What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-17 · 167 added, 186 removed, 1030 unchanged (26% of the section changed)

10 unchanged sentences

Report of Independent Registered Public Accounting Firm

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Financial Statements

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Depreciation, amortization and accretion 700 678 683

Loss on impairment of licenses 3 — —

(Gain) loss on asset disposals, net 19 23 25

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

11 unchanged sentences

Distributions from unconsolidated entities 145 176 189

Loss on impairment of licenses 3 — —

(Gain) loss on asset disposals, net 19 23 25

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Cash paid for licenses ( 585 ) ( 1,302 ) ( 171 )

Cash received from investments 3 1 29

Cash paid for investments — ( 3 ) ( 11 )

Cash received from divestitures and exchanges 8 3 26

5 unchanged sentences

Repayment of long-term debt ( 329 ) ( 1,118 ) ( 108 )

Issuance of short-term debt 110 — —

Repayment of short-term debt ( 50 ) — —

Common Shares reissued for benefit plans, net of tax payments ( 5 ) ( 16 ) ( 11 )

3 unchanged sentences

Payments to acquire additional interest in subsidiaries — — ( 11 )

Cash paid for software license agreements ( 22 ) ( 9 ) ( 2 )

Other financing activities ( 1 ) ( 1 ) —

Net cash provided by (used in) financing activities 142 926 ( 152 )

Net cash provided by financing activities 456 142 926

Net increase (decrease) in cash, cash equivalents and restricted cash 109 ( 1,092 ) 1,000

3 unchanged sentences

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

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Cash and cash equivalents

$ 156 $ 1,271

Short-term investments

Accounts receivable

18 unchanged sentences

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

13 unchanged sentences

Total current liabilities 1,195 903

Liabilities held for sale — 1

Deferred liabilities and credits

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Issued 88 shares ( 33 Series A Common and 55 Common Shares)

Outstanding 86 shares ( 33 Series A Common and 53 Common Shares)

Outstanding 85 shares ( 33 Series A Common and 52 Common Shares) and 86 shares ( 33 Series A Common and 53 Common Shares), respectively

Par Value ($ 1.00 per share) ($ 33 Series A Common and $ 55 Common Shares)

Additional paid-in capital 1,703 1,678

Treasury shares, at cost, 2 Common Shares

Treasury shares, at cost, 3 and 2 Common Shares, respectively

( 98 ) ( 68 )

9 unchanged sentences

See Note 14 — Variable Interest Entities for additional information.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

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December 31, 2020 $ 88 $ 1,651 $ ( 67 ) $ 2,739 $ 4,411 $ 15 $ 4,426

Cumulative effect of accounting change — — — ( 2 ) ( 2 ) — ( 2 )

Net income attributable to UScellular shareholders — — — 155 155 — 155

3 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 3 ) ( 3 )

Acquisitions of noncontrolling interests — ( 10 ) — — ( 10 ) 4 ( 6 )

December 31, 2021 $ 88 $ 1,678 $ ( 68 ) $ 2,849 $ 4,547 $ 16 $ 4,563

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

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Distributions to noncontrolling interests — — — — — ( 6 ) ( 6 )

Acquisitions of noncontrolling interests — ( 10 ) — — ( 10 ) 4 ( 6 )

December 31, 2020 $ 88 $ 1,651 $ ( 67 ) $ 2,739 $ 4,411 $ 15 $ 4,426

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

United States Cellular Corporation

4 unchanged sentences

UScellular owns, operates and invests in wireless systems throughout the United States.

As of December 31, 2021, UScellular served customers with 5.0 million total connections.

As of December 31, 2022, UScellular served customers with 4.7 million retail connections.

UScellular has one reportable segment.

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Actual results could differ from those estimates.

Significant estimates are involved in accounting for indefinite-lived intangible assets and income taxes.

Cash, Cash Equivalents and Restricted Cash

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UScellular does not have any off-balance sheet credit exposure related to its customers.

Inventory consists primarily of wireless devices stated at the lower of cost, which approximates cost determined on the first-in first-out basis, or net realizable value.

Inventory consists primarily of wireless devices stated at the lower of cost, which approximates cost determined on a first-in first-out basis, or net realizable value.

Net realizable value is determined by reference to the stand-alone selling price.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Cloud-Hosted Arrangements

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These costs are amortized over the period of the service contract, which is generally three to five years .

Amortization of implementation costs was $ 16 million and $ 11 million for the years ended December 31, 2021 and 2020, respectively, and was included in Selling, general and administrative expenses.

Amortization of implementation costs was $ 18 million, $ 16 million and $ 11 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was included in Selling, general and administrative expenses.

Licenses consist of direct and incremental costs incurred in acquiring Federal Communications Commission (FCC) wireless spectrum licenses that generally provide UScellular with the exclusive right to utilize designated radio spectrum within specific geographic service areas to provide wireless service.

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UScellular performs its annual impairment assessment of wireless spectrum licenses as of November 1 of each year or more frequently if there are events or circumstances that cause UScellular to believe it is more likely than not that the carrying value of wireless spectrum licenses exceeds fair value.

For purposes of its impairment testing, UScellular separated its FCC wireless spectrum licenses into eight units of accounting.

The eight units of accounting consisted of one unit of accounting for developed operating market wireless spectrum licenses (built wireless spectrum licenses) and seven units of accounting for 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.

UScellular performed a qualitative impairment assessment to determine whether the wireless spectrum licenses were impaired.

In 2022 and 2021, UScellular considered several qualitative 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.

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Retirements and disposals of assets are recorded by removing the original cost of the asset (along with the related accumulated depreciation) from plant in service and recording it, together with proceeds, if any, and net removal costs (removal costs less an applicable accrued asset retirement obligation and salvage value realized), as a gain or loss, as appropriate.

UScellular capitalizes certain costs of developing new information systems.

Software licenses that qualify for capitalization as an asset are accounted for as the acquisition of a fixed asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition.

Index to Financial Statements and Supplementary Data

Depreciation and Amortization

Depreciation is provided using the straight-line method over the estimated useful life of the related asset.

Index to Financial Statements and Su pplementary Data

UScellular depreciates leasehold improvement assets over periods ranging from one year to thirty years ;

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See Note 10 — Leases for additional details related to leases.

UScellular adopted the provisions of ASC 842 on January 1, 2019, using a modified retrospective method.

Under this method, UScellular elected to apply the new accounting standard only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to the beginning balance of retained earnings.

The cumulative effect of applying the provisions of ASC 842 had no material impact on retained earnings.

Agent Liabilities

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Advertising costs totaled $ 171 million, $ 184 million and $ 196 million in 2022, 2021 and 2020, respectively.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

UScellular is included in a consolidated federal income tax return with other members of the TDS consolidated group.

1 unchanged sentence

Under a tax allocation agreement between TDS and UScellular, UScellular remits its applicable income tax payments to and receives applicable tax refunds from TDS.

UScellular had a tax receivable balance with TDS of $ 123 million and $ 125 million as of December 31, 2021, and 2020, respectively.

In January 2022, UScellular received $ 123 million of the tax receivable balance with TDS.

UScellular had no tax receivable balance with TDS as of December 31, 2022, and a receivable balance of $ 123 million as of December 31, 2021.

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

Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for future deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are recognized for future taxable temporary differences.

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Total costs incurred for UScellular’s contributions to the 401(k) plan were $ 15 million, $ 15 million and $ 15 million in 2022, 2021 and 2020, respectively.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Note 2 Revenue Recognition

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UScellular recognizes revenue in Service revenues in the period during which the services are provided.

Activation fees UScellular charges its end customers activation fees in connection with the sale of certain services and equipment.

Activation fees are deferred and recognized over the period benefited.

Significant Judgments

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The deferred revenue will be recognized as service revenue in future periods.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Amounts Collected from Customers and Remitted to Governmental Authorities

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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.

Service revenues are recognized over time and Equipment sales are recognized at a point in time.

Year Ended December 31, 2022 2021 2020

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$ 4,076 $ 4,039 $ 3,960

1 For 2021 and 2020, amounts have been adjusted to reclassify $ 8 million and $ 5 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other service.

2 During the third quarter of 2021, UScellular recorded a $ 9 million out-of-period error related to the timing of recognition of regulatory fee billings.

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For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price.

When payment is collected in advance of delivery of goods or services, a contract liability is recorded.

When consideration is received in advance of delivery of goods or services, a contract liability is recorded.

A contract asset is recorded when revenue is recognized in advance of UScellular’s right to receive consideration.

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Revenue recognized related to contract liabilities existing at January 1, 2022 was $ 176 million for the year ended December 31, 2022.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Transaction price allocated to the remaining performance obligations

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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’s “Other” debt consists of term loan credit agreements, receivables securitization agreement and in 2022, an export credit financing agreement.

UScellular estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 5.38 % to 8.28 % and 1.31 % to 4.40 % at December 31, 2022 and 2021, 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.

Index to Financial Statements and Su pplementary Data

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

Index to Financial Statements and Supplementary Data

Note 4 Equipment Installment Plans

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Write-offs, net of recoveries 1

( 76 ) ( 44 )

Allowance for credit losses, end of year $ 96 $ 72

Index to Financial Statements and Su pplementary Data

1 Write-offs increased in 2022 as customer payment behavior returned to pre-COVID-19 pandemic levels.

Index to Financial Statements and Supplementary Data

Note 5 Income Taxes

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1 State income taxes, net of federal benefit, include changes in unrecognized tax benefits as well as adjustments to state valuation allowances.

State taxes increased in 2022 due primarily to valuation allowance adjustments.

State taxes in 2021 are a net benefit due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.

2 Change in federal valuation allowance is due primarily to interest expense carryforwards from partnership investments that may not be realized.

3 The CARES Act provides a 5-year carryback of net operating losses generated in years 2018-2020.

As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provides a tax benefit in excess of the current federal statutory rate of 21 %.

Index to Financial Statements and Su pplementary Data

2 Change in federal valuation allowance is due primarily to current year interest expense from partnership investments that carryforward but may not be realized.

3 The CARES Act provided a 5-year carryback of net operating losses generated in years 2018-2020.

As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provided a tax benefit in excess of the current federal statutory rate of 21 %.

Index to Financial Statements and Supplementary Data

Significant components of UScellular’s deferred income tax assets and liabilities at December 31, 2022 and 2021, were as follows:

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Lease liabilities 244 254

Contract liabilities 62 37

Interest expense carryforwards 65 30

Asset retirement obligation 73 64

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Net deferred income tax liability $ 708 $ 674

1 Certain prior year deferred tax assets and liabilities have been reclassified to align with the current year presentation.

At December 31, 2022, UScellular and certain subsidiaries had $ 2,346 million of state NOL carryforwards (generating a $ 102 million deferred tax asset) available to offset future taxable income.

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A valuation allowance was established for certain federal and state NOL carryforwards since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.

At December 31, 2022, UScellular and certain subsidiaries had $ 350 million of state interest limitation carryforwards (generating a $ 14 million deferred tax asset) available to offset future taxable income.

The state interest limitation carryforwards generally do not expire.

UScellular and certain subsidiaries had $ 241 million of federal interest limitation carryforwards (generating a $ 51 million deferred tax asset) available to offset future taxable income.

The federal interest limitation carryforwards do not expire.

A valuation allowance was established for certain federal and state interest limitation carryforwards since it is more likely than not that a portion of such carryforwards will not be utilized.

A summary of UScellular’s deferred tax asset valuation allowance is as follows:

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Unrecognized tax benefits balance at end of year $ 35 $ 35 $ 51

Index to Financial Statements and Supplementary Data

Unrecognized tax benefits are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.

1 unchanged sentence

UScellular recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax expense (benefit).

The amounts charged to income tax expense related to interest and penalties resulted in a benefit of $ 10 million in 2021, and expenses of $ 2 million and $ 3 million in 2020 and 2019, respectively.

The amounts charged to income tax expense related to interest and penalties resulted in nominal expense in 2022, a benefit of $ 10 million in 2021, and an expense of $ 2 million in 2020.

Net accrued liabilities for interest and penalties were $ 13 million and $ 12 million at December 31, 2022 and 2021, respectively, and are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.

Index to Financial Statements and Su pplementary Data

UScellular is included in TDS’ consolidated federal and certain state income tax returns.

UScellular also files certain state and local income tax returns separately from TDS.

With limited exceptions, TDS is no longer subject to federal and state income tax audits for the years prior to 2018.

With limited exceptions, TDS and UScellular are no longer subject to federal and state income tax audits for the years prior to 2019.

Note 6 Earnings Per Share

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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 less than 1 million shares for 2021, 2020 and 2019, respectively.

The number of such Common Shares excluded was less than 1 million shares in each of 2022, 2021 and 2020.

Note 7 Intangible Assets

UScellular reviews attractive opportunities to acquire additional wireless spectrum, including pursuant to FCC auctions.

UScellular reviews opportunities to acquire additional wireless spectrum, including pursuant to FCC auctions.

UScellular also may seek to divest outright or exchange wireless spectrum that is not strategic to its long-term success.

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Transferred to Assets held for sale 1 ( 18 )

Divestitures — ( 18 )

Exchanges - Licenses received 1 —

Capitalized interest 8 13

Balance at end of year $ 4,690 $ 4,088

In March 2020, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 237 wireless spectrum licenses in the 37, 39 and 47 GHz bands (Auction 103) for $ 146 million.

UScellular paid $ 5 million of this amount in 2019 and the remainder in 2020.

In June 2020, the wireless spectrum licenses from Auction 103 were granted by the FCC.

Index to Financial Statements and Su pplementary Data

1 Impairment charge relates to licenses in markets where UScellular no longer expects to meet FCC buildout requirements.

Index to Financial Statements and Supplementary Data

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.

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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.

At December 31, 2022, the remaining estimated payments of approximately $ 133 million and $ 8 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, and at December 31, 2021, the remaining payments of approximately $ 17 million and $ 128 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, in the Consolidated Balance Sheet.

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

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

The advance payment is included in Other assets and deferred charges in the December 31, 2021 Consolidated Balance Sheet.

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

The advance payment was included in Other assets and deferred charges in the December 31, 2021 Consolidated Balance Sheet.

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

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.

UScellular's Investments in unconsolidated entities are accounted for using the equity method, measurement alternative method or net asset value practical expedient method as shown in the table below.

The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.

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Measurement alternative method investments 4 8

Investments recorded using the net asset value practical expedient 9 —

Total investments in unconsolidated entities $ 452 $ 439

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Total liabilities and equity $ 7,502 $ 7,352

Index to Financial Statements and Supplementary Data

Year Ended December 31, 2022 2021 2020

6 unchanged sentences

Net income $ 1,597 $ 1,985 $ 1,960

Index to Financial Statements and Su pplementary Data

Note 9 Property, Plant and Equipment

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Depreciation and amortization expense totaled $ 682 million, $ 662 million and $ 669 million in 2022, 2021 and 2020, respectively.

In 2021, 2020 and 2019, (Gain) loss on asset disposals, net included charges of $ 23 million, $ 25 million and $ 19 million, respectively, related to disposals of assets, trade-ins of older assets for replacement assets and other retirements of assets from service in the normal course of business.

In 2022, 2021 and 2020, (Gain) loss on asset disposals, net included charges of $ 19 million, $ 23 million and $ 25 million, respectively, related to disposals of assets from service in the normal course of business.

Note 10 Leases

Lessee Agreements

A lease is generally present in a contract if the lessee controls the use of identified property, plant or equipment for a period of time in exchange for consideration.

Nearly all of UScellular’s leases are classified as operating leases, although it does have a small number of finance leases.

UScellular’s most significant leases are for land and tower spaces, network facilities, retail spaces, and offices.

Nearly all of UScellular’s leases are classified as operating leases, although it does have a small number of finance leases.

UScellular has agreements with both lease and nonlease components, which are accounted for separately.

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The incremental changes due to the index changes are recorded as variable lease expense and are not included in the right-of-use assets or lease liabilities.

The identified lease term determines the periods to which expense is allocated and also has a significant impact on the right-of-use asset and lease liability calculations.

The identified lease term determines the periods to which expense is allocated and is also utilized in the right-of-use asset and liability calculations.

Many of UScellular’s leases include renewal and early termination options.

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The lease terms do not include early termination options unless UScellular is reasonably certain to exercise the options.

Certain asset classes have similar lease characteristics;

therefore, UScellular has applied the portfolio approach for lease term recognition for its tower space, retail, and certain ground lease asset classes.

UScellular has applied the portfolio approach in cases where asset classes have similar lease characteristics including tower space, retail, and certain ground lease asset classes.

Index to Financial Statements and Supplementary Data

The following table shows the components of lease cost included in the Consolidated Statement of Operations:

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Total $ 199 $ 191 $ 181

Index to Financial Statements and Su pplementary Data

The following table shows supplemental cash flow information related to lease activities:

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Operating lease income $ 93 $ 83 $ 77

$ 83 $ 77 $ 74

1 During the third quarter of 2019, UScellular recorded an out-of-period adjustment attributable to 2009 through the second quarter of 2019 due to errors in the timing of recognition of revenue for certain tower leases.

This out-of-period adjustment had the impact of increasing operating lease income by $ 5 million for the year ended December 31, 2019.

UScellular determined that this adjustment was not material to any of the periods impacted.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

The maturities of expected lease payments to be received are as follows:

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UScellular’s credit spread and commitment fees on its revolving credit agreement may be subject to increase if its current credit rating from nationally recognized credit rating agencies is lowered, and may be subject to decrease if the rating is raised.

In connection with UScellular’s revolving credit agreement, TDS and UScellular entered into a subordination agreement together with the administrative agent for the lenders under UScellular’s revolving credit agreement.

Pursuant to this subordination agreement, (a) any consolidated funded indebtedness from UScellular to TDS will be unsecured and (b) any (i) consolidated funded indebtedness from UScellular to TDS (other than “refinancing indebtedness” as defined in the subordination agreement) in excess of $ 105 million and (ii) refinancing indebtedness in excess of $ 250 million will be subordinated and made junior in right of payment to the prior payment in full of obligations to the lenders under UScellular’s revolving credit agreement.

As of December 31, 2021, UScellular had no outstanding consolidated funded indebtedness or refinancing indebtedness that was subordinated to the revolving credit agreement pursuant to the subordination agreement.

The continued availability of the revolving credit agreement requires UScellular to comply with certain negative and affirmative covenants, maintain certain financial ratios and make representations regarding certain matters at the time of each borrowing.

Index to Financial Statements and Su pplementary Data

The revolving credit agreement includes the following financial covenants:

▪ Consolidated Interest Coverage Ratio may not be less than 3.00 to 1.00 as of the end of any fiscal quarter.

▪ Consolidated Leverage Ratio may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter.

Certain UScellular wholly-owned subsidiaries have jointly and severally unconditionally guaranteed the payment and performance of the obligations of UScellular under the revolving credit agreement.

Other subsidiaries that meet certain criteria will be required to provide a similar guaranty in the future.

UScellular believes it was in compliance with all of the financial and other covenants and requirements set forth in its revolving credit agreement as of December 31, 2021.

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

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

Term Loan Agreements

At December 31, 2022, UScellular had senior term loan credit agreements available for general corporate purposes.

Index to Financial Statements and Supplementary Data

The following table summarizes the term loan credit agreements as of December 31, 2022:

Term Loan 1 Term Loan 2 Term Loan 3 Total

(Dollars in millions)

3 unchanged sentences

Amount available for use $ — $ — $ — $ —

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 SOFR plus 2.10 % and are due and payable in July 2028.

Borrowings under the additional $ 200 million borrowing capacity may be drawn in one or more advances by the one-year anniversary of the date of the agreement, which is July 30, 2022;

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

Borrowings bear interest at a rate of SOFR plus 2.60 % 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.

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 which is March 9, 2022;

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

Borrowings bear interest at a rate of SOFR plus 1.60 % and are due and payable in July 2026.

Principal reductions on any borrowings will be due and payable in quarterly installments beginning in March 2023 at a rate of 0.625 % of the initial outstanding principal balance through December 2023;

at a rate of 1.25 % of the initial outstanding principal balance from March 2024 through December 2025;

and at a rate of 2.50 % of the initial outstanding principal balance from March 2026 through the maturity date.

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

In connection with UScellular’s term loan credit agreements, TDS and UScellular entered into subordination agreements together with the administrative agent for the lenders under UScellular’s term loan credit agreements, which is substantially the same as the subordination agreement for UScellular as described above under the “Revolving Credit Agreement.” As of December 31, 2021, UScellular had no outstanding consolidated funded indebtedness or refinancing indebtedness that was subordinated to the term loan agreements pursuant to these subordination agreements.

The senior term loan credit agreements contain financial covenants and subsidiary guarantees that are consistent with the revolving credit agreements described above.

UScellular believes that it was in compliance with all of the financial and other covenants and requirements set forth in its term loan credit agreements as of December 31, 2021.

Interest rate SOFR plus 1.60 %

SOFR plus 2.10 %

SOFR plus 2.60 %

Maturity date July 2026 July 2028 July 2031

Quarterly installments $ 2 million from March 2023 to December 2023;

$ 4 million from March 2024 to December 2025;

$ 8 million from March 2026 to maturity date

$ 0.75 million from December 2021 to maturity date

$ 0.5 million from December 2022 to September 2026;

$ 1 million from December 2026 to maturity date

In 2022, UScellular borrowed $ 500 million under the term loan agreements.

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 which is March 17, 2022;

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

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.

Borrowings bear interest at a rate of SOFR plus 1.60 % and are due and payable on the five-year anniversary of the first borrowing, which is in January 2027.

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.

Index to Financial Statements and Su pplementary Data

In connection with UScellular export credit financing agreement, TDS and UScellular entered into a subordination agreement together with the administrative agent for the lenders under UScellular’s export credit financing agreement, which is substantially the same as the subordination agreement for UScellular as described above under the “Revolving Credit Agreement.” As of December 31, 2021, UScellular had no outstanding consolidated funded indebtedness or refinancing indebtedness that was subordinated to the export credit financing agreement pursuant to this subordination agreement.

The export credit financing agreement contains financial covenants and subsidiary guarantees that are consistent with the revolving credit agreements described above.

TDS believes that UScellular was in compliance with all of the financial and other covenants and requirements set forth in their export credit financing agreement as of December 31, 2021.

During 2022, UScellular borrowed $ 150 million, which is the full amount available under the agreement.

Receivables Securitization Agreement

At December 31, 2021, UScellular, through its subsidiaries, had a receivables securitization agreement for securitized borrowings using its equipment installment receivables for general corporate purposes.

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 maturity in December 2022.

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

UScellular intends to extend the maturity date of the facility.

At December 31, 2022, UScellular, through its subsidiaries, had a $ 450 million 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 March 2024.

Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in April 2024.

The outstanding borrowings bear interest at floating rates.

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

As of December 31, 2021, the USCC Master Note Trust held $ 638 million of assets available to be pledged as collateral for the receivables securitization agreement.

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 under the agreement was $ 175 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.

As of December 31, 2022, the USCC Master Note Trust held $ 447 million of assets pledged as collateral for the receivables securitization agreement.

In connection with entering into the receivables securitization agreement in 2017, UScellular formed a wholly-owned subsidiary, USCC Master Note Trust (Trust), which qualifies as a bankruptcy remote entity.

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Refer to Note 14 — Variable Interest Entities for additional information.

UScellular entered into a performance guaranty whereby UScellular guarantees the performance of certain wholly-owned subsidiaries of UScellular under the receivables securitization agreement.

The continued availability of the receivables securitization agreement requires UScellular to comply with certain negative and affirmative covenants, maintain certain financial ratios and provide representations on certain matters at the time of each borrowing.

The covenants include the same financial covenants for UScellular as described above under the “Revolving Credit Agreement.” UScellular believes that it was in compliance as of December 31, 2021, with all of the financial covenants and requirements set forth in its receivables securitization agreement.

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

Index to Financial Statements and Supplementary Data

Repurchase Agreement

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The outstanding borrowings bear interest at a rate of SOFR plus 1.25 %.

Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control of the receivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing.

Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control and collection risk of the receivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing.

UScellular will continue to report equipment installment plan receivables and any related balances on the Consolidated Balance Sheet.

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

As of January 31, 2022, UScellular held $ 455 million of assets available for inclusion in the repurchase facility;

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.

The outstanding borrowings are included in Other current liabilities in the December 31, 2022 Consolidated Balance Sheet.

As of December 31, 2022 UScellular held $ 524 million of assets available for inclusion in the repurchase facility;

these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement.

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

UScellular entered into a performance guaranty whereby UScellular guarantees the performance of the repo subsidiary under the repurchase agreement.

Index to Financial Statements and Su pplementary Data

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 and Other

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 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.

In connection with the revolving credit agreement, term loan agreements and export credit financing agreement, TDS and UScellular entered into subordination agreements together with the administrative agents for the lenders under each agreement.

Pursuant to these subordination agreements, (a) any consolidated funded indebtedness from UScellular to TDS will be unsecured and (b) any (i) consolidated funded indebtedness from UScellular to TDS (other than “refinancing indebtedness” as defined in the subordination agreements) in excess of $ 105 million and (ii) refinancing indebtedness in excess of $ 250 million will be subordinated and made junior in right of payment to the prior payment in full of obligations to the lenders under each agreement.

As of December 31, 2022, UScellular had no outstanding consolidated funded indebtedness or refinancing indebtedness that was subordinated to each agreement pursuant to the subordination agreements.

Certain UScellular wholly-owned subsidiaries have jointly and severally unconditionally guaranteed the payment and performance of the obligations of UScellular under the revolving credit agreement, term loan agreements and export credit agreement.

Other subsidiaries that meet certain criteria will be required to provide a similar guaranty in the future.

UScellular entered into a performance guaranty whereby UScellular guarantees the performance of certain wholly-owned subsidiaries under the receivables securitization agreement and repurchase agreement.

Index to Financial Statements and Supplementary Data

Other Long-Term Debt

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December 31, 2022 December 31, 2021

Redemption date Maturity

costs Total Principal

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June 2004 $ 544 $ 11 $ 533 $ 544 $ 12 $ 532

6.950 % May 2011 Sep 2021 May 2060 May 2016 — — — 342 11 331

7.250 % Dec 2014 May 2021 Dec 2063 Dec 2019 — — — 275 10 265

7.250 % Nov 2015 Jun 2021 Dec 2064 Dec 2020 — — — 300 10 290

6.25 % Aug 2020 Sep 2069 Sep 2025 500 17 483 500 17 483

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5.50 % May 2021 Jun 2070 Jun 2026 500 16 484 500 16 484

Term Loan 299 3 296 83 3 80

Term Loans 796 6 790 299 3 296

EIP Securitization 275 — 275 450 — 450

Export Credit Financing 150 1 149 — — —

Finance lease obligations 3 — 3 3 — 3

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Long-term debt, noncurrent $ 3,187 $ 2,728

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.

UScellular redeemed outstanding Senior Notes in 2021.

UScellular redeemed $ 917 million of outstanding Senior Notes in 2021.

At time of redemption, $ 31 million of interest expense was recorded related to unamortized debt issuance costs for the notes.

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These amounts do not include payments on the $ 275 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.

If the maturity date of the facility is not extended, principal repayments begin in April 2024.

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

UScellular intends to extend the maturity date of the facility.

The covenants associated with UScellular’s long-term debt obligations, among other things, restrict UScellular’s ability, subject to certain exclusions, to incur additional liens, enter into sale and leaseback transactions, and sell, consolidate or merge assets.

UScellular’s long-term debt notes do not contain any provisions resulting in acceleration of the maturities of outstanding debt in the event of a change in UScellular’s credit rating.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Note 13 Commitments and Contingencies

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The ultimate outcomes of legal proceedings could differ materially from amounts accrued in the financial statements.

UScellular had no accrual with respect to legal proceedings and unasserted claims as of December 31, 2021.

UScellular accrued less than $ 1 million with respect to legal proceedings and unasserted claims as of December 31, 2020.

UScellular had no significant accruals with respect to legal proceedings and unasserted claims as of December 31, 2022 and 2021.

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.

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

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

These particular VIEs are collectively referred to as designated entities.

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Cash and cash equivalents $ 29 $ 22

Short-term investments — 3

Accounts receivable 701 693

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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 December 31, 2021 and 2020, respectively, and is included in Investments in unconsolidated entities in UScellular’s Consolidated Balance Sheet.

UScellular’s total investment in these unconsolidated entities was $ 4 million at both December 31, 2022 and 2021, 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.

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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.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

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.

In June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage Spectrum will now be exercisable in the third quarter of 2023, and if not exercised at that time, will be exercisable in the third quarter of 2024.

The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to UScellular is recorded as Noncontrolling interests with redemption features in UScellular’s Consolidated Balance Sheet.

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Participating employees have the option of investing their contributions in a UScellular Common Share fund, a TDS Common Share fund or certain unaffiliated funds.

Index to Financial Statements and Supplementary Data

Note 17 Stock-Based Compensation

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Long-Term Incentive Plans and a Non-Employee Director compensation plan.

Index to Financial Statements and Su pplementary Data

Under the UScellular Long-Term Incentive Plans, UScellular may grant fixed and performance-based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit awards to key employees.

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UScellular uses treasury stock to satisfy requirements for Common Shares issued pursuant to its various stock-based compensation plans.

Long-Term Incentive Plans – Stock Options

UScellular's last stock option grant occurred in 2016.

Stock options outstanding, and the related weighted average exercise price, at December 31, 2021 and 2020 were 378,000 units at $ 42.18 and 418,000 units at $ 42.23 , respectively.

All stock options are exercisable and expire between 2022 and 2026.

The aggregate intrinsic value of UScellular stock options exercised in 2021 and 2019 was less than $ 1 million and $ 3 million, respectively.

No stock options were exercised in 2020.

Long-Term Incentive Plans – Restricted Stock Units

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Beginning with the 2021 grants, each recipient may be entitled to shares of UScellular common stock equal to 0 % to 200 % of a communicated target award depending on the achievement of a predetermined performance based operating target over the performance period, which is generally a three-year period beginning on January 1 in the year of grant to December 31 of the third year.

The performance-based operating target for the 2021 grants is Return on Capital.

The performance-based operating target for the 2021 and 2022 grants is Return on Capital.

Prior to the 2021 grants, each recipient was entitled to shares of UScellular common stock equal to 50 % to 200 % of a communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which was generally a one-year period beginning on January 1 in the year of grant to December 31 in the year of grant.

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The performance share units currently outstanding were granted in 2020, 2021 and 2022 and will vest in 2023, 2024 and 2025, respectively.

Index to Financial Statements and Su pplementary Data

Additionally, UScellular granted performance share units during 2020 to a newly appointed President and Chief Executive Officer.

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If one, or both, of the performance targets are not satisfied, the award will be forfeited.

Index to Financial Statements and Supplementary Data

UScellular estimates the fair value of performance share units using UScellular’s closing stock price on the date of grant.

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Vested ( 183,000 ) $ 44.44

Change in units based on approved performance factors 42,000 $ 28.94

Forfeited ( 105,000 ) $ 32.99

Nonvested at December 31, 2022 1,248,000 $ 32.51

The total fair value of performance share units that vested during 2021, 2020 and 2019 was $ 22 million, $ 11 million and less than $ 1 million, respectively.

The total fair value of performance share units that vested during 2022, 2021 and 2020 was $ 6 million, $ 22 million and $ 11 million, respectively.

The weighted average grant date fair value per share of the performance share units granted in 2022, 2021 and 2020 was $ 31.35 , $ 37.67 and $ 29.71 , respectively.

Long-Term Incentive Plans – Stock Options

UScellular's last stock option grant occurred in 2016.

Stock options outstanding, and the related weighted average exercise price, at December 31, 2022 and 2021 were 348,000 units at $ 42.41 and 378,000 units at $ 42.18 , respectively.

All stock options are exercisable and expire between 2023 and 2026.

The aggregate intrinsic value of UScellular stock options exercised in 2021 was less than $ 1 million.

No stock options were exercised in 2022 or 2020.

Long-Term Incentive Plans – Deferred Compensation Stock Units

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Total stock-based compensation expense, net of income taxes $ 18 $ 20 $ 24

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

The following table provides a summary of the classification of stock-based compensation expense included in the Consolidated Statement of Operations for the years ended:

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Aggregate value of Common Shares withheld $ 5 $ 16 $ 11

Cash receipts upon exercise of stock options — — 1

Cash disbursements for payment of taxes $ ( 5 ) $ ( 16 ) $ ( 11 )

Net cash receipts (disbursements) from exercise of stock options and vesting of other stock awards $ ( 16 ) $ ( 11 ) $ ( 9 )

Software License Agreements

Certain software licenses are recorded as acquisitions of property, plant and equipment and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition, and are treated as non-cash activity in the Consolidated Statement of Cash Flows.

Such acquisitions of software licenses that are not reflected as Cash paid for additions to property, plant and equipment were $ 130 million, $ 21 million and $ 19 million for the years ended 2022, 2021 and 2020, respectively.

At December 31, 2022, liabilities of $ 64 million and $ 76 million related to software license agreements were recorded to Other current liabilities and Other deferred liabilities and credits, respectively, and at December 31, 2021, liabilities of $ 17 million and $ 13 million related to software license agreements were recorded to Other current liabilities and Other deferred liabilities and credits, respectively.

Index to Financial Statements and Supplementary Data

Note 19 Certain Relationships and Related Transactions

The following persons are partners of Sidley Austin LLP, the principal law firm of UScellular and its subsidiaries:

Carlson, a director of UScellular, a director and non-executive Chairman of the Board of Directors of TDS and a trustee and beneficiary of a voting trust that controls TDS;

Kelsh, the General Counsel and/or an Assistant Secretary of TDS and UScellular and certain other subsidiaries of TDS.

Sidley Austin LLP is the principal law firm of UScellular and its subsidiaries:

Carlson, a director of UScellular, a director and non-executive Chair of the Board of Directors of TDS and a trustee and beneficiary of a voting trust that controls TDS is Senior Counsel at Sidley Austin LLP;

Kelsh, the General Counsel and/or an Assistant Secretary of TDS and UScellular and certain other subsidiaries of TDS is a partner at Sidley Austin LLP.

Carlson does not provide legal services to TDS, UScellular or their subsidiaries.

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The Audit Committee of the Board of Directors of UScellular is responsible for the review and evaluation of all related-party transactions as such term is defined by the rules of the New York Stock Exchange.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Reports of Management

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PricewaterhouseCoopers LLP (PCAOB ID 238 ), an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and has expressed herein its unqualified opinion on these financial statements.

Index to Financial Statements and Su pplementary Data

Index to Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of United States Cellular Corporation and its subsidiaries (“the Company” or “UScellular”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of changes in equity, and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of United States Cellular Corporation and its subsidiaries (“the Company” or “UScellular”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of changes in equity, and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Index to Financial Statements and Su pplementary Data

Critical Audit Matters

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Intangible Asset Impairment Assessment – Wireless Spectrum Licenses (UScellular Licenses)

As described in Notes 1 and 7 to the consolidated financial statements, the UScellular’s consolidated licenses balance was $4,088 million as of December 31, 2021.

Management performs its annual impairment assessment of licenses as of November 1 of each year or more frequently if there are events or circumstances that cause management to believe it is more likely than not that the carrying value of licenses exceeds fair value.

A qualitative impairment assessment was performed as of November 1, 2021, to determine whether the wireless spectrum licenses were impaired.

As disclosed by management, the qualitative assessment considered several qualitative 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 this assessment, management concluded that it was not more likely than not that the carrying value of the wireless spectrum licenses in each unit of accounting exceeded their respective fair values.

Therefore, no quantitative impairment evaluation was completed.

The principal considerations for our determination that performing procedures relating to the intangible asset impairment assessment for the UScellular Licenses is a critical audit matter are (i) the significant judgment by management when performing the qualitative impairment assessment;

and (ii) a high degree of auditor judgment and subjectivity in performing procedures and evaluating management’s qualitative impairment assessment.

Index to Financial Statements and Supplementary Data

Revenue Recognition - Retail Service and Equipment Sales Revenue

As described in Note 2 to the consolidated financial statements, the Company generates revenues from retail services through the sale of wireless services including voice, messaging, and data services, as well as revenues from equipment sales through the sale of wireless devices and accessories.

The Company recognizes wireless service revenue as the wireless service is provided to the customer.

Wireless services are generally billed and paid in advance on a monthly basis.

The Company offers a comprehensive range of wireless devices such as handsets, tablets, mobile hotspots, home phones, and routers for use by its customers.

The Company also sells wireless devices to agents and other third-party distributors for resale.

The Company also offers customers the option to purchase certain devices and accessories under installment contracts over a specified time period.

The Company recognizes revenue in equipment sales revenues when control of the device or accessory is transferred to the customer, agent or third-party distributor, which is generally upon delivery.

The Company’s retail service and equipment sales revenue was $2,793 million and $1,044 million, respectively, for the year ended December 31, 2022.

The principal consideration for our determination that performing procedures relating to revenue recognition - retail service and equipment sales revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s annual intangible asset impairment assessment, including management’s review of qualitative factors affecting the UScellular Licenses.

These procedures also included, among others, evaluating management’s qualitative assessment by (i) obtaining analyst estimates of wireless spectrum license values;

and (ii) considering recent UScellular and other market participant transactions and external market and industry data.

These procedures included testing the effectiveness of controls relating to the retail service and equipment sales revenue recognition processes.

These procedures also included, among others, (i) testing whether the criteria for recognition of retail service and equipment sales revenue had been met by obtaining and inspecting invoices, shipping documents, where applicable, and cash receipts from customers for a sample of revenue transactions, (ii) testing discounts and rebates for a sample of transactions, (iii) evaluating the allocation of the transaction price to the performance obligations, where applicable, (iv) recalculating the appropriateness of the retail service and equipment sales revenue recognized based on the terms of each arrangement for a sample of transactions, and (v) confirming a sample of outstanding customer invoice balances as of December 31, 2022, and obtaining and inspecting source documents, such as invoices, sales contracts, shipping documents, and subsequent cash receipts, for confirmations not returned.

/s/ PricewaterhouseCoopers LLP

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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 8. Financial Statements and Supplementary Data