What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 145 added, 160 removed, 428 unchanged (42% of the section changed)

8 unchanged sentences

Consolidated Balance Sheet Analysis

Applications of Critical Accounting Policies and Estimates

Application of Critical Accounting Policies and Estimates

Regulatory Matters

20 unchanged sentences

UScellular is an 84%-owned subsidiary of Telephone and Data Systems, Inc.

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

▪ Serves customers with 4.7 million retail connections including 4.2 million postpaid and 0.5 million prepaid connections

▪ Operates in 21 states

3 unchanged sentences

Index to MD&A

COVID-19 considerations

The coronavirus (COVID-19) pandemic did not have a material impact on UScellular's financial results in 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.

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.

UScellular’s mission is to connect its customers to what matters most to them.

This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves.

UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus.

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 fixed wireless 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.

In addition, UScellular is focused on increasing revenues from prepaid plans, tower rent revenues and expanding its solutions available to business and government customers.

▪ UScellular continues to enhance its network capabilities, including by deploying 5G technology.

5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.

1 unchanged sentence

UScellular has acquired high-band and mid-band spectrum, deployed high-band spectrum on a limited basis, and will further deploy high-band and mid-band 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 has launched 5G services in portions of substantially all of its markets and will continue to expand to 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.

10 unchanged sentences

Auction 110 was an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that started in October 2021 and concluded in January 2022.

Auction 108 is an FCC auction of 2.5 GHz wireless spectrum licenses that started in July 2022 and concluded in August 2022.

▪ Churn Rate – represents the percentage of the connections that disconnect service each month.

These rates represent the average monthly churn rate for each respective period.

▪ 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.

4 unchanged sentences

▪ Eligible Telecommunications Carrier (ETC) – designation by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms.

▪ Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment.

▪ Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements.

See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

5 unchanged sentences

▪ 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.

▪ Retail Connections – individual lines of service associated with each device activated by a postpaid or prepaid customer.

Connections are associated with all types of devices that connect directly to the UScellular network.

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

14 unchanged sentences

Net Additions (Losses)

Handsets (11,000) (13,000) 15 %

Connected Devices (21,000) 39,000 N/M

Handsets (110,000) (11,000) N/M

Connected Devices (23,000) (21,000) (10) %

Total Net Additions (Losses) (133,000) (32,000) N/M

3 unchanged sentences

N/M - Percentage change not meaningful

Total postpaid handset net losses decreased in 2021 due primarily to an increase in gross additions as a result of higher consumer switching activity, partially offset by an increase in postpaid handset churn.

Total postpaid connected device net additions decreased in 2021 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.

Total postpaid handset net losses increased in 2022 due to lower gross additions and higher defections resulting from aggressive industry-wide competition and an increase in non-pay customers.

Total postpaid connected device net losses in 2022 were largely in-line with prior year, as lower demand for connected watches and tablets were offset by an increase in home internet net additions.

Postpaid Revenue

2 unchanged sentences

Average Revenue Per Account (ARPA) $ 130.39 $ 125.92 4%

Postpaid ARPU and Postpaid ARPA increased in 2021, due primarily to (i) favorable plan and product offering mix, (ii) an increase in regulatory recovery revenues and (iii) an increase in device protection plan revenues.

Postpaid ARPU and Postpaid ARPA increased in 2022, due primarily to (i) favorable plan and product offering mix, (ii) an increase in cost recovery surcharges and (iii) an increase in device protection plan revenues.

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 an out-of-period error recorded in the third quarter.

The higher ARPU plan mix in 2022 relative to 2021 was partially driven by device promotions that included requirements for customers to adopt higher rate plans that offer enhanced services and features.

UScellular expects the future growth rate of Postpaid ARPU and Postpaid ARPA to decline relative to the growth rate experienced in 2022 due to the impact of pricing and promotions in the continued highly competitive wireless services environment.

2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to an out-of-period error recorded in the third quarter of 2021.

See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

4 unchanged sentences

Retail service 1

$ 2,793 $ 2,757 1 %

Inbound roaming 67 110 (39) %

Other 240 229 5 %

Service revenues 3,125 3,115 —

2 unchanged sentences

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

755 790 (4) %

Cost of equipment sold 1,216 1,118 9 %

1 unchanged sentence

Depreciation, amortization and accretion 700 678 3 %

Loss on impairment of licenses 3 — N/M

(Gain) loss on asset disposals, net 19 23 (18) %

(Gain) loss on sale of business and other exit costs, net (2) — N/M

(Gain) loss on license sales and exchanges, net — (5) N/M

(Gain) loss on sale of business and other exit costs, net (1) (2) 52 %

Total operating expenses 4,100 3,952 4 %

8 unchanged sentences

N/M - Percentage change not meaningful

1 For 2021, amounts have been adjusted to reclassify $8 million of Internet of Things (IoT) and Reseller revenues from Retail service to Other service.

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

4 unchanged sentences

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

▪ Retail Service – Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges

▪ Inbound Roaming – Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming

▪ Other Service – Amounts received from the Federal USF, tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT)

Equipment revenues consist of:

2 unchanged sentences

Total operating revenues

Retail service revenues increased in 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.

Inbound roaming revenues decreased in 2021, primarily driven by lower data revenues resulting from lower usage and lower rates.

UScellular expects inbound roaming revenues to continue to decline during 2022 relative to prior year levels.

Other service revenues increased in 2021, resulting from increases in tower rental revenues and miscellaneous other service revenues.

Equipment sales revenues increased in 2021, due primarily to an increase in the volume of new smartphone and accessory sales, partially offset by higher promotional activity.

Retail service revenues increased in 2022 primarily as a result of an increase in Postpaid ARPU, partially offset by a decrease in average postpaid connections, as well as a $9 million out-of-period error that increased revenue recognized in 2021.

See Note 2 - Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Inbound roaming revenues decreased in 2022, primarily driven by lower data revenues resulting from lower rates and lower usage.

UScellular expects inbound roaming revenue to continue to decline during 2023 relative to prior year levels.

Other service revenues increased in 2022, resulting from increases in tower rental revenues, miscellaneous revenues, and IoT revenues.

Equipment sales revenues increased in 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with a higher average price of new smartphone sales.

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 continue to offer significant promotional discounts to new and existing customers.

This has included both traditional carriers and cable companies operating through mobile virtual network operators (MVNOs).

This increased aggressiveness has contributed to the loss of 133,000 postpaid connections in 2022.

It has also led to increased promotional spending, which negatively impacts both Equipment revenues and Retail service revenues.

UScellular expects promotional aggressiveness by its competitors to continue during 2023.

Operating revenues and Operating income may be negatively impacted by the competitive need to continue to offer significant promotional discounts and lower priced plan offerings to new and existing customers.

System operations expenses

System operations expenses increased in 2021, due primarily to higher circuit costs and an increase in cell site rent expense, partially offset by a decrease in roaming expense driven by lower rates.

System operations expenses decreased in 2022, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses.

The decrease in roaming expense was driven by a decrease in roaming rates partially offset by an increase in usage.

Cost of equipment sold

Cost of equipment sold increased in 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 decreased in 2021, due primarily to decreases in (i) bad debts expense driven by fewer non-pay customers as a result of better credit mix and improved customer payment behavior and (ii) advertising expense due to reduced media spend.

Cost of equipment sold increased in 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with higher average cost per unit sold.

Index to MD&A

Selling, general and administrative expenses

Selling, general and administrative expenses increased in 2022, due primarily to increases in bad debts expense partially offset by a decrease in advertising expense.

Bad debts expense increased $76 million in 2022 as customer payment behavior and the corresponding rate of involuntary churn returned to pre-COVID-19 pandemic trends in 2022.

Involuntary churn had been favorable in the prior year due to the impacts of the pandemic which included government stimulus payments and higher consumer savings rates.

In addition, customers have purchased higher priced devices in recent periods, which has resulted in higher write-off amounts per uncollectible account in 2022 relative to 2021.

Components of Other Income (Expense)

4 unchanged sentences

Interest and dividend income 8 6 35 %

Gain (loss) on investments — 2 N/M

Interest expense (163) (175) 7 %

5 unchanged sentences

Net income attributable to UScellular shareholders $ 30 $ 155 (81) %

N/M - Percentage change not meaningful

Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities represents UScellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for u sing the equity method.

UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $82 million for both 2021 and 2020.

UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $65 million and $82 million for 2022 and 2021, respectively.

See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolid ated Financial Statements for additional information.

Interest expense

Interest expense increased in 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 $31 million of unamortized debt issuance costs related to Senior Notes that were redeemed in 2021.

These increases were partially offset by a reduction in interest expense due to the redemptions of Senior Notes with higher interest rates.

See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information.

Interest expense decreased in 2022 due primarily to $31 million of unamortized debt issuance costs written off during 2021 related to the redemption of Senior Notes.

This was partially offset by an increase in interest expense due to additional borrowings and interest rate increases.

Income tax expense

The effective tax rate on Income before income taxes was 11.4 % for 2021, compared to 6.6% in 2020.

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 2021 tax rate includes a state tax benefit due primarily to the reductions of tax accruals from expirations of state statute of limitations for prior tax years.

In January 2022, UScellular received an income tax refund of $123 million related to the 2020 net operating loss carryback enabled by the CARES Act.

Income tax expense increased in 2022 due primarily to the 2021 reduction of tax accruals resulting from expiration of state statutes of limitations of prior tax years, which did not recur in 2022.

This was partially offset by the tax effect of the decrease in Income before income taxes.

In early 2022, UScellular received an income tax refund of $123 million related to the 2020 net operating loss carryback enabled by the CARES Act.

See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information.

3 unchanged sentences

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 term loans 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.

In the past, UScellular’s existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for UScellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of wireless spectrum licenses.

There is no assurance that this will be the case in the future.

1 unchanged sentence

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 and expected cash flows from operating and investing activities will provide sufficient liquidity for UScellular to meet its normal day-to-day operating needs and debt service requirements for the foreseeable future.

However, UScellular believes that existing cash and investment balances, funds available under its financing agreements and expected cash flows from operating and investing activities will provide sufficient liquidity for UScellular to meet its normal day-to-day operating needs and debt service requirements for the next several years.

UScellular 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.

UScellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, repurchases of shares, or making additional investments.

It may be necessary from time to time to increase the size of the existing credit facilities, to amend existing or put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures.

Cash and Cash Equivalents

7 unchanged sentences

Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.

In addition to Cash and cash equivalents, UScellular had undrawn borrowing capacity from existing debt facilities of $950 million at December 31, 2021.

Additional financing activity subsequent to December 31, 2021 reduced the undrawn borrowing capacity to $615 million at February 17, 2022.

In addition to Cash and cash equivalents, UScellular had undrawn borrowing capacity from the following debt facilities at December 31, 2022.

See the Financing section below for further details.

(Dollars in millions)

Revolving Credit Agreement $ 300

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 December 31, 2021, there were no outstanding borrowings under the revolving credit agreement, and UScellular’s unused borrowing capacity was $300 million.

In January 2022, UScellular borrowed $75 million under its revolving credit agreeme nt and in February 2022, repaid the entire borrowing.

Receivables Securitization Agreement 175

Repurchase Agreement 140

Total undrawn borrowing capacity $ 615

Index to MD&A

Revolving Credit Agreement

UScellular has an unsecured revolving credit agreement with a maximum borrowing capacity of $300 million.

Amounts under the revolving credit agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026.

During 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement.

As of December 31, 2022, there were no outstanding borrowings under the revolving credit agreement, and UScellular’s unused borrowing capacity was $300 million.

Term Loan Agreements

In July 2021, UScellular amended and restated its term loan agreement to allow for additional borrowing capacity of $200 million, to allow for total borrowing capacity of $500 million.

The additional borrowing capacity may be drawn in one or more advances by the one-year anniversary of the date of the agreement;

amounts not drawn by that time will cease to be available.

The maturity date for the existing borrowings is in July 2028 and for any additional borrowings is in July 2031.

As of December 31, 2021, the outstanding borrowings under the agreement were $299 million and the unused borrowing capacity was $200 million.

In January 2022, UScellular borrowed $100 million under the term loan agreement.

In December 2021, UScellular entered into an additional $300 million term loan agreement.

The agreement may be drawn in one or more advances by the three-month anniversary of the date of the agreement;

amounts not drawn by that time will cease to be available.

The maturity date for the agreement is in July 2026.

As of December 31, 2021, there were no outstanding borrowings under the term loan agreement and the unused borrowing capacity was $300 million.

In February 2022, UScellular borrowed $225 million under the term loan agreement.

UScellular has term loan agreements with maximum borrowing capacities of $800 million.

The maturity dates for the term loan agreements range from July 2026 to July 2031.

During 2022, UScellular borrowed an incremental $500 million under its term loan credit agreements.

As of December 31, 2022, UScellular has borrowed the full amount available under the agreements and the outstanding borrowings were $796 million.

Export Credit Financing Agreement

In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) equipment imported from Canada, including equipment purchased prior to entering the term loan credit facility agreement.

The agreement may be drawn in one or more advances by the three-month anniversary of the date of the agreement;

amounts not drawn by that time will cease to be available.

The maturity date of the agreement is the five-year anniversary of the first borrowing, which is in January 2027.

As of December 31, 2021, there were no outstanding borrowings under the credit facility and the unused borrowing capacity was $150 million.

In January 2022, UScellular borrowed $150 million under the agreement.

In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement.

During 2022, UScellular borrowed $150 million, which is the full amount available under the agreement and is due in January 2027.

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.

Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in January 2023.

As of December 31, 2021, UScellular has borrowed the full amount available under the agreement of $450 million.

In March 2022, UScellular amended the agreement to extend the maturity date to March 2024.

Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until the maturity date.

During 2022, UScellular repaid $250 million and borrowed $75 million under the agreement.

As of December 31, 2022, the outstanding borrowings under the agreement were $275 million and the unused borrowing capacity was $175 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.

In February 2023, UScellular borrowed $25 million under the receivables securitization agreement.

Repurchase Agreement

1 unchanged sentence

The transaction is accounted for as a one-month secured borrowing.

The expiration date of the repurchase agreement is in January 2023.

In February 2022, the repo subsidiary borrowed $60 million under the repurchase agreement.

During 2022, the repo subsidiary borrowed $110 million and repaid $50 million under the repurchase agreement.

As of December 31, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million.

In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024.

The outstanding borrowings will bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 1.35%.

There were no significant changes to other terms of the repurchase agreement.

Financial Covenants

The revolving credit agreement, senior term loan agreement and receivables securitization and export credit financing agreements require UScellular to comply with certain affirmative and negative covenants, which include certain financial covenants.

The revolving credit agreement, term loan agreements, export credit financing agreement and receivables securitization agreement require UScellular to comply with certain affirmative and negative covenants, which include certain financial covenants.

In particular, under these agreements, UScellular is required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter.

UScellular also was required to maintain the Consolidated Leverage Ratio at a level not to exceed 3.75 to 1.00 as of the end of any fiscal quarter.

UScellular also is required to maintain the Consolidated Leverage Ratio at a level not to exceed 3.75 to 1.00 as of the end of any fiscal quarter.

UScellular believes that it was in compliance as of December 31, 2022 with all such financial covenants.

Other Long-Term Financing

In August 2020, UScellular issued $500 million of 6.25% Senior Notes due in 2069 and in December 2020, UScellular issued $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.

Index to MD&A

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.

11 unchanged sentences

Refer to Market Risk — Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to UScellular’s Long-term debt.

Index to MD&A

UScellular, at its discretion, may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise.

3 unchanged sentences

Credit Ratings

In certain circumstances, UScellular’s interest cost on its revolving credit and term loan agreements may be subject to increase if its current credit ratings from nationally recognized credit rating agencies are lowered, and may be subject to decrease if the ratings are raised.

In certain circumstances, UScellular’s interest cost on its various agreements may be subject to increase if its current credit ratings from nationally recognized credit rating agencies are lowered, and may be subject to decrease if the ratings are raised.

UScellular’s agreements do not cease to be available nor do the maturity dates accelerate solely as a result of a downgrade in credit rating.

3 unchanged sentences

Rating Agency Rating Outlook

Moody's (re-affirmed August 2021) Ba1 stable outlook

Moody's (re-affirmed October 2022) Ba1 stable outlook

Standard & Poor's (re-affirmed October 2022) BB stable outlook

Fitch Ratings (re-affirmed February 2022) BB+ stable outlook

Index to MD&A

Capital Requirements

16 unchanged sentences

These expenditures are expected to be used for similar purposes as those listed above.

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 2022 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its revolving credit, term loan and receivables securitization agreements and/or other forms of financing.

Index to MD&A

Macroeconomic factors may impact the acquisition or cost of products and materials as well as contribute to internal and external labor shortages.

UScellular intends to finance its capital expenditures for 2023 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its existing agreements and/or other forms of financing.

Acquisitions, Divestitures and Exchanges

1 unchanged sentence

In general, UScellular may not disclose such transactions until there is a definitive agreement.

In January and February 2022, UScellular paid $560 million for wireless spectrum licenses won in Auction 110.

This amount was paid using the funds available under UScellular's various financing agreements as described above.

Other Obligations

6 unchanged sentences

and other agreements to purchase goods or services.

Index to MD&A

Variable Interest Entities

16 unchanged sentences

2022 Commentary

UScellular’s Cash, cash equivalents and restricted cash increased $109 million.

Net cash provided by operating activities was $832 million due to net income of $35 million adjusted for non-cash items of $761 million and distributions received from unconsolidated entities of $145 million including $59 million in distributions from the LA Partnership.

This was partially offset by changes in working capital items which decreased net cash by $109 million.

The working capital changes were primarily influenced by an increase in customer and agent receivables and increases in inventory purchases, partially offset by a federal income tax refund of $123 million received during the first quarter.

The increase in customer receivables was driven by a high volume of equipment upgrades due to promotional activities and a longer contract term for equipment installment plans.

Cash flows used for investing activities were $1,179 million, which included payments for property, plant and equipment of $602 million and payments for wireless spectrum licenses of $585 million.

Cash payments for property, plant and equipment are lower than the total capital expenditures in 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid over time.

Cash flows provided by financing activities were $456 million, due primarily to $500 million borrowed under the term loan facilities, $150 million borrowed under the export credit financing agreement, $110 million borrowed under the EIP receivables repurchase agreement, $75 million borrowed under the revolving credit agreement, and $75 million borrowed under the receivables securitization agreement.

These were partially offset by $250 million of repayments on the receivables securitization agreement, a $75 million repayment on the revolving credit agreement, a $50 million repayment on the EIP receivables repurchase agreement, the repurchase of $43 million of Common Shares and cash paid for software license agreements of $22 million.

2021 Commentary

UScellular’s Cash, cash equivalents and restricted cash decreased $1,092 million.

2 unchanged sentences

The working capital changes were primarily influenced by an increase in customer and agent receivables, a decrease to accrued taxes and the timing of vendor payments.

Cash flows used for investing activities were $2,036 million.

Cash paid for additions to property, plant and equipment totaled $724 million.

Cash payments for wireless spectrum licenses, including advance payments, were $1,322 million.

Cash flows used for investing activities were $2,036 million, which included payments for wireless spectrum licenses of $1,322 million, and payments for property, plant and equipment of $724 million.

Cash flows provided by financing activities were $142 million, reflecting the issuance of $500 million of 5.50% Senior Notes, $625 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 $31 million of Common Shares and payment of debt issuance costs of $22 million.

2020 Commentary

UScellular’s Cash, cash equivalents and restricted cash increased $1,000 million.

Net cash provided by operating activities was $1,237 million due to net income of $233 million adjusted for non-cash items of $758 million, distributions received from unconsolidated entities of $189 million including $89 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $57 million.

The working capital changes were primarily influenced by the timing of vendor payments partially offset by tax impacts from the CARES Act and the timing of collections of customer and agent receivables.

Cash flows used for investing activities were $1,163 million.

Cash paid for additions to property, plant and equipment totaled $989 million.

Cash payments for wireless spectrum licenses, including advance payments, were $201 million.

Cash flows provided by financing activities were $926 million, reflecting the issuance of $500 million of 5.50% Senior Notes, $500 million of 6.25% Senior Notes, and $125 million borrowed under the receivables securitization agreement.

These were partially offset by a $100 million repayment on the receivables securitization agreement, payment of debt issuance costs of $38 million and the repurchase of $23 million of Common Shares.

Index to MD&A

2 unchanged sentences

This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes.

Changes in financial condition during 2021 were as follows:

Notable balance sheet changes during 2022 were as follows:

Inventory, net

Inventory, net increased $27 million due primarily to an increase in the volume of inventory.

Licenses increased $1,459 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.

Inventory, net increased $88 million due primarily to increased inventory levels to support promotions and ensure adequate device supply.

Income taxes receivable

Income taxes receivable decreased $119 million due primarily to a federal income tax refund received related to the 2020 net operating loss carryback enabled by the CARES Act.

Customer deposits and deferred revenues

Customer deposits and deferred revenues increased $48 million due primarily to an increase in contract liabilities resulting from higher promotional activity in the current year.

Other deferred liabilities and credits

Other deferred liabilities and credits increased $197 million due primarily to relocation and acceleration fees related to wireless spectrum licenses acquired through Auction 107 and an increase in asset retirement obligations.

Other current liabilities

Other current liabilities increased $231 million due primarily to an increase in the short-term accrual for Auction 107 relocation fees, net borrowings under the EIP receivables repurchase agreement and accruals related to software license agreements.

See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information on the Auction 107 accrual.

Long-term debt, net

3 unchanged sentences

Balance at December 31, 2021 $ 2,728

Borrowings under Revolving Credit Agreements 75

Borrowings under Term Loan Agreements 500

Borrowings under Export Credit Financing Agreement 150

Borrowings under Receivables Securitization Agreement 75

Issuance of Senior Notes, net of debt issuance costs 484

Repayments under Revolving Credit Agreements (75)

Repayments under Receivables Securitization Agreement (250)

Repayments under Term Loan Agreements (1)

Redemptions of Senior Notes (917)

Debt issuance costs charged to interest expense 32

Balance at December 31, 2022 $ 3,187

Treasury shares

Treasury shares increased $30 million due primarily to share repurchases.

Index to MD&A

8 unchanged sentences

Wireless spectrum licenses are tested for impairment at the level of reporting referred to as a unit of accounting.

For purposes of its impairment testing, UScellular separates its FCC wireless spectrum licenses into eight units of accounting, which consist of one unit of accounting for developed operating market wireless spectrum licenses (built wireless spectrum licenses) and seven geographic non-operating market wireless spectrum licenses (unbuilt wireless spectrum licenses).

For purposes of the 2022 impairment test, UScellular had one unit of accounting as a result of aggregating all developed operating market wireless spectrum licenses (built wireless spectrum licenses) and non-operating market wireless spectrum licenses (unbuilt wireless spectrum licenses), and for the 2021 test, UScellular had eight units of accounting, which consisted of one unit of accounting for built wireless spectrum licenses and seven unbuilt wireless spectrum licenses.

UScellular believes this change in units of accounting assessed for impairment better reflects the integrated use of licenses as part of its national interdependent network.

This change does not impact the results of the impairment assessment for the current or prior years.

A qualitative assessment of the license values was completed as of November 1, 2022 and November 1, 2021.

The qualitative assessment considered several factors, including analyst estimates of wireless spectrum license values which contemplated recent spectrum auction results, recent UScellular and other market participant transactions, and other industry and market factors.

Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the wireless spectrum licenses in each unit of accounting exceeded their respective carrying values.

Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the unit of accounting exceeded its carrying value.

Therefore, no quantitative impairment evaluation was completed.

23 unchanged sentences

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 way of 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 September 2, 2020, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million.

On July 15, 2022, the FCC released a Consent Decree related to its spectrum aggregation and ownership attribution rules in which UScellular agreed to relinquish its rights to 27 wireless spectrum licenses awarded in Auction 105 and subsequently received a full refund of $2 million.

The remaining 216 wireless spectrum licenses were granted by the FCC on July 26, 2022.

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).

3 unchanged sentences

Additionally, UScellular expects to be obligated to pay approximately $185 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments.

Such additional costs were accrued and capitalized at the time the licenses were granted.

In October 2021, UScellular paid $36 million related to the additional costs.

Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes.

UScellular paid $36 million and $8 million related to the additional costs in October 2021 and September 2022, respectively.

The spectrum must be cleared by incumbent providers before UScellular can access it.

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).

1 unchanged sentence

UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022.

The wireless spectrum licenses from Auction 110 are expected to be granted by the FCC in 2022.

The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.

On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 2.5 GHz band (Auction 108).

On September 1, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 34 wireless spectrum licenses for $3 million.

The wireless spectrum licenses from Auction 108 were granted by the FCC on December 1, 2022.

Index to MD&A

6 unchanged sentences

Such risks, uncertainties and other factors include, but are not limited to, those set forth below.

See “Risk Factors” in UScellular’s Annual Report on Form 10-K for the year ended December 31, 2021, for a further discussion of these risks.

See “Risk Factors” in this Form 10-K for a further discussion of these risks.

Each of the following risks could have a material adverse effect on UScellular’s business, financial condition or results of operations.

7 unchanged sentences

▪ 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.

▪ An inability to attract diverse people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on UScellular's business, financial condition or results of operations.

▪ UScellular’s smaller scale relative to larger competitors that may have greater financial and other resources than UScellular could cause UScellular to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.

27 unchanged sentences

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.

▪ The impact of public health emergencies on UScellular's business is uncertain, but depending on duration and severity could have a material adverse effect on UScellular's business, financial condition or results of operations.

Index to MD&A

Long-Term Debt

As of December 31, 2021, the majority of UScellular’s long-term debt was in the form of fixed-rate notes with remaining maturities ranging up to 49 years.

UScellular also holds variable-rate debt.

Fluctuations in market interest rates can lead to fluctuations in the fair value of fixed-rate notes and interest paid on variable-rate debt.

As of December 31, 2022, approximately 60% of UScellular's long-term debt was in fixed-rate senior notes and approximately 40% in variable-rate debt.

Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt.

The following table presents the scheduled principal payments on long-term debt, lease obligations and the related weighted average interest rates by maturity dates at December 31, 2022:

5 unchanged sentences

2023 $ 13 6.2 %

Thereafter 2,331 5.5 %

2024 20 6.1 %

2025 20 6.1 %

2026 268 5.9 %

2027 158 6.0 %

Thereafter 2,514 6.1 %

Total $ 2,993 6.1 %

1 The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, unamortized discounts related to the 6.7% Senior Notes, and outstanding borrowings under the receivables securitization agreement, which principal repayments are not scheduled but are instead based on actual receivable collections.

See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information.

2 Represents the weighted average stated interest rates at December 31, 2022, for debt maturing in the respective periods.

3 Excludes $450 million of outstanding borrowings under the receivables securitization agreement.

If the maturity date of the facility is not extended, principal repayments begin in January 2023.

Principal repayments are not scheduled but are instead based on actual receivable collections.

UScellular intends to extend the maturity date of the facility.

Fair Value of Long-Term Debt

1 unchanged sentence

See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information.

Other Market Risk Sensitive Instruments

The substantial majority of UScellular’s other market risk sensitive instruments (as defined in Item 305 of SEC Regulation S-K) are short-term, including Cash and cash equivalents.

Accordingly, UScellular believes that a significant change in interest rates would not have a material effect on such other market risk sensitive instruments.

Index to MD&A

13 unchanged sentences

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 uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore, reconciliations to applicable GAAP income measures 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.

8 unchanged sentences

Add back or deduct:

Loss on impairment of licenses 3 —

(Gain) loss on asset disposals, net

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

(Gain) loss on license sales and exchanges, net

(Gain) loss on investments — (2)

Adjusted EBITDA (Non-GAAP) 956 1,054

3 unchanged sentences

Depreciation, amortization and accretion

Loss on impairment of licenses 3 —

(Gain) loss on asset disposals, net

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

(Gain) loss on license sales and exchanges, net

Operating income (GAAP) $ 69 $ 170

1 unchanged sentence

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.

The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and Cash paid for software license agreements.

(Dollars in millions)

1 unchanged sentence

Cash paid for additions to property, plant and equipment (602) (724)

Cash paid for software license agreements (22) (9)

Free cash flow (Non-GAAP)

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis