantly used low-band spectrum to launch 5G services in portions of substantially all its markets.
Additional routers are available for a whole-home Wi-Fi experience. In addition to selling direct to businesses and residential homes, UScellular works with several municipalities to bring broadband internet to underserved communities.
Options include an in-home self-installed device, a self-installation device mounted on the external side of a window, and externally-mounted professionally-installed equipment with an internal router. In addition to selling direct to businesses and residential homes, UScellular works with several municipalities to bring broadband internet to underserved communities.
Additionally, UScellular supports numerous associate resource groups to promote diverse and inclusive experiences that align with UScellular’s vision and values, increase associate engagement and empowerment, and support professional development. Since its founding, UScellular has been committed to associate development, which is critical to its success.
Additionally, UScellular sponsors Associate Resource Groups to promote dynamic community experiences that align with UScellular’s vision and values, increase associate engagement and empowerment, and support professional development. UScellular endeavors to encourage a broad diversity of thoughts, ideas and the innovation needed to move the business forward.
UScellular provides a competitive wage and benefits package, a safe workplace, and an environment where associates feel engaged and included. UScellular regularly surveys its associates - those surveys have consistently shown that associates have strong engagement and high overall job satisfaction.
UScellular regularly surveys its associates - those surveys have consistently shown that associates have strong engagement and high overall job satisfaction. Diversity, Equity, and Inclusion UScellular wants each associate to make a meaningful contribution and leverages diversity and inclusion efforts to harness the talent and potential of its associates.
Removed
UScellular allows customers to purchase certain devices and accessories on installment plans, allowing for customers to pay over a specified period of time.
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On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. At this time, UScellular cannot predict the ultimate outcome of such process or estimate the potential impact of such process on the financial statements.
Removed
In general, there are between three and four competitors in each wireless market in which UScellular provides service, excluding resellers and mobile virtual network operators (MVNOs).
Added
Customers can obtain wireless services on a postpaid or prepaid basis. A single account may include monthly wireless services for a variety of handsets, connected devices and IoT Solutions.
Removed
In its footprint, UScellular competes to varying degrees against each of the national wireless companies: Verizon, AT&T, T-Mobile USA, and an emerging Dish as the fourth national carrier, in addition to smaller regional carriers, cable and other MVNOs in specific areas of its footprint.
Added
In general, there are at least four competitors across UScellular's service area, including to a varying degree: the national wireless companies - Verizon Communications Inc., AT&T Inc., T-Mobile US, Inc., and Dish Network Corporation, cable wireless, including Comcast Corporation and Charter Communications, Inc., and mobile virtual network operators (MVNOs).
Removed
UScellular owns and leases cell towers to provide service to its customers throughout its footprint. In addition, UScellular receives tower rental revenues when another carrier leases tower space on a UScellular owned tower.
Added
During 2023, UScellular continued to invest in 5G with a focus on deployment of mid-band spectrum, which will largely overlap portions of areas already covered with low-band 5G service. 5G service deployed over mid-band spectrum will further enhance speed and capacity for UScellular's mobility and fixed wireless services.
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UScellular strives to build a diverse and inclusive workforce, which leads to broader diversity of thoughts, ideas and the innovation needed to move the business forward.
Added
Inter-carrier roaming agreements are negotiated between wireless operators to enable customers to use wireless services outside of their home service area.
Removed
UScellular wants its associates to feel supported without regard to race, color, religion, national origin, age, genetic information, sex, gender identity or expression, sexual orientation, marital status, disability, protected veteran status, or any other characteristics protected by applicable federal, state or local law. UScellular is committed to demonstrating equity and fairness through the inclusion of diverse associates, customers, and suppliers.
Added
Human Capital Resources Company and Culture UScellular had approximately 4,300 full-time and part-time associates as of December 31, 2023. The culture at UScellular is based upon the fundamental belief that UScellular’s long-term success is inextricably tied to associate engagement and high ethical standards.
Removed
UScellular is committed to supporting and enhancing the communities it serves through local and philanthropic initiatives that enrich the lives of those living where it operates and where its associates live, work and play. UScellular encourages associates to volunteer and support local organizations and community groups.
Added
These efforts strive to value and connect diverse people and perspectives, amplify their voices, and enable business performance through strategic collaboration. UScellular is committed to demonstrating equity and fairness through the inclusion of diverse associates, customers, and suppliers.
Added
Training Since its founding, UScellular has been committed to associate development, including for emerging and existing leaders, which is critical to its success.
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This includes a focus on addressing gaps in STEM education by connecting tomorrow’s innovators with the resources they need today to help shape their future opportunities. UScellular is addressing the digital divide and providing critical resources in local communities, and encourages associates to volunteer and support local organizations and community groups.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+18 added−6 removed104 unchanged
Biggest changeThese factors include, but are not limited to: ▪ Demand for or usage of services, particularly data services; ▪ Consumer preferences, including type of wireless devices; ▪ Consumer perceptions of network quality and performance; ▪ Consumer expectations for self-service options through digital means; ▪ Competitive pressure to deliver higher speed; ▪ Competitive pressure from promotional activity; ▪ The pricing of services, including an increase in price-based competition; ▪ Inflationary pressures on costs without corresponding price increases for UScellular's services; 7 Table of Contents ▪ The overall size and growth rate of UScellular’s customer base; ▪ Penetration rates; ▪ Churn rates; ▪ Selling expenses; ▪ Net customer acquisition and retention costs; ▪ Customers’ ability to pay for wireless service and the potential impact on bad debts expense; ▪ Roaming agreements and rates; ▪ Third-party vendor support; ▪ Capacity constraints; ▪ The mix of services and products offered by UScellular and purchased by customers; and ▪ The costs of providing services and products. 7) Advances or changes in technology could render certain technologies used by UScellular obsolete, could put UScellular at a competitive disadvantage, could reduce UScellular’s revenues or could increase its costs of doing business.
Biggest changeThese factors include, but are not limited to: ▪ Demand for or usage of services, particularly data services; ▪ Demand for leasing space on a tower; ▪ Consumer preferences, including type of wireless devices; ▪ Consumer perceptions of network quality and performance; ▪ Consumer expectations for self-service options through digital means; ▪ Competitive pressure to deliver higher speed; ▪ Competitive pressure from promotional activity; ▪ The pricing of services, including an increase in price-based competition; ▪ The pricing of tower leases that can be charged to third parties; ▪ Inflationary pressures on costs without corresponding price increases for UScellular's services; ▪ The overall size and growth rate of UScellular’s customer base; ▪ Penetration rates; ▪ Churn rates; ▪ Selling expenses; ▪ Net customer acquisition and retention costs; ▪ Customers’ ability to pay for wireless service and the potential impact on bad debts expense; ▪ Roaming agreements and rates; ▪ Third-party vendor support; ▪ Capacity constraints; ▪ The mix of services and products offered by UScellular and purchased by customers; and ▪ The costs of providing services and products. 6) A failure by UScellular 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 UScellular’s business, financial condition or results of operations.
If these key suppliers (i) experience product availability shortages, (ii) require extended lead times to fulfill orders, (iii) experience financial difficulties or file for bankruptcy or experience other operational difficulties or (iv) deem UScellular non-strategic and not develop or sell services and products to UScellular, particularly where technical requirements differ from those of larger companies, they may not provide equipment, services or content to UScellular on a timely basis, or at all, or they may otherwise fail to honor their obligations to UScellular.
If these key suppliers (i) experience product availability shortages, (ii) require extended lead times to fulfill orders, (iii) experience financial difficulties or file for bankruptcy or experience other operational difficulties or (iv) deem UScellular non-strategic and do not develop or sell services and products to UScellular, particularly where technical requirements differ from those of larger companies, they may not provide equipment, services or content to UScellular on a timely basis, or at all, or they may otherwise fail to honor their obligations to UScellular.
Such a failure could have an adverse impact on the quality of UScellular’s services or UScellular’s ability to roll out such future services in some markets, could require that UScellular curtail existing services in order to make spectrum available for next-generation services, or UScellular could be effectively capped in increasing market share.
Such a failure could have an adverse impact on the quality of UScellular’s services or UScellular’s ability to roll out such future services in some markets, could require that UScellular curtail existing services to make spectrum available for next-generation services, or UScellular could be effectively capped in increasing market share.
If UScellular cannot keep pace with its competitors in deploying 5G or other comparable offerings, or if UScellular's deployment of 5G technology does not result in significant incremental revenues, UScellular's financial condition, results of operations or ability to do business could continue to be adversely affected.
If UScellular cannot keep pace with its competitors in deploying 5G or other comparable offerings, or if UScellular's deployment of 5G technology does not result in significant incremental revenues, UScellular's financial condition, results of operations and ability to do business could continue to be adversely affected.
There is no assurance that this will be the case in the future. It may be necessary from time to time to increase the amount of permissible borrowings under its financing agreements, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures.
There is no assurance that this will be the case in the future. It may be necessary from time to time to increase the amount of permissible borrowings under its financing agreements, to put in place new credit agreements, or to obtain other forms of financing to fund potential expenditures.
These transactions commonly involve a number of risks, including: ▪ Identification of attractive companies, businesses, properties, spectrum or other assets for acquisition or exchange, and/or the selection of UScellular’s businesses or assets for divestiture or exchange; ▪ Competition for acquisition targets and the ability to acquire or exchange businesses at reasonable prices; ▪ Inability to make acquisitions that would achieve sufficient scale to be competitive with competitors with greater scale; ▪ Possible lack of buyers for businesses or assets that UScellular desires to divest and the ability to divest or exchange such businesses or assets at reasonable prices; ▪ Ability to negotiate favorable terms and conditions for acquisitions, divestitures and exchanges; ▪ Significant expenditures associated with acquisitions, divestitures and exchanges; ▪ Risks associated with integrating new businesses or markets, including risks relating to cybersecurity and privacy; ▪ Ability to enter markets in which UScellular has limited or no direct prior experience and competitors have stronger positions; ▪ Ability to integrate and manage businesses that are engaged in activities other than traditional wireless service; ▪ Uncertain revenues and expenses associated with acquisitions, with the result that UScellular may not realize the growth in revenues, anticipated cost structure, profitability, or return on investment that it expects; ▪ Difficulty of integrating the technologies, services, products, operations and personnel of the acquired businesses, or of separating such matters for divested businesses or assets; ▪ Diversion of management’s attention; ▪ Disruption of ongoing business; 8 Table of Contents ▪ Impact on UScellular’s cash and available credit lines for use in financing future growth and working capital needs; ▪ Inability to retain key personnel; ▪ Inability to successfully incorporate acquired assets and rights into UScellular’s service offerings; ▪ Inability to maintain uniform standards, controls, procedures and policies; ▪ Possible conditions to approval by the FCC, the Federal Trade Commission and/or the Department of Justice; and ▪ Impairment of relationships with employees, customers or vendors.
These transactions commonly involve a number of risks, including: ▪ Identification of attractive companies, businesses, properties, spectrum or other assets for acquisition or exchange, and/or the selection of UScellular’s businesses or assets for divestiture or exchange; ▪ Competition for acquisition targets and the ability to acquire or exchange businesses at reasonable prices; ▪ Inability to make acquisitions that would achieve sufficient scale or substantial benefit to be competitive with competitors with greater scale; ▪ Possible lack of buyers for businesses or assets that UScellular desires to divest and the ability to divest or exchange such businesses or assets at reasonable prices; ▪ Ability to negotiate favorable terms and conditions for acquisitions, divestitures and exchanges; 9 Table of Contents ▪ Significant expenditures associated with acquisitions, divestitures and exchanges; ▪ Risks associated with integrating new businesses or markets, including risks relating to cybersecurity and privacy; ▪ Ability to enter markets in which UScellular has limited or no direct prior experience and competitors have stronger positions; ▪ Ability to integrate and manage businesses that are engaged in activities other than traditional wireless service; ▪ Uncertain revenues and expenses associated with acquisitions, with the result that UScellular may not realize the growth in revenues, anticipated cost structure, profitability, or return on investment that it expects; ▪ Difficulty of integrating the technologies, services, products, operations and personnel of the acquired businesses, or of separating such matters for divested businesses or assets; ▪ Diversion of management’s attention; ▪ Disruption of ongoing business; ▪ Impact on UScellular’s cash and available credit lines for use in financing future growth and working capital needs; ▪ Inability to retain key personnel; ▪ Inability to successfully incorporate acquired assets and rights into UScellular’s service offerings; ▪ Inability to utilize acquired wireless spectrum; ▪ Inability to maintain uniform standards, controls, procedures and policies; ▪ Possible conditions to approval by the FCC, the Federal Trade Commission and/or the Department of Justice; and ▪ Impairment of relationships with employees, customers or vendors.
If the lenders agree to amendments, this may result in additional payments or higher interest rates payable to the lenders and/or additional restrictions. Restrictions in such debt instruments may limit UScellular’s operating and financial flexibility.
If the lenders agree to amendments, this may result in additional payments or higher interest rates payable to the lenders and/or additional restrictions. Restrictions with such debt instruments may limit UScellular’s operating and financial flexibility.
If UScellular is unable to obtain timely access to new content or wireless devices being developed by vendors, its business, financial condition or results of operations could be adversely affected. 6) 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 UScellular’s business, financial condition or results of operations.
If UScellular is unable to obtain timely access to new content or wireless devices being developed by vendors, its business, financial condition or results of operations could be adversely affected. 5) 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 UScellular’s business, financial condition or results of operations.
UScellular may or may not be able to recover some or all of those taxes from its customers and the amount of taxes may deter demand for its services or increase its cost to provide service. 19) 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 UScellular’s business, financial condition or results of operations.
UScellular may or may not be able to recover some or all of those taxes from its customers and the amount of taxes may deter demand for its services or increase its cost to provide service. 20) 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 UScellular’s business, financial condition or results of operations.
The extent of the impact of public health emergencies on UScellular's business, financial condition and results of operations will depend on the severity and duration of the emergency, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted. 15 Table of Contents Item 1B. Unresolved Staff Comments None.
The extent of the impact of public health emergencies on UScellular's business, financial condition and results of operations will depend on the severity and duration of the emergency, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted. 16 Table of Contents Item 1B. Unresolved Staff Comments None.
Failure to ensure effective transfer of knowledge and smooth transition involving key employees could also adversely affect UScellular’s business, financial condition and results of operations. 5) UScellular’s smaller scale relative to larger competitors that may have greater financial and other resources than UScellular could cause UScellular to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
Failure to ensure effective transfer of knowledge and smooth transition involving key employees could also adversely affect UScellular’s business, financial condition and results of operations. 4) UScellular’s smaller scale relative to larger competitors that may have greater financial and other resources than UScellular could cause UScellular to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
Telecommunications companies may be designated by states, or in some cases by the FCC, as an Eligible Telecommunications Carrier (ETC) to receive universal service support payments if they provide specified services in “high-cost” areas. UScellular has been designated as an ETC in certain states and received $92 million in high-cost support for service to high-cost areas in 2022.
Telecommunications companies may be designated by states, or in some cases by the FCC, as an Eligible Telecommunications Carrier (ETC) to receive universal service support payments if they provide specified services in “high-cost” areas. UScellular has been designated as an ETC in certain states and received $92 million in high-cost support for service to high-cost areas in 2023.
These include cyber-attacks intended to wrongfully obtain private and valuable information, or cause other types of malicious events, including denial of service attacks which may cause UScellular's services to be disrupted or unavailable to customers. The increasing number of associates working remotely increases risks associated with data handling and vulnerability management.
These include cyber-attacks intended to wrongfully obtain private and valuable information, or cause other types of malicious events, including denial of service attacks which may cause UScellular's services to be disrupted or unavailable to customers. The increased number of associates working remotely increases risks associated with data handling and vulnerability management.
Insufficient cash flows from operating activities, changes in UScellular's 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 UScellular or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which could require UScellular to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of wireless spectrum licenses, and/or reduce or cease share repurchases.
Insufficient cash flows from operating activities, changes in UScellular's 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 lend, other changes in the performance of UScellular or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which could require UScellular to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition and development of wireless spectrum licenses, divest assets and/or reduce or cease share repurchases.
TDS has no obligation to consent to any business opportunities proposed by UScellular and may withhold its consent in its own best interests. 23) Certain matters, such as control by TDS and provisions in the UScellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of UScellular or have other consequences.
TDS has no obligation to consent to any business opportunities proposed by UScellular and may withhold its consent in its own best interests. 24) Certain matters, such as control by TDS and provisions in the UScellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of UScellular or have other consequences.
General Risk Factors 24) UScellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on UScellular's business, financial condition or results of operations. UScellular experiences cyber-attacks of varying degrees on a regular basis.
General Risk Factors 25) UScellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on UScellular's business, financial condition or results of operations. UScellular experiences cyber-attacks of varying degrees on a regular basis.
Operational problems associated with such functions, including any failure by the vendor to provide the required level of service under the outsourcing arrangements, including possible cyber-attacks or other breaches of network or information technology security, data protection or privacy, could have adverse effects on UScellular’s business, financial condition or results of operations. 9 Table of Contents 12) A failure by UScellular to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations.
Operational problems associated with such functions, including any failure by the vendor to provide the required level of service under the outsourcing arrangements, including possible cyber-attacks or other breaches of network or information technology security, data protection or privacy, could have adverse effects on UScellular’s business, financial condition or results of operations. 12) A failure by UScellular to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations.
If appropriate, UScellular may request an amendment to one or more credit agreements to adjust financial covenants in order to provide additional financial flexibility to UScellular, and may also seek other changes to such agreements. There is no assurance that the lenders will agree to any amendments.
If appropriate, UScellular may request an amendment to one or more credit agreements to adjust financial covenants to provide additional financial flexibility to UScellular, and may also seek other changes to such agreements. There is no assurance that the lenders will agree to any amendments.
Any claims of infringement of intellectual property and proprietary rights of others could prevent UScellular from using necessary technology to provide its services or subject UScellular to expensive intellectual property litigation or monetary penalties. 22) There are potential conflicts of interests between TDS and UScellular.
Any claims of infringement of intellectual property and proprietary rights of others could prevent UScellular from using necessary technology to provide its services or subject UScellular to expensive intellectual property litigation or monetary penalties. 23) There are potential conflicts of interests between TDS and UScellular.
In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions.
In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund wireless spectrum license acquisitions.
Furthermore, consolidation among key suppliers may result in less competition, higher prices, the discontinuation of equipment and/or services typically purchased by UScellular or the discontinuation of support for equipment owned by UScellular. Operation of UScellular’s supply chain and management of its device inventory and network equipment require accurate forecasting of customer growth and demand.
Furthermore, consolidation among key suppliers may result in less competition, higher prices, the discontinuation of equipment and/or services typically purchased by UScellular or the discontinuation of support for equipment owned by UScellular. 10 Table of Contents Operation of UScellular’s supply chain and management of its device inventory and network equipment require accurate forecasting of customer growth and demand.
UScellular could fail to accurately forecast its future spectrum requirements considering changes in plan offerings, customer usage patterns, technology requirements and the expanded demands of new services.
UScellular could fail to accurately forecast its future spectrum requirements considering changes in plan offerings, customer usage patterns, spectrum build-out and technology requirements and the expanded demands of new services.
This could have an adverse effect on UScellular’s ability to attain and sustain long-term, profitable revenue growth and could have an adverse effect on its business, financial condition or results of operations. 16) UScellular has significant investments in entities that it does not control.
This could have an adverse effect on UScellular’s ability to attain and sustain long-term, profitable revenue growth and could have an adverse effect on its business, financial condition or results of operations. 12 Table of Contents 16) UScellular has significant investments in entities that it does not control.
UScellular could fail to obtain access to sufficient spectrum capacity, including spectrum needed to support 5G technology, in new or existing markets, whether through FCC auctions or other transactions, in order to meet the anticipated spectrum requirements associated with increased demand for existing services, especially increases in customer demand for data services and network speed, and to enable deployment of next-generation services.
UScellular could fail to obtain access to sufficient spectrum capacity, including spectrum needed to support 5G and future technologies, in new or existing markets, whether through FCC auctions or other transactions, to meet the anticipated spectrum requirements associated with increased demand for existing services, especially increases in customer demand for data services and network speed, and to enable deployment of next-generation services.
However, UScellular is unable to predict the future actions of the various legislative and regulatory bodies that govern UScellular, and such actions could have adverse effects on UScellular’s business. 18) UScellular receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on UScellular’s business, financial condition or results of operations.
However, UScellular is unable to predict the future actions of the various legislative and regulatory bodies that govern UScellular, and such actions could have adverse effects on UScellular’s business. 13 Table of Contents 19) UScellular receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on UScellular’s business, financial condition or results of operations.
UScellular’s primary competitors are national or global telecommunications and cable companies that are larger than UScellular, possess greater financial and other resources, possess more extensive coverage areas and more spectrum within their coverage areas, and market other services with their communications services that UScellular does not offer.
UScellular’s competitors include national or global telecommunications and cable wireless companies that are larger than UScellular, possess greater financial and other resources, possess more extensive coverage areas and more spectrum within their coverage areas, and market other services with their communications services that UScellular does not offer.
If regulatory support is discontinued or reduced from current levels, or if receipt of future regulatory support is contingent upon making certain network-related expenditures, this could have an adverse effect on UScellular’s business, financial condition or operating results.
If regulatory support is discontinued or reduced from current levels, or if receipt of future regulatory support is contingent upon making certain network-related expenditures, this could have an adverse effect on UScellular’s business, financial condition or operating results and cash flows.
These concerns could lead to potential litigation relating to accidents, deaths or serious bodily injuries. 21) Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent UScellular from using necessary technology to provide products or services or subject UScellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on UScellular’s business, financial condition or results of operations.
These concerns could lead to potential litigation relating to accidents, deaths or serious bodily injuries. 14 Table of Contents 22) Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent UScellular from using necessary technology to provide products or services or subject UScellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on UScellular’s business, financial condition or results of operations.
Specifically, UScellular’s smaller scale relative to most of its competitors could have the following impacts, among others: ▪ Low profit margins and returns on investment that are below UScellular’s cost of capital; ▪ Increased operating costs due to lack of leverage with vendors; ▪ Inability to timely and successfully deploy 5G or other wireless technologies, or to realize significant incremental revenues from their deployment; ▪ Limited opportunities for strategic partnerships as potential partners are focused on wireless companies with greater scale and scope; ▪ Limited access to content, as well as limited ability to obtain acceptably priced content; ▪ Limited access to devices as larger competitors enter into exclusive device arrangements; ▪ Consumer expectations that UScellular provides lower-priced offerings relative to larger competitors; ▪ Limited ability to influence industry standards; ▪ Reduced ability to invest in research and development of new services and products; ▪ Lower risk tolerance when evaluating new markets; ▪ Vendors may deem UScellular non-strategic and not develop or sell services and products to UScellular, particularly where technical requirements differ from those of larger companies; ▪ Limited access to intellectual property; and ▪ Other limited opportunities such as for software development or third party distribution.
Specifically, UScellular’s smaller scale relative to most of its competitors could have the following impacts, among others: ▪ Low profit margins and returns on investment that are below UScellular’s cost of capital; ▪ Increased operating and capital expenditure costs due to lack of leverage with vendors; ▪ Inability to timely and successfully deploy 5G or other wireless technologies, or to realize significant incremental revenues from their deployment; 7 Table of Contents ▪ Limited opportunities for strategic partnerships as potential partners are focused on telecommunications companies with greater scale and scope; ▪ Limited opportunities for bundling wireless service with other services such as home internet; ▪ Limited access to content, as well as limited ability to obtain acceptably priced content; ▪ Limited access to devices as larger competitors enter into exclusive device arrangements; ▪ Consumer expectations that UScellular provides lower-priced offerings relative to larger competitors; ▪ Limited ability to influence industry standards; ▪ Limited ability to acquire or build additional towers; ▪ Reduced ability to invest in research and development of new services and products; ▪ Lower risk tolerance when evaluating new markets; ▪ Vendors may deem UScellular non-strategic and not develop or sell services and products to UScellular, particularly where technical requirements differ from those of larger companies; ▪ Limited access to intellectual property; and ▪ Other limited opportunities such as for software development or third-party distribution.
UScellular’s service revenues include roaming revenues related to the use of UScellular’s network by other carriers’ customers who travel within UScellular’s coverage areas. Changes in FCC rules or actions, industry practices or the network footprints of carriers due to mergers, acquisitions or network expansions could have an adverse effect on UScellular’s roaming revenues.
UScellular’s service revenues include roaming revenues related to the use of UScellular’s network by other carriers’ customers who travel within UScellular’s coverage areas. Changes in FCC rules or actions, industry practices or the network footprints of carriers could have an adverse effect on UScellular’s roaming revenues.
Changes in economic conditions, changes in financial markets, changes in U.S. trade policies, deterioration in the capital markets or other factors could have an adverse effect on UScellular’s business, financial condition, revenues, results of operations and cash flows. 14 Table of Contents 26) The impact of public health emergencies on UScellular's business is uncertain, but depending on duration and severity could have a material adverse effect on UScellular's business, financial condition or results of operations.
Changes in economic conditions, changes in financial markets, changes in U.S. trade policies, deterioration in the capital markets or other factors could have an adverse effect on UScellular’s business, financial condition, revenues, results of operations and cash flows. 27) The impact of public health emergencies on UScellular's business is uncertain, but depending on duration and severity could have a material adverse effect on UScellular's business, financial condition or results of operations.
Financial Risk Factors 13) Uncertainty in UScellular’s future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in UScellular’s performance or market conditions, changes in UScellular’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which could require UScellular to reduce its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, and/or reduce or cease share repurchases.
Financial Risk Factors 13) Uncertainty in UScellular’s or TDS' future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in UScellular’s or TDS' performance or market conditions, changes in UScellular’s or TDS' credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which has required and could in the future require UScellular to reduce or delay its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, divest assets or businesses, and/or reduce or cease share repurchases.
UScellular’s focus on the U.S. wireless telecommunications industry, together with its positioning relative to larger competitors with greater resources within the industry, may represent increased risk for investors due to the lack of diversification.
UScellular’s focus on the U.S. wireless telecommunications industry, together with its sub-scale position relative to larger competitors with greater resources within the industry, may represent increased risk for investors due to the lack of diversification.
Changes in the administration of the various regulatory agencies and legislative bodies could result in different policies with respect to many federal laws and regulations, including but not limited to changes to fiscal and tax policies, trade policies, tariffs on import goods and climate change. New or amended regulatory requirements could increase UScellular’s costs and divert resources from other initiatives.
Various regulatory agencies and legislative bodies could implement different policies with respect to many federal laws and regulations, including but not limited to changes to fiscal and tax policies, trade policies, tariffs on import goods and climate change. New or amended regulatory requirements could increase UScellular’s costs and divert resources from other initiatives.
UScellular may be unable to compete successfully with larger companies that have substantially greater financial, technical, marketing, sales, purchasing and distribution resources or that offer more services than UScellular, which could adversely affect UScellular’s revenues and costs of doing business.
UScellular has smaller scale efficiencies compared to larger competitors. UScellular may be unable to compete successfully with larger companies that have substantially greater financial, technical, marketing, sales, purchasing and distribution resources or that offer more services than UScellular, which could adversely affect UScellular’s revenues and costs of doing business.
There can be no assurance that UScellular will be able to compete successfully in this environment. Sources of competition to UScellular’s business typically include three to four competing wireless telecommunications service providers in each market, wireline telecommunications service providers, cable companies, resellers (including MVNOs), and providers of alternative telecommunications services.
There can be no assurance that UScellular will be able to compete successfully in this environment. Sources of competition to UScellular’s business typically include at least four competing wireless telecommunications service providers across UScellular's service area, wireline telecommunications service providers, cable wireless companies, resellers (including MVNOs), and providers of alternative telecommunications services.
Further, a spectrum constrained provider will generally not be able to achieve the data speeds that other competitors with more spectrum are able to provide. UScellular may acquire access to spectrum through a number of alternatives, including acquisitions, exchanges and participation in spectrum auctions. UScellular may participate in spectrum auctions conducted by the FCC in the future.
Further, a spectrum constrained provider will generally not be able to achieve the data speeds that other competitors with more spectrum are able to provide. 8 Table of Contents UScellular may acquire access to spectrum through a number of alternatives, including acquisitions, exchanges and participation in spectrum auctions.
UScellular’s credit rating currently is sub-investment grade. UScellular has incurred negative free cash flow (defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements) at times in the past and this could occur in the future.
UScellular has incurred negative free cash flow (defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements) at times in the past and this could occur in the future.
Because TDS controls UScellular, conflicts of interest could be resolved in a manner adverse to UScellular and its other shareholders or its debt holders. 13 Table of Contents The UScellular Restated Certificate of Incorporation provides that, so long as not less than 500,000 Series A Common Shares are outstanding, UScellular, without the written consent of TDS, shall not, directly or indirectly own, invest or otherwise have an interest in, lease, operate or manage any business other than a business engaged solely in the construction of, the ownership of interests in and/or the management of wireless telephone systems.
The UScellular Restated Certificate of Incorporation provides that, so long as not less than 500,000 Series A Common Shares are outstanding, UScellular, without the written consent of TDS, shall not, directly or indirectly own, invest or otherwise have an interest in, lease, operate or manage any business other than a business engaged solely in the construction of, the ownership of interests in and/or the management of wireless telephone systems.
Depending on a range of factors, these or similar proceedings could impose restraints on UScellular’s current or future manner of doing business. 12 Table of Contents 20) 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 or frequencies used by other industries, could have an adverse effect on UScellular's business, financial condition or results of operations.
Depending on a range of factors, these or similar proceedings could impose restraints on UScellular’s current or future manner of doing business. 21) The possible development of adverse precedent in litigation or conclusions in professional or environmental studies to the effect that potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, or may interfere with various electronic medical devices or frequencies used by other industries, could have an adverse effect on UScellular's business, financial condition or results of operations.
UScellular is a party to and may in the future be a party to lawsuits against wireless carriers and other parties claiming damages for alleged health effects, including cancer or tumors, arising from wireless phones or radio frequency transmitters. Concerns over radio frequency emissions may discourage use of wireless devices or expose UScellular to potential litigation.
UScellular is a party to and may in the future be a party to lawsuits against wireless carriers and other parties claiming damages for alleged health effects, including cancer or tumors, arising from wireless phones, radio frequency transmitters, or harmful emissions from network equipment.
For example, consolidation among other carriers which have network footprints that currently overlap UScellular’s network, the expansion of other carriers' network coverage in UScellular's footprint, and/or lower roaming rates with other carriers are expected to continue to decrease future roaming revenues for UScellular. 5 Table of Contents Similarly, UScellular's customers can access another carrier’s network automatically only if the other carrier allows UScellular's customers to roam on its network.
For example, the expansion of other carriers' network coverage in UScellular's footprint and/or lower roaming rates with other carriers could continue to decrease future roaming revenues for UScellular. Similarly, UScellular's customers can access another carrier’s network automatically only if the other carrier allows UScellular's customers to roam on its network.
The provisions of the UScellular Restated Certificate of Incorporation and the existence of different classes of capital stock and voting rights could result in the exclusion of UScellular Common Shares from certain major stock indices at some point in the future, unless UScellular is grandfathered by such stock indices or qualifies for some other exception.
Such Preferred Shares could be issued in circumstances that would serve to preserve TDS’ control of UScellular. 15 Table of Contents The provisions of the UScellular Restated Certificate of Incorporation and the existence of different classes of capital stock and voting rights could result in the exclusion of UScellular Common Shares from certain major stock indices at some point in the future, unless UScellular is grandfathered by such stock indices or qualifies for some other exception.
Further, fixed-mobile convergence services that combine wireline broadband services with mobile services represent a competitive threat. If the trend toward convergence continues, UScellular is at a competitive disadvantage to larger competitors, including cable companies, the national wireless carriers and other potential large new entrants with much greater financial and other resources in adapting to such convergence.
If the trend toward bundling continues, UScellular is at a competitive disadvantage compared to larger competitors, including cable companies, the national wireless carriers and other potential large new entrants with much greater financial and other resources in adapting to such bundling.
If overall demand for wireless devices or the mix of demand for wireless devices is significantly different than UScellular’s expectations, UScellular could face inadequate or excess supplies of particular models of wireless devices. This could result in lost sales opportunities or an excess supply of device inventory.
If overall demand for wireless devices or the mix of demand for wireless devices is significantly different than UScellular’s expectations, UScellular could face inadequate or excess supplies of particular models of wireless devices.
In addition, a remote or hybrid working model and applicability of health protocols could negatively affect talent acquisition and retention.
In addition, a person's expectation of an in-office, remote or hybrid working model could negatively affect talent acquisition and retention.
UScellular’s liquidity would be adversely affected if, among other things, UScellular is unable to obtain short or long-term financing on acceptable terms, interest rates increase, UScellular makes significant spectrum license purchases, UScellular makes significant capital investments, UScellular makes significant business acquisitions, the Los Angeles SMSA Limited Partnership (LA Partnership) discontinues or significantly reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline.
UScellular’s liquidity would be adversely affected if, among other things, cash flows from operations significantly decline, UScellular is unable to obtain short or long-term financing on acceptable terms, UScellular is not able to comply with certain debt covenants or UScellular is unsuccessful in negotiating related consents, waivers, or amendments, interest rates increase, UScellular makes significant spectrum license purchases, UScellular makes significant capital investments, UScellular makes significant business acquisitions, the Los Angeles SMSA Limited Partnership (LA Partnership) and other minority-owned partnerships discontinue or significantly reduce distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline.
This is due to the fact that many customers increasingly rely on data communications to execute and validate transactions. As a result, redundancy and geographical diversity of UScellular’s network facilities are critical to providing uninterrupted service. Also, the speed of repair and maintenance procedures in the event of network interruptions is critical to maintaining customer satisfaction.
As a result, redundancy and geographical diversity of UScellular’s network facilities are critical to providing uninterrupted service. Also, the speed of repair and maintenance procedures in the event of network interruptions is critical to maintaining customer satisfaction.
As required by law, the FCC has conducted auctions for wireless spectrum licenses to use some parts of the radio spectrum. The decision to conduct auctions, and the determination of what spectrum frequencies will be made available for auction and the determination of geographic size of wireless spectrum licenses, are made by the FCC pursuant to laws that it administers.
The decision to conduct auctions, and the determination of what spectrum frequencies will be made available for auction and the determination of geographic size of wireless spectrum licenses, are made by the FCC pursuant to laws that it administers. The FCC currently does not have authority to conduct spectrum auctions.
UScellular anticipates that these competitive factors may continue to result in losses of retail connections, and may cause the prices for services and products to decline and the costs to compete to increase.
These competitive factors have resulted in losses of retail connections and UScellular anticipates that they will continue to do so. Similarly, these competitive pressures have caused the prices for services and products to decline and the costs to compete to increase and UScellular anticipates that they will continue to do so.
Losses in the values of such investments or a reduction in income from these investments could adversely affect UScellular’s financial condition or results of operations.
Losses in the values of such investments or a reduction in income from these investments could adversely affect UScellular’s financial condition or results of operations. In addition, certain investments have historically contributed significant cash flows to UScellular and a reduction or suspension of such cash flows could adversely affect UScellular’s financial condition.
TDS also may take action that favors its other businesses and the interests of its shareholders over UScellular’s wireless business and the interests of UScellular shareholders and debt holders.
TDS also may take action that favors its other businesses and the interests of its shareholders over UScellular’s wireless business and the interests of UScellular shareholders and debt holders. Because TDS controls UScellular, conflicts of interest could be resolved in a manner adverse to UScellular and its other shareholders or its debt holders.
In addition, UScellular’s wireless technology may not be compatible with technologies used by other carriers, which may limit the ability of UScellular to enter into voice or data roaming agreements with such other carriers.
In addition, UScellular’s wireless technology may not be compatible with technologies used by other carriers, which may limit the ability of UScellular to enter into voice or data roaming agreements with such other carriers. Carriers whose customers roam on UScellular’s network could switch their business to new operators, limit their high-speed usage or move traffic to their own networks.
To the extent that other carriers expand their networks in UScellular’s service areas, the roaming arrangements between UScellular and these other carriers could become less strategic for them.
Changes in roaming usage patterns, rates for roaming usage, or roaming relationships with other carriers could continue to have an adverse effect on UScellular’s roaming revenues and/or expenses. To the extent that other carriers expand their networks in UScellular’s service areas, the roaming arrangements between UScellular and these other carriers could become less strategic for them.
Interpretation and application of these rules, including conflicts between federal and state laws, may result in additional costs for compliance and may limit opportunities to derive profits from certain business practices or resources. UScellular attempts to timely and fully comply with all regulatory requirements.
Interpretation and application of these rules and of rules relating to other recent NPRMs issued by the FCC (for example, with respect to digital discrimination), including conflicts between federal and state laws, may result in additional costs for compliance and may limit opportunities to derive profits from certain business practices or resources.
Although UScellular has implemented and continues to enhance its protection and recovery measures in response to such attacks, these efforts may be insufficient to prevent a material denial of service attack in the future. 25) Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede UScellular’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 UScellular’s business, financial condition or results of operations.
Cybersecurity of this Form 10-K for additional information. 26) Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede UScellular’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 UScellular’s business, financial condition or results of operations.
UScellular maintains administrative, technical and physical controls, as well as other preventative actions, to reduce the risk of security breaches. Although to date UScellular has not discovered a material security breach, these efforts may be insufficient to prevent a material security breach stemming from future cyber-attacks including ransomware.
Although to date UScellular has not discovered a material security breach, these efforts may be insufficient to prevent a material security breach stemming from future cyber-attacks including ransomware.
Competition from cable companies has increased in recent periods, as they have continued to expand their presence in the wireless industry and have offered more competitive pricing.
In particular, competition from cable wireless companies has increased in recent periods, as they have continued to expand their presence in the wireless industry and have offered more competitive pricing. Many of UScellular’s wireless competitors and other competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than UScellular.
Media reports and certain professional studies have suggested that certain radio frequency emissions from wireless devices may be linked to various health problems, including cancer or tumors, and may interfere with various electronic medical devices, including hearing aids and pacemakers.
Media reports and certain professional studies have suggested that certain potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, and may interfere with various electronic medical devices, including hearing aids and pacemakers.
Many of UScellular’s wireless competitors and other competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than UScellular. 2) Changes in roaming practices or other factors could cause UScellular's roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact UScellular's ability to service its customers in geographic areas where UScellular does not have its own network, which could have an adverse effect on UScellular's business, financial condition or results of operations.
Many of these competitors are larger than UScellular, have greater financial and other resources, have more advantageous tower locations than UScellular, have greater capacity on their towers, and have more scale and coverage nationwide than UScellular – such factors could result in an inability to acquire or build additional towers, difficulty in leasing tower space, or cause lease revenue to decline in the future. 6 Table of Contents 2) Changes in roaming practices or other factors could cause UScellular's roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact UScellular's ability to service its customers in geographic areas where UScellular does not have its own network, which could have an adverse effect on UScellular's business, financial condition or results of operations.
The increased provision of data services has introduced significant demands on UScellular’s network and also has increased complexities related to network management. Further, the increased provision of data services on UScellular’s networks has created an increased level of risk related to quality of service and data speeds.
The increased provision of data services has introduced significant demands on UScellular’s network and also has increased complexities related to network management, which creates an increased level of risk related to quality of service and data speeds. This is due to the fact that many customers increasingly rely on data communications to execute and validate transactions.
This presents a risk to UScellular in that, to the extent UScellular is not able to enter into economically viable roaming arrangements with these other carriers, this could impact UScellular’s ability to service its customers in geographic areas where UScellular does not have its own network. 3) A failure by UScellular 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 UScellular’s business, financial condition or results of operations.
This presents a risk to UScellular in that, to the extent UScellular is not able to enter into economically viable roaming arrangements with these other carriers, this could impact UScellular’s ability to service its customers in geographic areas where UScellular does not have its own network. 3) An inability to attract diverse 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 UScellular's business, financial condition or results of operations.
Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services, including USF fees and common carrier regulatory fees.
Adding to this uncertainty are a series of court cases challenging the constitutionality of the universal service fund program that establishes and administers these regulatory support payments. Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services, including USF fees and common carrier regulatory fees.
In addition, some studies have indicated that some aspects of using a wireless device while driving may impair a driver's attention in certain circumstances, making accidents more likely.
Any resulting decrease in demand for wireless services, costs of litigation and damage awards or regulation could have an adverse effect on UScellular’s business, financial condition or results of operations. In addition, some studies have indicated that some aspects of using a wireless device while driving may impair a driver's attention in certain circumstances, making accidents more likely.
UScellular cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur. 10 Table of Contents 14) UScellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
To the extent that TDS' credit rating is downgraded, it may adversely affect UScellular's credit rating, which could result in the impacts described above. 14) UScellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
Also, although FCC rules relating to net neutrality have been repealed, the FCC and federal and state legislators may seek to reinstate net neutrality in some form and state legislators and regulators are seeking to or have already enacted state net neutrality laws and regulations.
In the interim, some state legislators and regulators are seeking to or have already enacted state net neutrality laws and regulations, and it is unclear whether more states will seek to do so now that the FCC has announced its intent to reinstate net neutrality rules.
UScellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, spectrum license or system acquisitions, capital expenditures, debt service requirements, the repurchase of shares, or making additional investments.
UScellular may require substantial additional capital for, among other uses, acquisitions of providers of telecommunications services or products, spectrum license or system acquisitions, capital expenditures, the repurchase of shares, or making additional investments. There can be no assurance that sufficient funds will continue to be available to UScellular or its subsidiaries on terms or at prices acceptable to UScellular.
New regulatory mandates or enforcement may require unexpected or increased capital expenditures, lost revenues, higher operating expenses or other changes. Court decisions and rulemakings could have a substantial impact on UScellular’s operations, including rulemakings on broadband access to the internet, intercarrier access compensation and state and federal support funding.
Court decisions and rulemakings could have a substantial impact on UScellular’s operations, including rulemakings on broadband access to the internet, intercarrier access compensation, state and federal support funding and court decisions regarding the FCC's universal service fund program or, more broadly, the scope of authority of the federal agencies that regulate UScellular.
In addition, certain investments have historically contributed significant cash flows to UScellular and a reduction or suspension of such cash flows could adversely affect UScellular’s financial condition. 11 Table of Contents Regulatory, Legal and Governance Risk Factors 17) Failure by UScellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect UScellular’s business, financial condition or results of operations.
There can be no assurance that such comprehensive process will result in any strategic alternative of any kind being successfully identified or completed or that the process or any outcomes of the process will not have an adverse impact on UScellular's business or financial statements. 18) Failure by UScellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect UScellular’s business, financial condition or results of operations.
In addition, the FCC or other regulatory authorities may adopt regulations in response to concerns about radio frequency emissions. Any resulting decrease in demand for wireless services, costs of litigation and damage awards or regulation could have an adverse effect on UScellular’s business, financial condition or results of operations.
Concerns over radio frequency emissions may discourage use of wireless devices or expose UScellular to potential litigation. In addition, the FCC or other regulatory authorities may adopt regulations in response to concerns about radio frequency or harmful network equipment emissions.
Removed
Carriers whose customers roam on UScellular’s network could switch their business to new operators, limit their high-speed usage or, over time, move traffic to their own networks. Changes in roaming usage patterns, rates for roaming usage, or roaming relationships with other carriers could continue to have an adverse effect on UScellular’s roaming revenues and/or expenses.
Added
Competition in the tower industry is also challenging, as UScellular competes with public and private tower companies, wireless carrier tower alliances, private equity sponsored tower companies, and owners of non-communications sites such as utility towers, rooftop structures, water towers, and other alternative structures.
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However, UScellular may not be able to acquire sufficient spectrum through these types of transactions, and UScellular may not be able to complete any of these transactions on favorable terms. 6 Table of Contents 4) An inability to attract diverse 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 UScellular's business, financial condition or results of operations.
Added
UScellular may participate in spectrum auctions conducted by the FCC in the future. As required by law, the FCC has conducted auctions for wireless spectrum licenses to use some parts of the radio spectrum.
Removed
There has been a trend in the telecommunications and related industries towards consolidation of service providers through acquisitions, reorganizations and joint ventures. This trend could continue, leading to larger competitors over time. UScellular has smaller scale efficiencies compared to larger competitors.
Added
However, UScellular may not be able to acquire sufficient spectrum through these types of transactions, and UScellular may not be able to complete any of these transactions on favorable terms. 7) Advances or changes in technology could render certain technologies used by UScellular obsolete, could put UScellular at a competitive disadvantage, could reduce UScellular’s revenues or could increase its costs of doing business.
Removed
There can be no assurance that sufficient funds will continue to be available to UScellular or its subsidiaries on terms or at prices acceptable to UScellular.
Added
Advances in technology could change the amount of tower space needed by wireless companies. Further, fixed-mobile bundled services that combine wireline broadband services with mobile services represent a competitive threat.
Removed
Such Preferred Shares could be issued in circumstances that would serve to preserve TDS’ control of UScellular.
Added
This could result in lost sales opportunities or an excess supply of device inventory or network equipment that may need to be written down, depreciated, or disposed of for a loss.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThese properties are either owned or leased by UScellular, one of its subsidiaries, or the partnership, limited liability company or corporation which holds the license issued by the FCC. As of December 31, 2022, UScellular’s gross investment in property, plant and equipment was $9,334 million.
Biggest changeThese properties are either owned or leased by UScellular, one of its subsidiaries, or the partnership, limited liability company or corporation which holds the license issued by the FCC. As of December 31, 2023, UScellular’s gross investment in property, plant and equipment was $9,560 million.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 16 Table of Contents PART II
Biggest changeMine Safety Disclosures Not applicable. 17 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUScellular did not determine to terminate the foregoing Common Share repurchase program, as amended, or cease making further purchases thereunder, during the fourth quarter of 2022.
Biggest changeUScellular did not determine to terminate the foregoing Common Share repurchase program, as amended, or cease making further purchases thereunder, during the fourth quarter of 2023. The maximum number of shares that may yet be purchased under this program was 1,927,000 as of December 31, 2023.
Telecommunications Index. 17 Table of Contents Issuer Purchases of Equity Securities In November 2009, UScellular announced by Form 8-K that the Board of Directors of UScellular authorized the repurchase of up to 1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis.
Telecommunications Index. 18 Table of Contents Issuer Purchases of Equity Securities In November 2009, UScellular announced by Form 8-K that the Board of Directors of UScellular authorized the repurchase of up to 1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Information UScellular's Common Shares are listed on the New York Stock Exchange under the symbol "USM." As of January 31, 2023, the last trading day of the month, UScellular's Common Shares were held by 232 record owners.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Information UScellular's Common Shares are listed on the New York Stock Exchange under the symbol "USM." As of January 31, 2024, the last trading day of the month, UScellular's Common Shares were held by 224 record owners.
The following table provides certain information with respect to all purchases made by or on behalf of UScellular, and any open market purchases made by any “affiliated purchaser” (as defined by the SEC) of UScellular, of UScellular Common Shares during the fourth quarter of 2022.
There were no purchases made by or on behalf of UScellular, and any open market purchases made by any “affiliated purchaser” (as defined by the SEC) of UScellular, of UScellular Common Shares during the fourth quarter of 2023. Item 6. [Reserved] 19 Table of Contents
Telecommunications Index 100 93.27 119.28 112.22 102.50 96.60 The comparison above assumes $100.00 invested at the close of trading on the last trading day of 2017, in UScellular Common Shares, S&P 500 Index and the Dow Jones U.S.
Telecommunications Index 100 127.88 120.31 109.89 103.57 107.20 The comparison above assumes $100.00 invested at the close of trading on the last trading day of 2018, in UScellular Common Shares, S&P 500 Index and the Dow Jones U.S.
Note: Cumulative total return assumes reinvestment of dividends. 2017 2018 2019 2020 2021 2022 UScellular Common Shares (NYSE: USM) $ 100 $ 138.11 $ 96.28 $ 81.56 $ 83.76 $ 55.40 S&P 500 Index 100 95.62 125.72 148.85 191.58 156.88 Dow Jones U.S.
Note: Cumulative total return assumes reinvestment of dividends. 2018 2019 2020 2021 2022 2023 UScellular Common Shares (NYSE: USM) $ 100 $ 69.71 $ 59.05 $ 60.65 $ 40.11 $ 79.91 S&P 500 Index 100 131.49 155.68 200.37 164.08 207.21 Dow Jones U.S.
Removed
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 October 1 - 31, 2022 152,056 $ 26.56 152,056 2,353,492 November 1 - 30, 2022 426,551 $ 22.71 426,551 1,926,941 December 1 - 31, 2022 — $ — — 1,926,941 Total for or as of the end of the quarter ended December 31, 2022 578,607 $ 23.72 578,607 1,926,941 Item 6. [Reserved] 18 Table of Contents
Added
UScellular cannot predict whether the outcome of the ongoing process to explore a range of strategic alternatives that UScellular and TDS announced on August 4, 2023 or other factors would impact such intention.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. 24 Index to MD&A Financial Overview Year Ended December 31, 2022 2021 2022 vs. 2021 (Dollars in millions) Retail service 1 $ 2,793 $ 2,757 1 % Inbound roaming 67 110 (39) % Other 1 265 248 7 % Service revenues 3,125 3,115 — Equipment sales 1,044 1,007 4 % Total operating revenues 4,169 4,122 1 % System operations (excluding Depreciation, amortization and accretion reported below) 755 790 (4) % Cost of equipment sold 1,216 1,118 9 % Selling, general and administrative 1,408 1,345 5 % Depreciation, amortization and accretion 700 678 3 % Loss on impairment of licenses 3 — N/M (Gain) loss on asset disposals, net 19 23 (18) % (Gain) loss on sale of business and other exit costs, net (1) (2) 52 % Total operating expenses 4,100 3,952 4 % Operating income $ 69 $ 170 (59) % Net income $ 35 $ 160 (78) % Adjusted OIBDA (Non-GAAP) 2 $ 790 $ 869 (9) % Adjusted EBITDA (Non-GAAP) 2 $ 956 $ 1,054 (9) % Capital expenditures 3 $ 717 $ 780 (8) % N/M - Percentage change not meaningful 1 For 2021, amounts have been adjusted to reclassify $8 million of Internet of Things (IoT) and Reseller revenues from Retail service to Other service. 2 Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 3 Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 25 Index to MD&A Operating Revenues (Dollars in millions) Service revenues consist of: ▪ Retail Service – Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges ▪ Inbound Roaming – Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming ▪ Other Service – Amounts received from the Federal USF, tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT) Equipment revenues consist of: ▪ Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors Key components of changes in the statement of operations line items were as follows: Total operating revenues Retail service revenues increased in 2022 primarily as a result of an increase in Postpaid ARPU, partially offset by a decrease in average postpaid connections, as well as a $9 million out-of-period error that increased revenue recognized in 2021.
Biggest changeThis adjustment was not material to any of the periods impacted. 2 Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 3 Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 26 Index to MD&A Operating Revenues (Dollars in millions) Service revenues consist of: ▪ Retail Service – Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges ▪ Inbound Roaming – Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming ▪ Other Service – Amounts received from the Federal USF, third-party tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT) Equipment revenues consist of: ▪ Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors Key components of changes in the statement of operations line items were as follows: Total operating revenues Retail service revenues decreased in 2023 primarily as a result of a decrease in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU as previously discussed in the Operational Overview section.
This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus.
This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a local community focus.
Variable Interest Entities UScellular consolidates certain “variable interest entities” as defined under GAAP. See Note 14 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. UScellular may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.
Variable Interest Entities UScellular consolidates certain “variable interest entities” as defined under GAAP. See Note 14 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. UScellular may elect to make additional capital contributions and/or advances to these variable interest entities in future periods to fund their operations.
Operational Risk Factors ▪ Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect UScellular’s revenues or increase its costs to compete. ▪ Changes in roaming practices or other factors could cause UScellular's roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact UScellular's ability to service its customers in geographic areas where UScellular does not have its own network, which could have an adverse effect on UScellular's business, financial condition or results of operations. ▪ A failure by UScellular 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 UScellular’s business, financial condition or results of operations. ▪ An inability to attract diverse 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 UScellular's business, financial condition or results of operations. ▪ UScellular’s smaller scale relative to larger competitors that may have greater financial and other resources than UScellular could cause UScellular 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 UScellular’s business, financial condition or results of operations. ▪ Advances or changes in technology could render certain technologies used by UScellular obsolete, could put UScellular at a competitive disadvantage, could reduce UScellular’s revenues or could increase its costs of doing business. ▪ Complexities associated with deploying new technologies present substantial risk and UScellular investments in unproven technologies may not produce the benefits that UScellular expects. ▪ Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of UScellular’s business could have an adverse effect on UScellular’s business, financial condition or results of operations. ▪ A failure by UScellular 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 UScellular does business, including changes in UScellular's relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third-party national retailers who market UScellular’s services, could adversely affect UScellular's business, financial condition or results of operations. ▪ A failure by UScellular to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations. 36 Index to MD&A Financial Risk Factors ▪ Uncertainty in UScellular’s future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in UScellular’s performance or market conditions, changes in UScellular’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which could require UScellular to reduce its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, and/or reduce or cease share repurchases. ▪ UScellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt. ▪ UScellular’s assets and revenue are concentrated in the U.S. wireless telecommunications industry.
Operational Risk Factors ▪ Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect UScellular’s revenues or increase its costs to compete. ▪ Changes in roaming practices or other factors could cause UScellular's roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact UScellular's ability to service its customers in geographic areas where UScellular does not have its own network, which could have an adverse effect on UScellular's business, financial condition or results of operations. ▪ An inability to attract diverse 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 UScellular's business, financial condition or results of operations. ▪ UScellular’s smaller scale relative to larger competitors that may have greater financial and other resources than UScellular could cause UScellular 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 UScellular’s business, financial condition or results of operations. ▪ A failure by UScellular 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 UScellular’s business, financial condition or results of operations. ▪ Advances or changes in technology could render certain technologies used by UScellular obsolete, could put UScellular at a competitive disadvantage, could reduce UScellular’s revenues or could increase its costs of doing business. ▪ Complexities associated with deploying new technologies present substantial risk and UScellular investments in unproven technologies may not produce the benefits that UScellular expects. ▪ Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of UScellular’s business could have an adverse effect on UScellular’s business, financial condition or results of operations. ▪ A failure by UScellular 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 UScellular does business, including changes in UScellular's relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third-party national retailers who market UScellular’s services, could adversely affect UScellular's business, financial condition or results of operations. ▪ A failure by UScellular to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations. 37 Index to MD&A Financial Risk Factors ▪ Uncertainty in UScellular’s or TDS' future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in UScellular’s or TDS' performance or market conditions, changes in UScellular’s or TDS' credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to UScellular, which has required and could in the future require UScellular to reduce or delay its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, divest assets or businesses, and/or reduce or cease share repurchases. ▪ UScellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt. ▪ UScellular’s assets and revenue are concentrated in the U.S. wireless telecommunications industry.
The wireless spectrum licenses from Auction 108 were granted by the FCC on December 1, 2022. 35 Index to MD&A Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report contain statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.
The wireless spectrum licenses from Auction 108 were granted by the FCC on December 1, 2022. 36 Index to MD&A Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report contain statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.
Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of UScellular’s operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of UScellular’s financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.
Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of UScellular’s operating results before significant recurring non-cash charges, nonrecurring expenses, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of UScellular’s financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.
See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. 34 Index to MD&A Regulatory Matters 5G Fund On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America.
See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. 35 Index to MD&A Regulatory Matters 5G Fund On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America.
Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt. The following table presents the scheduled principal payments on long-term debt, lease obligations and the related weighted average interest rates by maturity dates at December 31, 2022: Principal Payments Due by Period Long-Term Debt Obligations 1 Weighted-Avg.
Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt. The following table presents the scheduled principal payments on long-term debt, lease obligations and the related weighted average interest rates by maturity dates at December 31, 2023: Principal Payments Due by Period Long-Term Debt Obligations 1 Weighted-Avg.
See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information. 38 Index to MD&A Supplemental Information Relating to Non-GAAP Financial Measures UScellular sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business.
See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information. 39 Index to MD&A Supplemental Information Relating to Non-GAAP Financial Measures UScellular sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business.
In recent years, rapid changes in technology and new opportunities (such as 5G and VoLTE technology) have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades of UScellular’s networks to remain competitive; this is expected to continue in 2023 and future years with the continued deployment of 5G technology.
In recent years, rapid changes in technology and new opportunities (such as 5G and VoLTE technology) have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades of UScellular’s networks to remain competitive; this is expected to continue in 2024 and future years with the continued deployment of 5G technology.
In addition, UScellular is focused on increasing revenues from prepaid plans, tower rent revenues and expanding its solutions available to business and government customers. ▪ UScellular continues to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
In addition, UScellular is focused on increasing tower rent revenues and expanding its solutions available to business and government customers. ▪ UScellular continues to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
System operations expenses System operations expenses decreased in 2022, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses. The decrease in roaming expense was driven by a decrease in roaming rates partially offset by an increase in usage.
System operations expenses System operations expenses decreased in 2023, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses. The decrease in roaming expense was driven by a decrease in roaming rates partially offset by an increase in usage.
Acquisitions, Divestitures and Exchanges UScellular may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties or wireless spectrum licenses (including pursuant to FCC auctions). In general, UScellular may not disclose such transactions until there is a definitive agreement.
Acquisitions, Divestitures and Exchanges UScellular may be engaged in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, assets, or wireless spectrum licenses (including pursuant to FCC auctions). In general, UScellular may not disclose such transactions until there is a definitive agreement.
Wireless spectrum licenses are considered to be indefinite-lived assets and, therefore, are not amortized but rather are tested at least annually for impairment. Significant negative events, such as changes in any of the assumptions described below as well as decreases in forecasted cash flows, could result in an impairment in future periods.
Wireless spectrum licenses are considered to be indefinite-lived assets, and therefore are not amortized but are tested at least annually for impairment. Significant negative events, such as changes in any of the assumptions described below as well as decreases in forecasted cash flows, could result in an impairment.
See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information. 2 Represents the weighted average stated interest rates at December 31, 2022, for debt maturing in the respective periods.
See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information. 2 Represents the weighted average stated interest rates at December 31, 2023, for debt maturing in the respective periods.
In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of wireless spectrum licenses.
In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund wireless spectrum license acquisitions.
General Risk Factors ▪ UScellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on UScellular's business, financial condition or results of operations. ▪ Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede UScellular’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 UScellular’s business, financial condition or results of operations. ▪ The impact of public health emergencies on UScellular's business is uncertain, but depending on duration and severity could have a material adverse effect on UScellular's business, financial condition or results of operations. 37 Index to MD&A Market Risk Long-Term Debt As of December 31, 2022, approximately 60% of UScellular's long-term debt was in fixed-rate senior notes and approximately 40% in variable-rate debt.
General Risk Factors ▪ UScellular has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on UScellular's business, financial condition or results of operations. ▪ Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede UScellular’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 UScellular’s business, financial condition or results of operations. ▪ The impact of public health emergencies on UScellular's business is uncertain, but depending on duration and severity could have a material adverse effect on UScellular's business, financial condition or results of operations. 38 Index to MD&A Market Risk Long-Term Debt As of December 31, 2023, approximately 70% of UScellular's long-term debt was in fixed-rate senior notes and approximately 30% in variable-rate debt.
Quantitative and Qualitative Disclosures About Market Risk See section entitled “Market Risk” in Item 7 of this Form 10-K. 41 Table of Contents
Quantitative and Qualitative Disclosures About Market Risk See section entitled “Market Risk” in Item 7 of this Form 10-K. 42 Table of Contents
The 5G Fund will be implemented through a two-phase competitive process, using multi-round auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones.
The 5G Fund will be implemented through a two-phase competitive process, using multiround auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones.
UScellular intends to finance its capital expenditures for 2023 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its existing agreements and/or other forms of financing.
UScellular intends to finance its capital expenditures for 2024 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its existing agreements and/or other forms of available financing.
UScellular makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade wireless telecommunications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to UScellular’s networks.
UScellular makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade wireless telecommunications networks and facilities with a goal of creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to UScellular’s networks.
Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in UScellular's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for that discussion. 20 Index to MD&A General UScellular owns, operates, and invests in wireless markets throughout the United States.
Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in UScellular's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, for that discussion. 21 Index to MD&A General UScellular owns, operates, and invests in wireless markets throughout the United States.
Executive Overview 20 Terms used by UScellular 23 Operational Overview 24 Financial Overview 25 Liquidity and Capital Resources 28 Consolidated Cash Flow Analysis 32 Consolidated Balance Sheet Analysis 33 Application of Critical Accounting Policies and Estimates 34 Regulatory Matters 35 Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement 36 Market Risk 38 Supplemental Information Relating to Non-GAAP Financial Measures 39 19 Index to MD&A United States Cellular Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview The following Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements and notes of United States Cellular Corporation (UScellular) for the year ended December 31, 2022, and with the description of UScellular’s business included herein.
Executive Overview 21 Terms used by UScellular 24 Operational Overview 25 Financial Overview 26 Liquidity and Capital Resources 29 Consolidated Cash Flow Analysis 33 Consolidated Balance Sheet Analysis 34 Application of Critical Accounting Policies and Estimates 35 Regulatory Matters 36 Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement 37 Market Risk 39 Supplemental Information Relating to Non-GAAP Financial Measures 40 20 Index to MD&A United States Cellular Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview The following Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements and notes of United States Cellular Corporation (UScellular) for the year ended December 31, 2023, and with the description of UScellular’s business included herein.
Interest Rates on Long-Term Debt Obligations 2 (Dollars in millions) 2023 $ 13 6.2 % 2024 20 6.1 % 2025 20 6.1 % 2026 268 5.9 % 2027 158 6.0 % Thereafter 2,514 6.1 % Total $ 2,993 6.1 % 1 The 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 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.
Interest Rates on Long-Term Debt Obligations 2 (Dollars in millions) 2024 $ 20 7.1 % 2025 20 7.1 % 2026 268 7.0 % 2027 158 7.0 % 2028 286 7.5 % Thereafter 2,228 6.2 % Total $ 2,980 6.4 % 1 The 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 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.
Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.
Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, gains and losses, and expenses related to the strategic alternatives review of UScellular, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.
UScellular is an 84%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).
UScellular is an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).
UScellular paid $30 million of this amount in 2020 and the remainder 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 accelerated relocation incentive payments.
UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular was obligated to pay approximately $179 million in total from 2021 through 2025 related to relocation costs and accelerated relocation incentive payments.
Free cash flow is a non-GAAP financial measure which UScellular believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment and Cash paid for software license agreements. 2022 2021 (Dollars in millions) Cash flows from operating activities (GAAP) $ 832 $ 802 Cash paid for additions to property, plant and equipment (602) (724) Cash paid for software license agreements (22) (9) Free cash flow (Non-GAAP) $ 208 $ 69 40 Table of Contents Item 7A.
Free cash flow is a non-GAAP financial measure which UScellular believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment and Cash paid for software license agreements. 2023 2022 (Dollars in millions) Cash flows from operating activities (GAAP) $ 866 $ 832 Cash paid for additions to property, plant and equipment (608) (602) Cash paid for software license agreements (66) (22) Free cash flow (Non-GAAP) $ 192 $ 208 41 Table of Contents Item 7A.
Fair Value of Long-Term Debt At December 31, 2022 and 2021, the estimated fair value of long-term debt obligations, excluding lease obligations, the current portion of such long-term debt and debt financing costs, was $2,502 million and $2,999 million, respectively, and the book value was $3,244 million and $2,781 million, respectively.
Fair Value of Long-Term Debt At December 31, 2023 and 2022, the estimated fair value of long-term debt obligations, excluding lease obligations, the current portion of such long-term debt and debt financing costs, was $2,611 million and $2,502 million, respectively, and the book value was $3,099 million and $3,244 million, respectively.
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, in 2022 and 2021, were as follows: Capital Expenditures (Dollars in millions) In 2022, UScellular's capital expenditures were used for the following purposes: ▪ Continue network modernization and 5G deployment; ▪ Enhance and maintain UScellular's network coverage, including providing additional speed and capacity to accommodate increased data usage by current customers; and ▪ Invest in information technology to support existing and new services and products.
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, in 2023 and 2022, were as follows: Capital Expenditures (Dollars in millions) In 2023, UScellular's capital expenditures were used for the following purposes: ▪ Enhance and maintain UScellular's network capacity and coverage, including continued deployment of 5G with a focus on mid-band spectrum to provide additional speed and capacity to accommodate increased data usage by current customers; and ▪ Invest in information technology to support existing and new services and products.
Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes UScellular’s cash flow activities in 2022 and 2021. 2022 Commentary UScellular’s Cash, cash equivalents and restricted cash increased $109 million.
Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes UScellular’s cash flow activities in 2023 and 2022. 2023 Commentary UScellular’s Cash, cash equivalents and restricted cash decreased $129 million.
Regulatory, Legal and Governance Risk Factors ▪ Failure by UScellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect UScellular’s business, financial condition or results of operations. ▪ UScellular receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on UScellular’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 UScellular’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 or frequencies used by other industries, could have an adverse effect on UScellular'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 UScellular from using necessary technology to provide products or services or subject UScellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on UScellular’s business, financial condition or results of operations. ▪ There are potential conflicts of interests between TDS and UScellular. ▪ Certain matters, such as control by TDS and provisions in the UScellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of UScellular or have other consequences.
Regulatory, Legal and Governance Risk Factors ▪ TDS and UScellular have initiated a process to explore a range of strategic alternatives for UScellular and there can be no assurance that any strategic alternative will be successfully identified or completed, that any such strategic alternative will result in additional value for UScellular and its shareholders, or that the process will not have an adverse impact on UScellular's business or financial statements. ▪ Failure by UScellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect UScellular’s business, financial condition or results of operations. ▪ UScellular receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on UScellular’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 UScellular’s business, financial condition or results of operations. ▪ The possible development of adverse precedent in litigation or conclusions in professional or environmental studies to the effect that potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, or may interfere with various electronic medical devices or frequencies used by other industries, could have an adverse effect on UScellular'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 UScellular from using necessary technology to provide products or services or subject UScellular to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on UScellular’s business, financial condition or results of operations. ▪ There are potential conflicts of interests between TDS and UScellular. ▪ Certain matters, such as control by TDS and provisions in the UScellular Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of UScellular or have other consequences.
OPERATIONS ▪ Serves customers with 4.7 million retail connections including 4.2 million postpaid and 0.5 million prepaid connections ▪ Operates in 21 states ▪ Employs approximately 4,900 associates ▪ 4,336 owned towers ▪ 6,945 cell sites in service 21 Index to MD&A UScellular Mission and Strategy UScellular’s mission is to connect its customers to what matters most to them.
OPERATIONS ▪ Serves customers with 4.6 million retail connections including 4.1 million postpaid and 0.5 million prepaid connections ▪ Operates in 21 states ▪ Employs approximately 4,300 associates ▪ Owns 4,373 towers ▪ Operates 7,000 cell sites in service 22 Index to MD&A UScellular Mission and Strategy UScellular’s mission is to connect its customers to what matters most to them.
UScellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, repurchases of shares, or making additional investments.
UScellular may require substantial additional funding for, among other uses, capital expenditures, acquisitions of providers of wireless telecommunications services, wireless spectrum license acquisitions, agreements to purchase goods or services, leases, repurchases of shares, or making additional investments.
Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions.
Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. This report contains statements that are not based on historical facts, which may be identified by words such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “will” and similar expressions.
Receivables Securitization Agreement UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until the maturity date.
Receivables Securitization Agreement UScellular, through its subsidiaries, has a receivables securitization agreement that permits securitized borrowings using its equipment installment plan receivables. In September 2023, UScellular amended the agreement to extend the maturity date to September 2025. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity.
On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.
On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in the first quarter of 2022.
Connections are associated with all types of devices that connect directly to the UScellular network. ▪ Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States. ▪ 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. 23 Index to MD&A Operational Overview As of December 31, 2022 2021 Retail Connections – End of Period Postpaid 4,247,000 4,380,000 Prepaid 493,000 513,000 Total 4,740,000 4,893,000 Year Ended December 31, 2022 2021 2022 vs. 2021 Postpaid Activity and Churn Gross Additions Handsets 397,000 434,000 (9) % Connected Devices 162,000 159,000 2 % Total Gross Additions 559,000 593,000 (6) % Net Additions (Losses) Handsets (110,000) (11,000) N/M Connected Devices (23,000) (21,000) (10) % Total Net Additions (Losses) (133,000) (32,000) N/M Churn Handsets 1.12 % 0.96 % Connected Devices 2.95 % 2.72 % Total Churn 1.34 % 1.18 % N/M - Percentage change not meaningful Total postpaid handset net losses increased in 2022 due to lower gross additions and higher defections resulting from aggressive industry-wide competition and an increase in non-pay customers.
Connections are associated with all types of devices that connect directly to the UScellular network. ▪ Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States. ▪ 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. 24 Index to MD&A Operational Overview As of December 31, 2023 2022 Retail Connections – End of Period Postpaid 4,106,000 4,247,000 Prepaid 451,000 493,000 Total 4,557,000 4,740,000 Year Ended December 31, 2023 2022 2023 vs. 2022 Postpaid Activity and Churn Gross Additions Handsets 339,000 397,000 (15) % Connected Devices 178,000 162,000 10 % Total Gross Additions 517,000 559,000 (8) % Net Additions (Losses) Handsets (145,000) (110,000) (32) % Connected Devices 7,000 (23,000) N/M Total Net Additions (Losses) (138,000) (133,000) (4) % Churn Handsets 1.10 % 1.12 % Connected Devices 2.77 % 2.95 % Total Churn 1.31 % 1.34 % N/M - Percentage change not meaningful Total postpaid handset net losses increased in 2023 due primarily to lower gross additions resulting from aggressive industry-wide competition.
Net cash provided by operating activities was $802 million due to net income of $160 million adjusted for non-cash items of $677 million and distributions received from unconsolidated entities of $176 million including $76 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $211 million.
Net cash provided by operating activities was $866 million due to net income of $58 million adjusted for non-cash items of $693 million and distributions received from unconsolidated entities of $150 million including $69 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $35 million.
Amounts under the revolving credit agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement. As of December 31, 2022, there were no outstanding borrowings under the revolving credit agreement, and UScellular’s unused borrowing capacity was $300 million.
Amounts under the revolving credit agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. As of December 31, 2023, there were no outstanding borrowings under the revolving credit agreement, and UScellular’s unused borrowing capacity was $300 million. Term Loan Agreements UScellular has term loan agreements with maximum borrowing capacities of $800 million.
As part of this strategy, UScellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions. 22 Index to MD&A Terms Used by UScellular The following is a list of definitions of certain industry terms that are used throughout this document: ▪ 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. ▪ 5G – fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. ▪ Account – represents an individual or business financially responsible for one or multiple associated connections.
At this time, UScellular cannot predict the ultimate outcome of such process or estimate the potential impact of such process on the financial statements. 23 Index to MD&A Terms Used by UScellular The following is a list of definitions of certain industry terms that are used throughout this document: ▪ 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. ▪ 5G – fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. ▪ Account – represents an individual or business financially responsible for one or multiple associated connections.
UScellular’s agreements do not cease to be available nor do the maturity dates accelerate solely as a result of a downgrade in credit rating. However, a downgrade in UScellular’s credit rating could adversely affect its ability to renew the agreements or obtain access to other credit agreements in the future. UScellular is rated as a sub-investment grade issuer.
UScellular’s agreements do not cease to be available nor do the maturity dates accelerate solely as a result of a downgrade in credit rating. However, a downgrade in UScellular’s credit rating or TDS' credit rating could adversely affect UScellular's ability to renew the agreements, obtain consents, waivers, or amendments, or obtain access to other credit agreements in the future.
However, UScellular believes that existing cash and investment balances, funds available under its financing agreements and expected cash flows from operating and investing activities will provide sufficient liquidity for UScellular to meet its normal day-to-day operating needs and debt service requirements for the next several years.
UScellular believes that existing cash and investment balances, funds available under its financing agreements, its ability to obtain future external financing, potential dispositions and expected cash flows from operating and investing activities will provide sufficient liquidity for UScellular to meet its day-to-day operating needs and debt service requirements.
UScellular does not expect to have access to this spectrum until late 2023. On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110).
UScellular received full access to the spectrum in the third quarter of 2023. On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110).
The following table reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income. 2022 2021 (Dollars in millions) Net income (GAAP) $ 35 $ 160 Add back: Income tax expense 37 20 Interest expense 163 175 Depreciation, amortization and accretion 700 678 EBITDA (Non-GAAP) 935 1,033 Add back or deduct: Loss on impairment of licenses 3 — (Gain) loss on asset disposals, net 19 23 (Gain) loss on sale of business and other exit costs, net (1) (2) Adjusted EBITDA (Non-GAAP) 956 1,054 Deduct: Equity in earnings of unconsolidated entities 158 179 Interest and dividend income 8 6 Adjusted OIBDA (Non-GAAP) 790 869 Deduct: Depreciation, amortization and accretion 700 678 Loss on impairment of licenses 3 — (Gain) loss on asset disposals, net 19 23 (Gain) loss on sale of business and other exit costs, net (1) (2) Operating income (GAAP) $ 69 $ 170 39 Index to MD&A Free Cash Flow The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and Cash paid for software license agreements.
The following tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income. 40 Index to MD&A 2023 2022 (Dollars in millions) Net income (GAAP) $ 58 $ 35 Add back: Income tax expense 53 37 Interest expense 196 163 Depreciation, amortization and accretion 656 700 EBITDA (Non-GAAP) 963 935 Add back or deduct: Expenses related to strategic alternatives review 8 — Loss on impairment of licenses — 3 (Gain) loss on asset disposals, net 17 19 (Gain) loss on sale of business and other exit costs, net — (1) (Gain) loss on license sales and exchanges, net (2) — Adjusted EBITDA (Non-GAAP) 986 956 Deduct: Equity in earnings of unconsolidated entities 158 158 Interest and dividend income 10 8 Adjusted OIBDA (Non-GAAP) 818 790 Deduct: Depreciation, amortization and accretion 656 700 Expenses related to strategic alternatives review 8 — Loss on impairment of licenses — 3 (Gain) loss on asset disposals, net 17 19 (Gain) loss on sale of business and other exit costs, net — (1) (Gain) loss on license sales and exchanges, net (2) — Operating income (GAAP) $ 139 $ 69 Free Cash Flow The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and Cash paid for software license agreements.
UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $65 million and $82 million for 2022 and 2021, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolid ated Financial Statements for additional information.
UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $65 million for both 2023 and 2022. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolid ated Financial Statements for additional information. Interest expense Interest expense increased in 2023 due primarily to interest rate increases on variable rate debt.
It may be necessary from time to time to increase the size of the existing credit facilities, to amend existing or put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures. Cash and Cash Equivalents Cash and cash equivalents include cash and money market investments.
It may be necessary from time to time to increase the size of its existing credit facilities, to amend existing or put in place new credit agreements, to obtain other forms of financing, issue equity securities, or to divest assets in order to fund potential expenditures.
For additional information related to the current repurchase authorization, see Note 16 — Common Shareholders’ Equity in the Notes to Consolidated Financial Statements. 31 Index to MD&A Consolidated Cash Flow Analysis UScellular operates a capital‑intensive business.
Therefore, there is no assurance that UScellular will make any share repurchases in the future. For additional information related to the current repurchase authorization, see Note 16 — Common Shareholders’ Equity in the Notes to Consolidated Financial Statements. 32 Index to MD&A Consolidated Cash Flow Analysis UScellular operates a capital‑intensive business.
Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.
Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements.
Export Credit Financing Agreement In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement. During 2022, UScellular borrowed $150 million, which is the full amount available under the agreement and is due in January 2027.
Export Credit Financing Agreement UScellular has 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 facility agreement. The maturity date for the agreement is January 2027. As of December 31, 2023, UScellular has borrowed the full amount available under the agreement.
Financial Covenants The revolving credit agreement, term loan agreements, export credit financing agreement and receivables securitization agreement require UScellular to comply with certain affirmative and negative covenants, which include certain financial covenants.
The repurchase agreement expired in January 2024. Debt Covenants The revolving credit agreement, term loan agreements, export credit financing agreement and receivables securitization agreement require UScellular to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available.
The primary objective of UScellular's Cash and cash equivalents investment activities is to preserve principal. Cash and Cash Equivalents (Dollars in millions) The majority of UScellular’s Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies.
Cash and Cash Equivalents (Dollars in millions) The majority of UScellular’s Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.
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. UScellular has incurred negative free cash flow at times in the past and this could occur in the future.
There is no assurance that this will be the case in the future. UScellular has incurred negative free cash flow at times in past periods, and this could occur in future periods.
During 2022, UScellular repaid $250 million and borrowed $75 million under the agreement. As of December 31, 2022, the outstanding borrowings under the agreement were $275 million and the unused borrowing capacity was $175 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.
As of December 31, 2023, the outstanding borrowings under the agreement were $150 million and the unused borrowing capacity was $300 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In January 2024, UScellular repaid $50 million under the agreement.
In February 2023, UScellular borrowed $25 million under the receivables securitization agreement. Repurchase Agreement In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender.
Repurchase Agreement UScellular, through a subsidiary (the repo subsidiary), had 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. In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024.
Components of Other Income (Expense) Year Ended December 31, 2022 2021 2022 vs. 2021 (Dollars in millions) Operating income $ 69 $ 170 (59) % Equity in earnings of unconsolidated entities 158 179 (12) % Interest and dividend income 8 6 35 % Interest expense (163) (175) 7 % Total investment and other income 3 10 (73) % Income before income taxes 72 180 (60) % Income tax expense 37 20 79 % Net income 35 160 (78) % Less: Net income attributable to noncontrolling interests, net of tax 5 5 (3) % Net income attributable to UScellular shareholders $ 30 $ 155 (81) % Equity in earnings of unconsolidated entities Equity in earnings of unconsolidated entities represents UScellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for u sing the equity method or the net asset value practical expedient.
Components of Other Income (Expense) Year Ended December 31, 2023 2022 2023 vs. 2022 (Dollars in millions) Operating income $ 139 $ 69 N/M Investment and other income (expense) Equity in earnings of unconsolidated entities 158 158 – Interest and dividend income 10 8 26 % Interest expense (196) (163) (21) % Total investment and other income (expense) (28) 3 N/M Income before income taxes 111 72 54 % Income tax expense 53 37 43 % Net income 58 35 67 % Less: Net income attributable to noncontrolling interests, net of tax 4 5 (24) % Net income attributable to UScellular shareholders $ 54 $ 30 80 % N/M - Percentage change not meaningful Equity in earnings of unconsolidated entities Equity in earnings of unconsolidated entities represents UScellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for u sing the equity method or the net asset value practical expedient.
On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 2.5 GHz band (Auction 108). On September 1, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 34 wireless spectrum licenses for $3 million.
On September 1, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 34 wireless spectrum licenses for $3 million.
Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents. In addition to Cash and cash equivalents, UScellular had undrawn borrowing capacity from the following debt facilities at December 31, 2022. See the Financing section below for further details.
In addition to Cash and cash equivalents, UScellular had available undrawn borrowing capacity (taking into account debt covenant restrictions) from the following debt facilities at December 31, 2023. See the Financing section below for further details.
UScellular believes that it was in compliance as of December 31, 2022 with all such financial covenants. Other Long-Term Financing UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.
Other Long-Term Financing UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.
A discussion of the reason UScellular determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section within the MD&A of this Form 10-K Report.
A discussion of the reasons UScellular determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with GAAP are included in the disclosure under the heading Supplemental Information Relating to Non-GAAP Financial Measures within the MD&A of this report. The following MD&A omits discussion of 2022 compared to 2021.
Postpaid Revenue Year Ended December 31, 2022 2021 2022 vs. 2021 Average Revenue Per User (ARPU) $ 50.14 $ 48.03 4% Average Revenue Per Account (ARPA) $ 130.39 $ 125.92 4% Postpaid ARPU and Postpaid ARPA increased in 2022, due primarily to (i) favorable plan and product offering mix, (ii) an increase in cost recovery surcharges and (iii) an increase in device protection plan revenues.
Postpaid Revenue Year Ended December 31, 2023 2022 2023 vs. 2022 Average Revenue Per User (ARPU) $ 51.01 $ 50.14 2% Average Revenue Per Account (ARPA) $ 130.91 $ 130.39 – Postpaid ARPU increased in 2023 due to favorable plan and product offering mix and an increase in device protection plan revenues, partially offset by an increase in promotional discounts.
In early 2022, UScellular received an income tax refund of $123 million related to the 2020 net operating loss carryback enabled by the CARES Act. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. 27 Index to MD&A Liquidity and Capital Resources Sources of Liquidity UScellular operates a capital-intensive business.
See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. 28 Index to MD&A Liquidity and Capital Resources Sources of Liquidity UScellular operates a capital-intensive business.
Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes. UScellular paid $36 million and $8 million related to the additional costs in October 2021 and September 2022, respectively. The spectrum must be cleared by incumbent providers before UScellular can access it.
Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes. UScellular paid $122 million, $8 million and $36 million related to the additional costs for the years ended December 31, 2023, 2022 and 2021, respectively.
These were partially offset by $250 million of repayments on the receivables securitization agreement, a $75 million repayment on the revolving credit agreement, a $50 million repayment on the EIP receivables repurchase agreement, the repurchase of $43 million of Common Shares and cash paid for software license agreements of $22 million. 2021 Commentary UScellular’s Cash, cash equivalents and restricted cash decreased $1,092 million.
These were partially offset by $250 million of repayments on the receivables securitization agreement, a $75 million repayment on the revolving credit agreement, a $50 million repayment on the EIP receivables repurchase agreement, the repurchase of $43 million of Common Shares and cash paid for software license agreements of $22 million. 33 Index to MD&A Consolidated Balance Sheet Analysis The following discussion addresses certain captions in the consolidated balance sheet and changes therein.
In particular, under these agreements, UScellular is required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. UScellular also is required to maintain the Consolidated Leverage Ratio at a level not to exceed 3.75 to 1.00 as of the end of any fiscal quarter.
UScellular is also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. UScellular believes that it was in compliance as of December 31, 2023 with all such financial covenants.
Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Refer to Market Risk — Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to UScellular’s Long-term debt.
Depending on its future financial performance, construction, development and acquisition programs, and available sources of financing, UScellular may not have sufficient liquidity or capital resources to make share repurchases. Therefore, there is no assurance that UScellular will make any share repurchases in the future.
Common Share Repurchase Program There were no share repurchases during 2023. At December 31, 2023 , the total cumulative amount of UScellular Common Shares authorized to be repurchased is 1,927,000 . Depending on its future financial performance, construction, development and acquisition programs, and available sources of financing, UScellular may not have sufficient liquidity or capital resources to make share repurchases.
Capital Expenditures UScellular makes substantial investments to acquire, construct and upgrade wireless telecommunications networks and facilities to remain competitive and as a basis for creating long-term value for shareholders.
Significant cash requirements that are not routine or in the normal course of business could arise from time to time. 31 Index to MD&A Capital Expenditures UScellular makes substantial investments to acquire, construct and upgrade wireless telecommunications networks and facilities to remain competitive and as a basis for creating long-term value for shareholders.
UScellular will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.
UScellular will continue to monitor the rapidly changing business and market conditions and is taking and intends to take appropriate actions, as necessary, to meet its liquidity needs. Cash and Cash Equivalents Cash and cash equivalents include cash and money market investments. The primary objective of UScellular's Cash and cash equivalents investment activities is to preserve principal.
The working capital changes were primarily influenced by an increase in customer and agent receivables and increases in inventory purchases, partially offset by a federal income tax refund of $123 million received during the first quarter.
The working capital changes were primarily influenced by an increase in receivable and inventory balances, partially offset by a federal income tax refund of $123 million received during the first quarter of 2022. The increase in receivables was driven by a high volume of equipment upgrades due to promotional activities and a longer contract term for equipment installment plans.
As of December 31, 2022, UScellular has borrowed the full amount available under the agreements and the outstanding borrowings were $796 million.
The maturity dates for the term loan agreements range from July 2026 to July 2031. As of December 31, 2023, UScellular has borrowed the full amount available under the agreements and the outstanding borrowings were $783 million.
The qualitative assessment considered several factors, including analyst estimates of wireless spectrum license values which contemplated recent spectrum auction results, recent UScellular and other market participant transactions, and other industry and market factors. Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the unit of accounting exceeded its carrying value.
Based on this valuation, the fair value of the wireless spectrum licenses exceeded the respective carrying value by 17% and there was no impairment of wireless spectrum licenses. In 2022, UScellular considered several qualitative factors, including analyst estimates of wireless spectrum license values, recent spectrum auction results, UScellular and other market participant transactions, and other industry and market factors.
The increase in customer receivables was driven by a high volume of equipment upgrades due to promotional activities and a longer contract term for equipment installment plans. Cash flows used for investing activities were $1,179 million, which included payments for property, plant and equipment of $602 million and payments for wireless spectrum licenses of $585 million.
Cash flows used for investing activities were $1,179 million, which included payments for property, plant and equipment of $602 million and payments for wireless spectrum licenses of $585 million.
See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information regarding the revolving credit agreement, senior term loan agreement, receivables securitization and export credit financing agreements, Senior Notes and other long-term financing.
See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information related to the financing agreements.
Refer to Market Risk — Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to UScellular’s Long-term debt. 29 Index to MD&A UScellular, at its discretion, may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise.
The ability of UScellular to complete an offering pursuant to such shelf registration statement is subject to market conditions and other factors at the time. 30 Index to MD&A UScellular, at its discretion, may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise.
Connected devices include products such as tablets, wearables, modems, and hotspots. ▪ Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions. ▪ EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document.
Connected devices include products such as tablets, wearables, modems, fixed wireless, and hotspots. ▪ EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document.
(Dollars in millions) Revolving Credit Agreement $ 300 Receivables Securitization Agreement 175 Repurchase Agreement 140 Total undrawn borrowing capacity $ 615 28 Index to MD&A Financing Revolving Credit Agreement UScellular has an unsecured revolving credit agreement with a maximum borrowing capacity of $300 million.
(Dollars in millions) Revolving Credit Agreement $ 300 Receivables Securitization Agreement 300 Repurchase Agreement 1 200 Total undrawn borrowing capacity 800 Debt covenant restrictions 1 200 Total available undrawn borrowing capacity $ 600 1 The capacity available under the Repurchase Agreement and the Debt covenant restrictions in the table above relate to the Repurchase Agreement facility that subsequently expired in January 2024. 29 Index to MD&A Financing Revolving Credit Agreement UScellular has an unsecured revolving credit agreement with a maximum borrowing capacity of $300 million.
The working capital changes were primarily influenced by an increase in customer and agent receivables, a decrease to accrued taxes and the timing of vendor payments. Cash flows used for investing activities were $2,036 million, which included payments for wireless spectrum licenses of $1,322 million, and payments for property, plant and equipment of $724 million.
The working capital changes were primarily driven by the timing of vendor payments, partially offset by reduced inventory balances. Cash flows used for investing activities were $721 million, which included payments for property, plant and equipment of $608 million and payments for wireless spectrum licenses of $130 million.
UScellular has not failed to make nor does it expect to fail to make any scheduled payment of principal or interest under such indentures.
UScellular believes that it was in compliance as of December 31, 2023, with all covenants and other requirements set forth in the UScellular long-term debt indentures. UScellular has not failed to make nor does it expect to fail to make any scheduled payment of principal or interest under such indentures.
Therefore, no quantitative impairment evaluation was completed. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for information related to wireless spectrum licenses activity in 2022 and 2021. Income Taxes UScellular is included in a consolidated federal income tax return with other members of the TDS consolidated group.
Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the unit of accounting exceeded its carrying value. Therefore, no quantitative impairment evaluation was completed. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for information related to wireless spectrum licenses activity in 2023 and 2022.

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