UNITED STATES CELLULAR CORP - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-09712

UNITED STATES CELLULAR CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware						62-1147325
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

8410 West Bryn Mawr, Chicago, Illinois 60631

(Address of principal executive offices) (Zip code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, $1 par value

USM

New York Stock Exchange

6.25% Senior Notes due 2069

UZD

New York Stock Exchange

5.50% Senior Notes due 2070

UZE

New York Stock Exchange

5.50% Senior Notes due 2070

UZF

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2021, is 53,192,200 Common Shares, $1 par value, and 33,005,900 Series A Common Shares, $1 par value.


United States Cellular Corporation

Quarterly Report on Form 10-Q
For the Period Ended September 30, 2021

Index			Page No.

Management Discussion and Analysis of Financial Condition and Results of Operations			1
Executive Overview			1
Terms Used by UScellular			4
Operational Overview			5
Financial Overview			7
Liquidity and Capital Resources			11
Consolidated Cash Flow Analysis			14
Consolidated Balance Sheet Analysis			15
Supplemental Information Relating to Non-GAAP Financial Measures			16
Application of Critical Accounting Policies and Estimates			18

Regulatory Matters			18
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement			19

Risk Factors			21

Quantitative and Qualitative Disclosures About Market Risk			21

Financial Statements (Unaudited)			22
Consolidated Statement of Operations			22
Consolidated Statement of Cash Flows			23
Consolidated Balance Sheet			24
Consolidated Statement of Changes in Equity			26
Notes to Consolidated Financial Statements			30

Controls and Procedures			40

Legal Proceedings			40

Unregistered Sales of Equity Securities and Use of Proceeds			41

Exhibits			42

Form 10-Q Cross Reference Index			43

Signatures			44

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			United States Cellular Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The following discussion and analysis compares United States Cellular Corporation’s (UScellular) financial results for the three and nine months ended September 30, 2021, to the three and nine months ended September 30, 2020. It should be read in conjunction with UScellular’s interim consolidated financial statements and notes included herein, and with the description of UScellular’s business, its audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in UScellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2020. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers.

This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.

UScellular uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A. 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-Q Report.

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General

UScellular owns, operates, and invests in wireless markets throughout the United States. UScellular is an 82%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).

OPERATIONS

▪Serves customers with 5.0 million connections including 4.4 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections

▪Operates in 21 states

▪Employs approximately 4,900 associates

▪4,274 owned towers

▪6,857 cell sites in service

COVID-19 considerations

The coronavirus (COVID-19) pandemic did not have a material impact on UScellular's financial results for the three and nine months ended September 30, 2021. The impact of COVID-19 on UScellular's future financial results is uncertain, but is not projected to have a material impact. However, there are many factors, including the severity and duration of the pandemic, as well as other direct and indirect impacts, that could negatively impact UScellular.

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UScellular Mission and Strategy

UScellular’s mission is to provide exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves.

UScellular's strategy is to attract and retain customers through a value proposition comprising a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. Strategic efforts include:

▪UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as device protection plans and from new services such as home internet. In addition, UScellular is focused on increasing revenues from prepaid plans and expanding its solutions available to business and government customers.

▪UScellular continues to devote efforts 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. UScellular's 5G deployment is initially focused on mobility services using its low band spectrum. UScellular has acquired high-band and 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 UScellular’s markets and will continue to launch in additional areas in the coming years.

▪UScellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, UScellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions.

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Terms Used by UScellular

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

▪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. An account may include a variety of types of connections such as handsets and connected devices.

▪Auctions 105, 107 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 is an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that started in October 2021 and is not complete as of the date of this report.

▪Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

▪Connections – individual lines of service associated with each device activated by a customer. Connections are associated with all types of devices that connect directly to the UScellular network.

▪Connected Devices – non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.

▪Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.

▪EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.

▪Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.

▪OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

▪Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.

▪Retail Connections – the sum of postpaid connections and prepaid connections.

▪Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.

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Operational Overview



As of September 30,		2021	2020
Retail Connections – End of Period
	Postpaid	4,391,000	4,401,000
	Prepaid	518,000	506,000
	Total	4,909,000	4,907,000


	Q3 2021		Q3 2020		Q3 2021 vs. Q3 2020		YTD 2021		YTD 2020		YTD 2021 vs. YTD 2020
Postpaid Activity and Churn
Gross Additions
Handsets	105,000		102,000		3	%	309,000		277,000		12	%
Connected Devices	40,000		66,000		(39)	%	118,000		152,000		(22)	%
Total Gross Additions	145,000		168,000		(14)	%	427,000		429,000		–
Net Additions (Losses)
Handsets	(5,000)		—		N/M		(8,000)		(17,000)		53	%
Connected Devices	(3,000)		28,000		N/M		(11,000)		32,000		N/M
Total Net Additions (Losses)	(8,000)		28,000		N/M		(19,000)		15,000		N/M
Churn
Handsets	0.95	%	0.88	%			0.92	%	0.85	%
Connected Devices	2.59	%	2.35	%			2.60	%	2.56	%
Total Churn	1.15	%	1.06	%			1.13	%	1.05	%

N/M - Percentage change not meaningful

Total postpaid handset net losses increased for the three months ended September 30, 2021, when compared to the same period last year due primarily to an increase in defections resulting from higher consumer switching activity which was depressed in 2020 due to COVID-19. Partially offsetting the increase in defections was an increase in gross additions.

Total postpaid handset net losses decreased for the nine months ended September 30, 2021, when compared to the same period last year due primarily to an increase in gross additions as a result of higher consumer switching activity in 2021, as well as a decrease in non-pay defections. Partially offsetting the decrease was an increase in voluntary defections.

Total postpaid connected device net additions decreased for the three and nine months ended September 30, 2021, when compared to the same period last year due primarily to lower demand for internet related products as a result of a reduction in COVID-related funding vehicles, many of which are connected to government subsidies.

Macroeconomic factors, including the continuing impacts of the ongoing COVID-19 pandemic, have caused some supply chain disruption and delays, including constraints on certain devices. These supply constraints are due primarily to component availability, resulting in extended lead times and additional uncertainty, which may negatively impact UScellular in future periods.

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Postpaid Revenue


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020		2021 vs. 2020	2021		2020		2021 vs. 2020
Average Revenue Per User (ARPU)	$	48.12	$	47.10	2 %	$	47.83	$	46.84	2	%

Average Revenue Per Account (ARPA)	$	125.99	$	123.27	2 %	$	125.50	$	122.28	3	%

Postpaid ARPU and Postpaid ARPA increased for the three and nine months ended September 30, 2021, when compared to the same period last year, due to (i) favorable plan and product offering mix, (ii) an increase in regulatory recovery revenues and (iii) an increase in device protection plan revenues. These increases were partially offset by an increase in promotional discounts.

2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to a third quarter out-of-period error. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

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Financial Overview


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
(Dollars in millions)
Retail service	$	699	$	674	4	%	$	2,069	$	2,004	3	%
Inbound roaming	30		42		(29)	%	86		119		(28)	%
Other	59		59		1	%	178		167		6	%
Service revenues	788		775		2	%	2,333		2,290		2	%
Equipment sales	228		252		(10)	%	720		674		7	%
Total operating revenues	1,016		1,027		(1)	%	3,053		2,964		3	%

System operations (excluding Depreciation, amortization and accretion reported below)	205		203		1	%	594		580		2	%
Cost of equipment sold	252		257		(2)	%	786		692		14	%
Selling, general and administrative	346		335		3	%	984		994		(1)	%
Depreciation, amortization and accretion	160		161		–		510		516		(1)	%

(Gain) loss on asset disposals, net	8		6		29	%	15		14		7	%
(Gain) loss on sale of business and other exit costs, net	—		—		N/M		(1)		—		N/M

Total operating expenses	971		962		1	%	2,888		2,796		3	%

Operating income	$	45	$	65	(31)	%	$	165	$	168	(2)	%

Net income	$	35	$	85	(59)	%	$	132	$	227	(42)	%
Adjusted OIBDA (Non-GAAP)1	$	213	$	232	(8)	%	$	689	$	698	(1)	%
Adjusted EBITDA (Non-GAAP)1	$	262	$	282	(7)	%	$	831	$	841	(1)	%
Capital expenditures2	$	185	$	216	(14)	%	$	458	$	621	(26)	%

N/M - Percentage change not meaningful

1Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

2Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.

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Operating Revenues

Three Months Ended September 30, 2021 and 2020

(Dollars in millions)

Operating Revenues

Nine Months Ended September 30, 2021 and 2020

(Dollars in millions)

Service revenues consist of:

▪Retail Service - Charges for voice, data and value-added services and recovery of regulatory costs

▪Inbound Roaming - Charges to other wireless carriers whose customers use UScellular’s wireless systems when roaming

▪Other Service - Amounts received from the Federal USF, tower rental revenues, and miscellaneous other service revenues

Equipment revenues consist of:

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

Key components of changes in the statement of operations line items were as follows:

Total operating revenues

Retail service revenues increased for the three and nine months ended September 30, 2021, primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section as well as an increase in the average number of postpaid subscribers and a $9 million out-of-period error recorded in the three months ended September 30, 2021 related to the timing of recognition of regulatory fee billings. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Inbound roaming revenues decreased for the three and nine months ended September 30, 2021, primarily driven by lower data revenues resulting from lower usage and lower rates. UScellular expects inbound roaming revenues to continue to decline during 2021 relative to prior year levels.

Other service revenues were flat for the three months ended September 30, 2021. Other service revenues increased for the nine months ended September 30, 2021, resulting from increases in tower rental revenues and miscellaneous other service revenues.

Equipment sales revenues decreased for the three months ended September 30, 2021, due primarily to higher promotional activity. Equipment sales revenues increased for the nine months ended September 30, 2021, due primarily to an increase in the volume of new smartphone and accessory sales, partially offset by higher promotional activity.

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In recent periods, wireless service providers have increased promotional aggressiveness to attract new customers and retain existing customers. Operating revenues and Operating income may be negatively impacted in future periods by the competitive need to offer increased promotional discounts to new and existing customers.

System operations expenses

System operations expenses increased for the three and nine months ended September 30, 2021, due to higher circuit costs as well as an increase in cell site rent and maintenance expense, partially offset by a decrease in roaming expense.

Cost of equipment sold

Cost of equipment sold decreased for the three months ended September 30, 2021, due primarily to a decrease in the volume of connected device sales.

Cost of equipment sold increased for the nine months ended September 30, 2021, due primarily to an increase in the volume of new smartphone and accessory sales.

Selling, general and administrative expenses

Selling, general and administrative expenses increased for the three months ended September 30, 2021, due primarily to increases in bad debts expense and system development costs.

Selling, general and administrative expenses decreased for the nine months ended September 30, 2021, due primarily to decreases in bad debts expense and advertising expenses. This was partially offset by increases in system development costs and Federal USF expense.

Components of Other Income (Expense)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
(Dollars in millions)
Operating income	$	45	$	65	(31)	%	$	165	$	168	(2)	%

Equity in earnings of unconsolidated entities	48		48		–		137		137		–
Interest and dividend income	1		2		(23)	%	5		6		(28)	%
Gain (loss) on investments	—		3		N/M		—		3		N/M
Interest expense	(45)		(29)		(56)	%	(144)		(76)		(86)	%

Total investment and other income (expense)	4		24		(82)	%	(2)		70		N/M

Income before income taxes	49		89		(44)	%	163		238		(31)	%
Income tax expense	14		4		N/M		31		11		N/M

Net income	35		85		(59)	%	132		227		(42)	%
Less: Net income attributable to noncontrolling interests, net of tax	1		—		33	%	4		3		21	%
Net income attributable to UScellular shareholders	$	34	$	85	(60)	%	$	128	$	224	(43)	%

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 using the equity method. UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pretax income of $22 million and $20 million for the three months ended September 30, 2021 and 2020, respectively and $63 million for both the nine months ended September 30, 2021 and 2020. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

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Interest expense

Interest expense increased for the three and nine months ended September 30, 2021, primarily as a result of (i) the issuance of $500 million of 6.25% Senior Notes in August 2020 and $500 million of 5.50% Senior Notes in both December 2020 and May 2021 and (ii) the write off of $11 million and $31 million of unamortized debt issuance costs related to Senior Notes that were redeemed during the three and nine months ended September 30, 2021, respectively. These increases were partially offset by a reduction in interest expense due to the redemptions of Senior Notes with higher interest rates. See Note 10 — Debt in the Notes to Consolidated Financial Statements for additional information.

Income tax expense

The effective tax rate on Income before income taxes for the three months ended September 30, 2021 and 2020, was 29.6% and 3.7%, respectively. The higher effective tax rate in 2021 as compared to 2020 is due primarily to the income tax benefits of the CARES Act included in the 2020 tax rate, which do not recur as benefits in the 2021 tax rate.

The effective tax rate on Income before income taxes for the nine months ended September 30, 2021 and 2020, was 19.1% and 4.7%, respectively. The effective tax rate for the nine months ended September 30, 2021 was higher due primarily to the income tax benefits of the CARES Act included in the 2020 tax rate, which do not recur as benefits in the 2021 tax rate. The increase was partially offset by the reduction of tax accruals resulting from the expiration of state statute of limitations for prior tax years in the second quarter of 2021.

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Liquidity and Capital Resources

Sources of Liquidity

UScellular operates a capital-intensive business. In the past, UScellular’s existing cash and investment balances, funds available under its revolving credit and receivables securitization agreements, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of wireless spectrum licenses. There is no assurance that this will be the case in the future. See Market Risk for additional information regarding maturities of long-term debt.

UScellular has incurred negative free cash flow at times in the past and this could occur in the future. However, UScellular believes that existing cash and investment balances, funds available under its revolving credit, term loan and receivables securitization agreements, expected future tax refunds 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 coming years. UScellular will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.

UScellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, the repurchase of shares, or making additional investments. It may be necessary from time to time to increase the size of the existing revolving credit agreement, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures.

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market investments. The primary objective of UScellular's Cash and cash equivalents investment activities is to preserve principal.

Cash and Cash Equivalents

(Dollars in millions)

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.

Financing

Revolving Credit Agreement

In July 2021, UScellular entered into an amended and restated $300 million unsecured revolving credit agreement with certain lenders and other parties. Amounts under the amended and restated revolving credit agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. As of September 30, 2021, there were no outstanding borrowings under the revolving credit agreement, and UScellular's unused borrowing capacity was $300 million.

See Note 10 — Debt in the Notes to Consolidated Financial Statements for additional information related to the revolving credit agreement.

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Term Loan Agreement

In July 2021, UScellular amended and restated its term loan agreement to allow for additional borrowing capacity of $200 million. During the nine months ended September 30, 2021, UScellular borrowed $217 million under its senior term loan credit agreement. As of September 30, 2021, UScellular's outstanding borrowings under the term loan agreement were $300 million and UScellular's unused borrowing capacity was $200 million.

See Note 10 — Debt in the Notes to Consolidated Financial Statements for additional information related to the senior term loan agreement.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In June 2021, UScellular increased the borrowing capacity under the receivables securitization agreement to $450 million. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until December 2022, which may be extended from time to time as specified therein. During the nine months ended September 30, 2021, UScellular borrowed an additional $500 million under its receivables securitization agreement and repaid $200 million of the outstanding borrowings. As of September 30, 2021, the outstanding borrowings under the agreement were $325 million and the unused capacity under the agreement was $125 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In October 2021, UScellular borrowed the remaining $125 million under the agreement.

See Note 10 — Debt in the Notes to Consolidated Financial Statements for additional information related to the receivables securitization agreement.

Financial Covenants

UScellular believes that it was in compliance with all of the financial covenants and requirements set forth in its revolving credit agreement, senior term loan credit agreement and receivables securitization agreement as of September 30, 2021.

Other Long-Term Financing

In 2020, UScellular issued $500 million of 6.25% Senior Notes due in 2069 and $500 million of 5.5% Senior Notes due in March 2070. The proceeds from both issuances were for general corporate purposes, including but not limited to, the purchase of additional wireless spectrum licenses acquired in Auction 107, funding of capital expenditures, including in connection with 5G buildout projects and retirement of existing debt.

In May 2021, UScellular issued $500 million of 5.5% Senior Notes due in June 2070. The proceeds from the issuance were used for general corporate purposes, including but not limited to, the repayment of other debt, the purchase of additional spectrum and the funding of capital expenditures, including in connection with 5G buildout projects.

In May 2021, UScellular redeemed its outstanding $275 million of 7.25% Senior Notes due 2063. At time of redemption, $9 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In June 2021, UScellular redeemed its outstanding $300 million of 7.25% Senior Notes due 2064. At time of redemption, $10 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In September 2021, UScellular redeemed its outstanding $342 million of 6.95% Senior Notes due 2060. At time of redemption, $11 million of interest expense was recorded related to unamortized debt issuance costs related to the notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.

Credit Ratings

In August 2021, Moody’s lowered its rating for UScellular’s senior unsecured notes from Ba1 to Ba2. This downgrade is due primarily to the impact of the financing activities noted above that increase the borrowing capacity of debt facilities that are structurally senior to UScellular’s senior unsecured notes.

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Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the nine months ended September 30, 2021 and 2020, were as follows:

Capital Expenditures

(Dollars in millions)

Capital expenditures for the full year 2021 are expected to be between $700 million and $800 million. These expenditures are expected to be used principally for the following purposes:

▪Continue network modernization and 5G deployment;

▪Enhance and maintain UScellular's network coverage, including providing additional speed and capacity to accommodate increased data usage by current customers; and

▪Invest in information technology to support existing and new services and products.

Macroeconomic factors, including the continuing impacts of the ongoing COVID-19 pandemic, have caused some supply chain disruption and delays. These factors may impact the acquisition of certain products and materials and contribute to internal and external labor shortages.

UScellular intends to finance its capital expenditures for 2021 using primarily Cash flows from operating activities, existing cash balances and, if required, additional debt financing from its revolving credit, term loan and receivables securitization agreements and/or other forms of financing.

Acquisitions, Divestitures and Exchanges

UScellular may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties or wireless spectrum licenses (including pursuant to FCC auctions). In general, UScellular may not disclose such transactions until there is a definitive agreement.

Other Obligations

UScellular will require capital for future spending on existing contractual obligations, including long-term debt obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; Auction 107 relocation costs and accelerated relocation incentive payments; and other agreements to purchase goods or services.

Variable Interest Entities

UScellular consolidates certain “variable interest entities” as defined under GAAP. See Note 11 — 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.

Common Share Repurchase Program

During the nine months ended September 30, 2021, UScellular repurchased 681,310 Common Shares for $21 million at an average cost per share of $31.36. As of September 30, 2021, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 3,825,000. For additional information related to the current repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

Off-Balance Sheet Arrangements

UScellular had no transactions, agreements or other contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that had or are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.

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Consolidated Cash Flow Analysis

UScellular operates a capital-intensive business. 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. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors. The following discussion summarizes UScellular's cash flow activities for the nine months ended September 30, 2021 and 2020.

2021 Commentary

UScellular’s Cash, cash equivalents and restricted cash decreased $1,028 million. Net cash provided by operating activities was $667 million due to net income of $132 million adjusted for non-cash items of $519 million and distributions received from unconsolidated entities of $106 million including $32 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $90 million. The working capital changes were primarily influenced by a decrease to accrued taxes and the timing of vendor payments and an increase in customer and agent receivables.

Cash flows used for investing activities were $1,732 million. Cash paid for additions to property, plant and equipment totaled $456 million. Cash payments for wireless spectrum license acquisitions, including advance payments, were $1,273 million.

Cash flows provided by financing activities were $37 million, due primarily to the issuance of $500 million of 5.5% Senior Notes, $500 million borrowed under the receivables securitization agreement, and $217 million borrowed under the term loan. These were partially offset by the redemption of $917 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, the repurchase of $21 million of Common Shares and payment of debt issuance costs of $20 million.

2020 Commentary

UScellular’s Cash, cash equivalents and restricted cash increased $657 million. Net cash provided by operating activities was $950 million due to net income of $227 million adjusted for non-cash items of $626 million, distributions received from unconsolidated entities of $118 million including $43 million in distributions from the LA Partnership, and changes in working capital items which decreased net cash by $21 million. The working capital changes were primarily influenced by tax impacts from the CARES Act and annual associate bonus payments, partially offset by the timing of vendor payments and collections of customer and agent receivables.

Cash flows used for investing activities were $855 million. Cash paid for additions to property, plant and equipment totaled $690 million. Cash payments for wireless spectrum license acquisitions were $169 million.

Cash flows provided by financing activities were $562 million, reflecting the issuance of $500 million of 6.25% Senior Notes and $125 million borrowed under the receivables securitization agreement. These were partially offset by the repurchase of $23 million of Common Shares and payment of debt issuance costs of $20 million.

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Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 2021 were as follows:

Licenses

Licenses increased $1,473 million due primarily to wireless spectrum licenses acquired through Auction 107. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.

Other deferred liabilities and credits

Other deferred liabilities and credits increased $189 million due primarily to relocation and acceleration fees related to wireless spectrum licenses acquired through Auction 107 and an increase in asset retirement obligations.

Long-term debt, net

The following table presents the components of the $115 million increase in Long-term debt, net:


	Long-term debt, net
(Dollars in millions)
Balance at December 31, 2020	$	2,489
Borrowings under Term Loan Agreement	217
Borrowings under Receivables Securitization Agreement	500
Issuance of Senior Notes	500
Payment of debt issuance costs	(16)
Repayments under Receivables Securitization Agreement	(200)
Redemptions of Senior Notes	(917)
Debt issuance costs charged to interest expense	31

Balance at September 30, 2021	$	2,604

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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. Specifically, UScellular has referred to the following measures in this Form 10-Q Report:

▪EBITDA

▪Adjusted EBITDA

▪Adjusted OIBDA

▪Free cash flow

Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. Following are explanations of each of these measures.

EBITDA, Adjusted EBITDA and Adjusted OIBDA

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation below. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under GAAP and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. UScellular does not intend to imply that any such items set forth in the reconciliation below are non-recurring, infrequent or unusual; such items may occur in the future.

Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income and Operating income are deemed appropriate. 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. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following table reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Dollars in millions)
Net income (GAAP)	$	35	$	85	$	132	$	227
Add back:
Income tax expense	14		4		31		11
Interest expense	45		29		144		76
Depreciation, amortization and accretion	160		161		510		516
EBITDA (Non-GAAP)	254		279		817		830
Add back or deduct:

(Gain) loss on asset disposals, net	8		6		15		14
(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

(Gain) loss on investments	—		(3)		—		(3)
Adjusted EBITDA (Non-GAAP)	262		282		831		841
Deduct:
Equity in earnings of unconsolidated entities	48		48		137		137
Interest and dividend income	1		2		5		6

Adjusted OIBDA (Non-GAAP)	213		232		689		698
Deduct:
Depreciation, amortization and accretion	160		161		510		516

(Gain) loss on asset disposals, net	8		6		15		14
(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

Operating income (GAAP)	$	45	$	65	$	165	$	168

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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. 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.


	Nine Months Ended September 30,
	2021		2020
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	667	$	950
Less: Cash paid for additions to property, plant and equipment	456		690
Free cash flow (Non-GAAP)	$	211	$	260

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Application of Critical Accounting Policies and Estimates

UScellular prepares its consolidated financial statements in accordance with GAAP. UScellular’s significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements and UScellular’s Application of Critical Accounting Policies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in UScellular’s Form 10-K for the year ended December 31, 2020.

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. 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 order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment.

UScellular cannot predict at this time when the 5G fund auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the 5G fund auction will provide opportunities to UScellular to offset any loss in existing support.

FCC Rulemaking - Restoring Internet Freedom

In December 2017, the FCC approved rules reversing or revising decisions made in the FCC’s 2015 Open Internet and Title II Order (Restoring Internet Freedom). The 2017 action reversed the FCC’s 2015 decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II of the Telecommunications Act. The 2017 action also reversed the FCC’s 2015 restrictions on blocking, throttling and paid prioritization, and modified transparency rules relating to such practices. Several parties filed suit in federal court challenging the 2017 actions. On October 1, 2019, the Court of Appeals for the D.C. Circuit issued an order reaffirming the FCC in most respects, but limiting the FCC's ability to preempt state and local net neutrality laws. On February 19, 2020, the FCC issued a Public Notice seeking comment on three issues under further consideration by the FCC based on a recent D.C. Circuit decision. On October 27, 2020, the FCC adopted an Order on Remand in response to the U.S. Court of Appeals for the D.C. Circuit’s remand on the three issues under further consideration by the FCC and found no basis to alter the FCC’s conclusions in the Restoring Internet Freedom Order.

A number of states, including certain states in which UScellular operates, have adopted or considered laws intended to reinstate aspects of the foregoing net neutrality regulations that were reversed or revised by the FCC in 2017. To the extent such laws are enacted, it is expected that legal proceedings will be pursued challenging such laws, subject now to the DC Circuit ruling limiting the FCC's preemptive authority in this matter. The new administration may also conduct rulemaking proceedings that may reinstate, in some form, net neutrality rules. UScellular cannot predict the outcome of any of these proceedings or the impact on its business.

Spectrum Auctions

On March 2, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.5 GHz band (Auction 105). On September 2, 2020, the FCC announced by public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million, of which up to $5 million relates to licenses which are subject to the FCC's spectrum aggregation and ownership attribution rules for Auction 105. None of the wireless spectrum licenses have been granted yet by the FCC.

On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses for $1,283 million. 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 $181 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted. In October 2021, UScellular paid $36 million related to the additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023. Combined with prior mid-band purchases in Auction 105, UScellular will have mid-band spectrum in nearly all of its operating footprint, covering approximately 95% of subscribers.

On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On July 19, 2021, UScellular filed an application to participate in Auction 110 and on September 17, 2021, the FCC announced that UScellular was a qualified bidder for the auction. Bidding commenced on October 5, 2021 and is still ongoing as of the date of this report.

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Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that UScellular intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, those set forth below, as more fully described under “Risk Factors” in UScellular’s Form 10-K for the year ended December 31, 2020 and in this Form 10-Q. Each of the following risks could have a material adverse effect on UScellular’s business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. UScellular undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. You should carefully consider the Risk Factors in UScellular’s Form 10-K for the year ended December 31, 2020, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to UScellular’s business, financial condition or results of operations.

Operational Risk Factors

▪Intense competition involving products, services, pricing 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 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 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 technology, or a material disruption thereof, could have an adverse effect on UScellular’s business, financial condition or results of operations.

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Financial Risk Factors

▪Uncertainty in UScellular’s future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, 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. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.

▪UScellular has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on UScellular’s financial condition or results of operations.

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 such as pacemakers, 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.

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, such as the COVID-19 pandemic, 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.

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Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in UScellular’s Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect UScellular’s business, financial condition or future results. The risks described in this Form 10-Q and the Form 10-K for the year ended December 31, 2020, may not be the only risks that could affect UScellular. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect UScellular’s business, financial condition and/or operating results. Subject to the foregoing, UScellular has not identified for disclosure any material changes to the risk factors as previously disclosed in UScellular’s Annual Report on Form 10-K for the year ended December 31, 2020.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

The following table presents the scheduled principal payments on long-term debt, finance lease obligations, and the related weighted average interest rates by maturity dates at September 30, 2021.


	Principal Payments Due by Period
	Long-Term Debt Obligations1		Weighted-Avg. Interest Rates on Long-Term Debt Obligations2
(Dollars in millions)
Remainder of 2021	$	1	3.3	%
2022	328		1.3	%
2023	3		3.3	%
2024	3		3.3	%
2025	3		3.3	%
Thereafter	2,334		5.6	%
Total	$	2,672	5.1	%

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 and unamortized discounts related to the 6.7% Senior Notes.

2 Represents the weighted average stated interest rates at September 30, 2021, for debt maturing in the respective periods.

See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of UScellular’s Long-term debt as of September 30, 2021.

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Financial Statements

United States Cellular Corporation

Consolidated Statement of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	788	$	775	$	2,333	$	2,290
Equipment sales	228		252		720		674
Total operating revenues	1,016		1,027		3,053		2,964

Operating expenses
System operations (excluding Depreciation, amortization and accretion reported below)	205		203		594		580
Cost of equipment sold	252		257		786		692
Selling, general and administrative	346		335		984		994
Depreciation, amortization and accretion	160		161		510		516

(Gain) loss on asset disposals, net	8		6		15		14
(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

Total operating expenses	971		962		2,888		2,796

Operating income	45		65		165		168

Investment and other income (expense)
Equity in earnings of unconsolidated entities	48		48		137		137
Interest and dividend income	1		2		5		6
Gain (loss) on investments	—		3		—		3
Interest expense	(45)		(29)		(144)		(76)

Total investment and other income (expense)	4		24		(2)		70

Income before income taxes	49		89		163		238
Income tax expense	14		4		31		11
Net income	35		85		132		227
Less: Net income attributable to noncontrolling interests, net of tax	1		—		4		3
Net income attributable to UScellular shareholders	$	34	$	85	$	128	$	224

Basic weighted average shares outstanding	86		86		87		86
Basic earnings per share attributable to UScellular shareholders	$	0.39	$	0.98	$	1.48	$	2.60

Diluted weighted average shares outstanding	87		88		88		87
Diluted earnings per share attributable to UScellular shareholders	$	0.38	$	0.97	$	1.46	$	2.56

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

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United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
(Dollars in millions)
Cash flows from operating activities
Net income	$	132	$	227
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	510		516
Bad debts expense	34		52
Stock-based compensation expense	20		25
Deferred income taxes, net	47		158
Equity in earnings of unconsolidated entities	(137)		(137)
Distributions from unconsolidated entities	106		118

(Gain) loss on asset disposals, net	15		14
(Gain) loss on sale of business and other exit costs, net	(1)		—

(Gain) loss on investments	—		(3)
Other operating activities	31		1
Changes in assets and liabilities from operations
Accounts receivable	19		31
Equipment installment plans receivable	(44)		13
Inventory	10		5
Accounts payable	(33)		77
Customer deposits and deferred revenues	10		(23)
Accrued taxes	(36)		(102)
Accrued interest	7		14
Other assets and liabilities	(23)		(36)
Net cash provided by operating activities	667		950

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(456)		(690)
Cash paid for licenses	(1,263)		(169)
Cash received from investments	3		1
Cash paid for investments	—		(1)
Cash received from divestitures and exchanges	2		1
Advance payments for license acquisitions	(20)		—
Other investing activities	2		3
Net cash used in investing activities	(1,732)		(855)

Cash flows from financing activities
Issuance of long-term debt	1,217		625
Repayment of long-term debt	(1,117)		(6)
Common Shares reissued for benefit plans, net of tax payments	(16)		(12)
Repurchase of Common Shares	(21)		(23)
Payment of debt issuance costs	(20)		(20)
Distributions to noncontrolling interests	(2)		(2)
Other financing activities	(4)		—
Net cash provided by financing activities	37		562

Net increase (decrease) in cash, cash equivalents and restricted cash	(1,028)		657

Cash, cash equivalents and restricted cash
Beginning of period	1,291		291
End of period	$	263	$	948

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

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United States Cellular Corporation

Consolidated Balance Sheet — Assets

(Unaudited)


	September 30, 2021		December 31, 2020
(Dollars in millions)
Current assets
Cash and cash equivalents	$	231	$	1,271
Short-term investments	—		3
Accounts receivable
Customers and agents, less allowances of $55 and $62, respectively	910		915
Roaming	11		13

Other, less allowances of $3 and $1, respectively	57		70
Inventory, net	136		146
Prepaid expenses	59		51
Income taxes receivable	125		125
Other current assets	42		29
Total current assets	1,571		2,623

Assets held for sale	3		2

Licenses	4,102		2,629

Investments in unconsolidated entities	466		435

Property, plant and equipment
In service and under construction	8,990		8,785
Less: Accumulated depreciation and amortization	6,533		6,319
Property, plant and equipment, net	2,457		2,466

Operating lease right-of-use assets	953		924

Other assets and deferred charges	592		602

Total assets1	$	10,144	$	9,681

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

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United States Cellular Corporation

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)


	September 30, 2021		December 31, 2020
(Dollars and shares in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	3	$	2
Accounts payable
Affiliated	8		10
Trade	364		377
Customer deposits and deferred revenues	161		151
Accrued taxes	32		48
Accrued compensation	69		82
Short-term operating lease liabilities	126		116
Other current liabilities	93		85
Total current liabilities	856		871

Liabilities held for sale	—		1

Deferred liabilities and credits
Deferred income tax liability, net	680		633
Long-term operating lease liabilities	890		875
Other deferred liabilities and credits	565		376

Long-term debt, net	2,604		2,489

Commitments and contingencies

Noncontrolling interests with redemption features	10		10

Equity
UScellular shareholders’ equity
Series A Common and Common Shares
Authorized 190 shares (50 Series A Common and 140 Common Shares)
Issued 88 shares (33 Series A Common and 55 Common Shares)
Outstanding 86 shares (33 Series A Common and 53 Common Shares)
Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares)	88		88
Additional paid-in capital	1,671		1,651
Treasury shares, at cost, 2 Common Shares	(58)		(67)
Retained earnings	2,822		2,739
Total UScellular shareholders' equity	4,523		4,411

Noncontrolling interests	16		15

Total equity	4,539		4,426

Total liabilities and equity1	$	10,144	$	9,681

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

1 The consolidated total assets as of September 30, 2021 and December 31, 2020, include assets held by consolidated variable interest entities (VIEs) of $1,301 million and $1,060 million, respectively, which are not available to be used to settle the obligations of UScellular. The consolidated total liabilities as of September 30, 2021 and December 31, 2020, include certain liabilities of consolidated VIEs of $19 million and $20 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of UScellular. See Note 11 — Variable Interest Entities for additional information.

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United States Cellular Corporation

Consolidated Statement of Changes in Equity

(Unaudited)


	UScellular Shareholders
	Series A Common and Common shares		Additional paid-in capital		Treasury shares		Retained earnings		Total UScellular shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions)
June 30, 2021	$	88	$	1,663	$	(42)	$	2,794	$	4,503	$	16	$	4,519

Net income attributable to UScellular shareholders	—		—		—		34		34		—		34
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		1		1
Repurchase of Common Shares	—		—		(19)		—		(19)		—		(19)
Incentive and compensation plans	—		8		3		(6)		5		—		5
Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
September 30, 2021	$	88	$	1,671	$	(58)	$	2,822	$	4,523	$	16	$	4,539

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

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United States Cellular Corporation

Consolidated Statement of Changes in Equity

(Unaudited)


	UScellular Shareholders
	Series A Common and Common shares		Additional paid-in capital		Treasury shares		Retained earnings		Total UScellular shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions)
June 30, 2020	$	88	$	1,646	$	(70)	$	2,657	$	4,321	$	13	$	4,334
Cumulative effect of accounting changes	—		—		—		1		1		—		1
Net income attributable to UScellular shareholders	—		—		—		85		85		—		85
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		2		2

Incentive and compensation plans	—		8		3		(7)		4		—		4

September 30, 2020	$	88	$	1,654	$	(67)	$	2,736	$	4,411	$	15	$	4,426

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

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United States Cellular Corporation

Consolidated Statement of Changes in Equity

(Unaudited)



	UScellular Shareholders
	Series A Common and Common shares		Additional paid-in capital		Treasury shares		Retained earnings		Total UScellular shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions)
December 31, 2020	$	88	$	1,651	$	(67)	$	2,739	$	4,411	$	15	$	4,426

Net income attributable to UScellular shareholders	—		—		—		128		128		—		128
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		3		3
Repurchase of Common Shares	—		—		(21)		—		(21)		—		(21)
Incentive and compensation plans	—		20		30		(45)		5		—		5
Distributions to noncontrolling interests	—		—		—		—		—		(2)		(2)
September 30, 2021	$	88	$	1,671	$	(58)	$	2,822	$	4,523	$	16	$	4,539

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

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United States Cellular Corporation

Consolidated Statement of Changes in Equity

(Unaudited)



	UScellular Shareholders
	Series A Common and Common shares		Additional paid-in capital		Treasury shares		Retained earnings		Total UScellular shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions)
December 31, 2019	$	88	$	1,629	$	(70)	$	2,550	$	4,197	$	13	$	4,210

Net income attributable to UScellular shareholders	—		—		—		224		224		—		224
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		4		4
Repurchase of Common Shares	—		—		(23)		—		(23)		—		(23)
Incentive and compensation plans	—		25		26		(38)		13		—		13
Distributions to noncontrolling interests	—		—		—		—		—		(2)		(2)
September 30, 2020	$	88	$	1,654	$	(67)	$	2,736	$	4,411	$	15	$	4,426

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

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United States Cellular Corporation

Notes to Consolidated Financial Statements

Note 1 Basis of Presentation

United States Cellular Corporation (UScellular), a Delaware Corporation, is an 82%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).

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

The unaudited consolidated financial statements included herein have been prepared by UScellular pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, UScellular believes that the disclosures included herein are adequate to make the information presented not misleading. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in UScellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2020.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of UScellular’s financial position as of September 30, 2021 and December 31, 2020 and its results of operations and changes in equity for the three and nine months ended September 30, 2021 and 2020, and its cash flows for the nine months ended September 30, 2021 and 2020. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the nine months ended September 30, 2021 and 2020, equaled net income. These results are not necessarily indicative of the results to be expected for the full year. UScellular has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2020.

Restricted Cash

UScellular presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.


	September 30, 2021		December 31, 2020
(Dollars in millions)
Cash and cash equivalents	$	231	$	1,271
Restricted cash included in Other current assets	32		20
Cash, cash equivalents and restricted cash in the statement of cash flows	$	263	$	1,291

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Note 2 Revenue Recognition

Disaggregation of Revenue

In the following table, UScellular's revenues are disaggregated by type of service, which represents the relevant categorization of revenues for UScellular, and timing of recognition. Service revenues are recognized over time and Equipment sales are point in time.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Dollars in millions)
Revenues from contracts with customers:
Retail service1	$	699	$	674	$	2,069	$	2,004
Inbound roaming	30		42		86		119
Other service	38		39		117		110
Service revenues from contracts with customers	767		755		2,272		2,233
Equipment sales	228		252		720		674
Total revenues from contracts with customers	995		1,007		2,992		2,907
Operating lease income	21		20		61		57
Total operating revenues	$	1,016	$	1,027	$	3,053	$	2,964

1 During the three months ended September 30, 2021, UScellular recorded a $9 million out-of-period error related to the timing of recognition of regulatory fee billings. This adjustment had the impact of increasing Service revenue by $9 million for the three and nine months ended September 30, 2021. UScellular determined that this adjustment was not material to any of the periods impacted.

Contract Balances

The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.


	September 30, 2021		December 31, 2020
(Dollars in millions)
Contract assets	$	10	$	10
Contract liabilities	$	198	$	171

Revenue recognized related to contract liabilities existing at January 1, 2021 was $120 million for the nine months ended September 30, 2021.

Transaction price allocated to the remaining performance obligations

The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when wireless services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of September 30, 2021 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.


	Service Revenues
(Dollars in millions)
Remainder of 2021	$	121
2022	139
Thereafter	157
Total	$	417

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Contract Cost Assets

UScellular expects that commission fees paid as a result of obtaining contracts are recoverable and therefore UScellular defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. The contract cost asset balance related to commission fees and other costs was $121 million at September 30, 2021, and $124 million at December 31, 2020, and was recorded in Other assets and deferred charges in the Consolidated Balance Sheet. Deferred commission fees are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Amortization of contract cost assets was $24 million and $75 million for the three and nine months ended September 30, 2021, respectively, and $26 million and $79 million for the three and nine months ended September 30, 2020, respectively, and was included in Selling, general and administrative expenses.

Note 3 Fair Value Measurements

As of September 30, 2021 and December 31, 2020, UScellular did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.

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


	Level within the Fair Value Hierarchy	September 30, 2021				December 31, 2020
		Book Value		Fair Value		Book Value		Fair Value
(Dollars in millions)
Long-term debt
Retail	2	$	1,500	$	1,604	$	1,917	$	1,962
Institutional	2	535		679		535		707
Other	2	622		622		106		106

Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for UScellular Senior Notes, which are traded on the New York Stock Exchange. UScellular’s “Institutional” debt consists of the 6.7% Senior Notes which are traded over the counter. UScellular’s “Other” debt consists of a senior term loan credit agreement and receivables securitization agreement. UScellular estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 1.24% to 4.19% and 1.35% to 3.75% at September 30, 2021 and December 31, 2020, respectively.

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

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Note 4 Equipment Installment Plans

UScellular sells devices to customers under equipment installment plans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.

The following table summarizes equipment installment plan receivables.


	September 30, 2021		December 31, 2020
(Dollars in millions)
Equipment installment plan receivables, gross	$	1,022	$	1,007


Allowance for credit losses	(70)		(78)
Equipment installment plan receivables, net	$	952	$	929

Net balance presented in the Consolidated Balance Sheet as:
Accounts receivable — Customers and agents (Current portion)	$	607	$	590
Other assets and deferred charges (Non-current portion)	345		339
Equipment installment plan receivables, net	$	952	$	929

UScellular uses various inputs, including internal data, information from credit bureaus and other sources, to evaluate the credit profiles of its customers. From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:


	September 30, 2021										December 31, 2020
	Lowest Risk		Lower Risk		Slight Risk		Higher Risk		Total		Lowest Risk		Lower Risk		Slight Risk		Higher Risk		Total
(Dollars in millions)
Unbilled	$	840	$	93	$	23	$	6	$	962	$	819	$	98	$	22	$	9	$	948
Billed — current	36		5		1		—		42		36		5		1		1		43
Billed — past due	10		5		2		1		18		8		5		2		1		16
Total	$	886	$	103	$	26	$	7	$	1,022	$	863	$	108	$	25	$	11	$	1,007

The balance of the equipment installment plan receivables as of September 30, 2021 on a gross basis by year of origination were as follows:


	2018		2019		2020		2021		Total
(Dollars in millions)
Lowest Risk	$	1	$	84	$	346	$	455	$	886
Lower Risk	—		6		36		61		103
Slight Risk	—		1		6		19		26
Higher Risk	—		—		2		5		7
Total	$	1	$	91	$	390	$	540	$	1,022

Activity for the nine months ended September 30, 2021 and 2020, in the allowance for credit losses for equipment installment plan receivables was as follows:


	September 30, 2021		September 30, 2020
(Dollars in millions)
Allowance for credit losses, beginning of period	$	78	$	84
Bad debts expense	21		34
Write-offs, net of recoveries	(29)		(43)
Allowance for credit losses, end of period	$	70	$	75

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Note 5 Income Taxes

The effective tax rate on Income before income taxes for the three and nine months ended September 30, 2021 was 29.6% and 19.1%, respectively. The effective tax rate for the nine months ended September 30, 2021 was lower than normal due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.

The effective tax rate on Income before income taxes for the three and nine months ended September 30, 2020 was 3.7% and 4.7%, respectively. These effective tax rates were lower than normal due primarily to the income tax benefits of the CARES Act.

Note 6 Earnings Per Share

Basic earnings per share attributable to UScellular shareholders is computed by dividing Net income attributable to UScellular shareholders by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share attributable to UScellular shareholders is computed by dividing Net income attributable to UScellular shareholders by the weighted average number of Common Shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.

The amounts used in computing basic and diluted earnings per share attributable to UScellular shareholders were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Dollars and shares in millions, except per share amounts)
Net income attributable to UScellular shareholders	$	34	$	85	$	128	$	224

Weighted average number of shares used in basic earnings per share	86		86		87		86
Effects of dilutive securities	1		2		1		1
Weighted average number of shares used in diluted earnings per share	87		88		88		87

Basic earnings per share attributable to UScellular shareholders	$	0.39	$	0.98	$	1.48	$	2.60

Diluted earnings per share attributable to UScellular shareholders	$	0.38	$	0.97	$	1.46	$	2.56

Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings per share attributable to UScellular shareholders because their effects were antidilutive. The number of such Common Shares excluded was 1 million for both the three and nine months ended September 30, 2021, respectively, and less than 1 million and 1 million for the three and nine months ended September 30, 2020, respectively.

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Note 7 Intangible Assets

Activity related to Licenses for the nine months ended September 30, 2021, is presented below:


	Licenses
(Dollars in millions)
Balance at December 31, 2020	$	2,629
Acquisitions	1,464
Transferred to Assets held for sale	(1)



Capitalized interest	10
Balance at September 30, 2021	$	4,102

In February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the 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 $181 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted. In October 2021, UScellular paid $36 million related to the additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

Note 8 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in entities in which UScellular holds a noncontrolling interest. UScellular’s Investments in unconsolidated entities are accounted for using either the equity method or measurement alternative method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.


	September 30, 2021		December 31, 2020
(Dollars in millions)
Equity method investments	$	458	$	428
Measurement alternative method investments	8		7
Total investments in unconsolidated entities	$	466	$	435

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Dollars in millions)
Revenues	$	1,756	$	1,634	$	5,225	$	4,871
Operating expenses	1,244		1,136		3,735		3,392
Operating income	512		498		1,490		1,479
Other income (expense), net	6		(4)		15		(1)
Net income	$	518	$	494	$	1,505	$	1,478

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Note 9 Asset Retirement Obligations

Asset retirement obligations are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.

During the three months ended September 30, 2021, UScellular performed a review of the assumptions and estimated future costs related to asset retirement obligations. The results of the review and other changes in asset retirement obligations during the nine months ended September 30, 2021 were as follows:


	Asset Retirement Obligations
(Dollars in millions)
Balance at December 31, 2020	$	249
Additional liabilities accrued	8
Revisions in estimated cash outflows	43
Disposition of assets	(1)
Accretion expense	11
Balance at September 30, 2021	$	310

Note 10 Debt

Revolving Credit Agreement

The following table summarizes the revolving credit agreement as of September 30, 2021:



(Dollars in millions)
Maximum borrowing capacity	$	300
Letters of credit outstanding	$	—
Amount borrowed	$	—
Amount available for use	$	300

Borrowings under the UScellular revolving credit agreement bear interest at a rate of London Inter-bank Offered Rate (LIBOR) plus 1.50%.

In July 2021, UScellular amended and restated its revolving credit agreement. The maturity date of the agreement was extended to July 2026 and the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the revolving credit agreement.

UScellular believes that they were in compliance with all of the financial covenants and other requirements set forth in their revolving credit agreement as of September 30, 2021.

Term Loan Agreement

The following table summarizes the term loan credit agreement as of September 30, 2021:



(Dollars in millions)
Maximum borrowing capacity	$	500
Amount borrowed	$	300
Amount available for use	$	200

In July 2021, UScellular amended and restated its term loan agreement to allow for an additional $200 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.75 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and are due and payable in July 2028. Borrowings under the additional $200 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and are due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.

UScellular believes that it was in compliance with all of the financial covenants and other requirements set forth in its senior term loan credit agreement as of September 30, 2021.

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Receivables Securitization Agreement

At September 30, 2021, UScellular had a receivables securitization agreement for securitized borrowings using its equipment installment receivables for general corporate purposes. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until maturity in December 2022, which may be extended from time to time as specified therein. The outstanding borrowings bear interest at floating rates. In June 2021, UScellular increased the borrowing capacity under the receivables securitization agreement to $450 million. In July 2021, UScellular amended the receivables securitization agreement and as a result, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the receivable securitization agreement. During the nine months ended September 30, 2021, UScellular borrowed $500 million under its receivables securitization agreement and repaid $200 million of the outstanding borrowings. As of September 30, 2021, the outstanding borrowings under the agreement were $325 million and the unused capacity under the agreement was $125 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. UScellular believes that it was in compliance with all of the financial covenants and other requirements set forth in its receivables securitization agreement as of September 30, 2021. As of September 30, 2021, the USCC Master Note Trust held $437 million of assets available to be pledged as collateral for the receivables securitization agreement. In October 2021, UScellular borrowed the remaining $125 million under the agreement.

Other Long-Term Debt

In May 2021, UScellular redeemed its outstanding $275 million of 7.25% Senior Notes due 2063. At time of redemption, $9 million of interest expense was recorded related to unamortized debt issuance costs related to the notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In May 2021, UScellular issued $500 million of 5.5% Senior Notes due in June 2070, and received cash proceeds of $484 million after payment of debt issuance costs of $16 million. These funds will be used for general corporate purposes. Interest on these notes is payable quarterly beginning in September 2021. UScellular may redeem these notes, in whole or in part, at any time after June 2026 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest.

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Note 11 Variable Interest Entities

Consolidated VIEs

UScellular consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. UScellular reviews the criteria for a controlling financial interest at the time it enters into agreements and subsequently when events warranting reconsideration occur. These VIEs have risks similar to those described in the “Risk Factors” in this Form 10-Q and UScellular’s Form 10-K for the year ended December 31, 2020.

UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs and, therefore, consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables.

The following VIEs were formed to participate in FCC auctions of wireless spectrum licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions:

▪Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and

▪King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.

These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect UScellular subsidiary, to sell or lease certain wireless spectrum licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, UScellular has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that UScellular is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated.

UScellular also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, UScellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships also are recognized as VIEs and are consolidated under the variable interest model.

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The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in UScellular’s Consolidated Balance Sheet.


	September 30, 2021		December 31, 2020
(Dollars in millions)
Assets
Cash and cash equivalents	$	30	$	18
Short-term investments	—		3
Accounts receivable	659		639
Inventory, net	2		3
Other current assets	33		21

Licenses	639		639
Property, plant and equipment, net	115		111
Operating lease right-of-use assets	44		39
Other assets and deferred charges	355		348
Total assets	$	1,877	$	1,821

Liabilities
Current liabilities	$	26	$	28

Long-term operating lease liabilities	39		36
Other deferred liabilities and credits	22		20
Total liabilities1	$	87	$	84

1 Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 10 – Debt for additional information.

Unconsolidated VIEs

UScellular manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.

UScellular’s total investment in these unconsolidated entities was $4 million and $5 million at September 30, 2021 and December 31, 2020, respectively, and is included in Investments in unconsolidated entities in UScellular’s Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by UScellular in those entities.

Other Related Matters

UScellular made contributions, loans or advances to its VIEs totaling $64 million and $113 million, during the nine months ended September 30, 2021 and 2020, respectively, of which $32 million in 2021 and $79 million in 2020, are related to USCC EIP LLC as discussed above. UScellular may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of wireless spectrum licenses granted in various auctions. UScellular may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long-term debt. There is no assurance that UScellular will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

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

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United States Cellular Corporation

Additional Required Information

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

UScellular maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to UScellular’s management, including its principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by SEC Rules 13a-15(b), UScellular carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of UScellular’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, UScellular’s principal executive officer and principal financial officer concluded that UScellular’s disclosure controls and procedures were effective as of September 30, 2021, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting that have occurred during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, UScellular’s internal control over financial reporting.

Legal Proceedings

In April 2018, the United States Department of Justice (DOJ) notified UScellular and its parent, TDS, that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is/was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed UScellular and TDS that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. UScellular believes that its arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, UScellular cannot predict the outcome of any proceeding.

Refer to the disclosure under Legal Proceedings in UScellular’s Form 10-K for the year ended December 31, 2020, for additional information. There have been no material changes to such information since December 31, 2020.

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Unregistered Sales of Equity Securities and Use of Proceeds

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 additional Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis. In December 2016, the UScellular Board amended this authorization to provide that, beginning on January 1, 2017, the increase in the authorized repurchase amount with respect to a particular year will be any amount from zero to 1,300,000 Common Shares, as determined by the Pricing Committee of the Board of Directors, and that if the Pricing Committee did not specify an additional amount for any year, such additional amount would be zero for such year. The Pricing Committee has not specified any increase in the authorization since that time. The Pricing Committee also was authorized to decrease the cumulative amount of the authorization at any time, but has not taken any action to do so at this time. The authorization provides that share repurchases will be made pursuant to open market purchases, block purchases, private purchases, or otherwise, depending on market prices and other conditions. This authorization does not have an expiration date. UScellular did not determine to terminate the foregoing Common Share repurchase program, as amended, or cease making further purchases thereunder, during the third quarter of 2021.

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 quarter covered by this Form 10-Q.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2021	—	$	—	—	4,451,813
August 1 - 31, 2021	389,767	$	31.63	389,767	4,062,046
September 1 - 30, 2021	236,643	$	31.33	236,643	3,825,403
Total for or as of the end of the quarter ended September 30, 2021	626,410	$	31.52	626,410	3,825,403

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Exhibits


Exhibit Number			Description of Documents

Exhibit 31.1			Principal executive officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit 31.2			Principal financial officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit 32.1			Principal executive officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Exhibit 32.2			Principal financial officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.


Exhibit 101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH			Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.PRE			Inline XBRL Taxonomy Presentation Linkbase Document

Exhibit 101.CAL			Inline XBRL Taxonomy Calculation Linkbase Document

Exhibit 101.LAB			Inline XBRL Taxonomy Label Linkbase Document

Exhibit 101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104			Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the inline document.

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Form 10-Q Cross Reference Index
Item Number			Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)	22 - 26
		Notes to Consolidated Financial Statements	30 - 38

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1 - 19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

	Item 4.	Controls and Procedures	40

Part II.	Other Information

	Item 1.	Legal Proceedings	40

	Item1A.	Risk Factors	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

	Item 6.	Exhibits	42

Signatures			44

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SIGNATURES

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

UNITED STATES CELLULAR CORPORATION

(Registrant)

Date:

November 4, 2021

/s/ Laurent C. Therivel

Laurent C. Therivel

President and Chief Executive Officer

(principal executive officer)

Date:

November 4, 2021

/s/ Douglas W. Chambers

Douglas W. Chambers
Executive Vice President, Chief Financial Officer and Treasurer
(principal financial officer)

Date:

November 4, 2021

/s/ Anita J. Kroll

Anita J. Kroll

Chief Accounting Officer

(principal accounting officer)

Date:

November 4, 2021

/s/ Jeffrey S. Hoersch

Jeffrey S. Hoersch

Vice President and Controller