★ U.S.Cellular: | --- | --- | --- | |-------|----------------------------|-------| | | | | | | | | | | First Quarter 2020 Results | | Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 2 All information set forth in this presentation about Telephone and Data Systems, Inc. including its subsidiaries U.S. Cellular and TDS Telecom (the "company"), except historical and factual information, represents forward-looking statements. This includes all statements about the company's plan ...

[Management Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Management%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) [Executive Overview](index=3&type=section&id=Executive%20Overview) U.S. Cellular's Q1 2020 results, compared to Q1 2019, show COVID-19 impacts from late March, as an 83%-owned TDS subsidiary - U.S. Cellular is an **83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS)**[12](index=12&type=chunk) - COVID-19 impacts in Q1 2020 (mainly late March) include higher bad debts, reduced subscriber gross additions, reduced defections/churn, and reduced device/accessory sales[14](index=14&type=chunk) - Company actions due to COVID-19: implemented work-from-home, closed/reduced hours for retail stores, participated in FCC Keep Americans Connected Pledge (resulting in reduced service revenues and increased bad debts), waived overage charges, contributed to Boys & Girls Clubs' COVID-19 Relief Fund, recognized income tax benefits from CARES Act[15](index=15&type=chunk) [General Business and Strategy](index=4&type=section&id=General%20Business%20and%20Strategy) - Mission: Provide exceptional wireless communication services in mid-sized and rural markets[18](index=18&type=chunk) - Strategic efforts include: increasing revenues from accessories, device protection, LTE home internet, and business/government solutions; enhancing network capabilities with VoLTE (70% subscriber availability, further deployment in 2020-2021); launching commercial 5G services in Iowa and Wisconsin with further expansion in 2020 and beyond, focusing on mobility services and low-band spectrum, while acquiring high-band spectrum for future 5G services; modernizing 4G LTE network[19](index=19&type=chunk) - U.S. Cellular was the provisional winning bidder for **237 wireless spectrum licenses in Auction 103 for $146 million**, expected to be granted in 2020[19](index=19&type=chunk) [COVID-19 Considerations](index=4&type=section&id=COVID-19%20Considerations) - COVID-19 impacts on Q1 2020 (mainly latter half of March) include higher bad debts expense, reduced subscriber gross additions, reduced defections and churn, and reduced device and accessory sales[14](index=14&type=chunk) - Company actions: implemented work-from-home, closed/reduced hours for retail stores, participated in FCC Keep Americans Connected Pledge (resulting in reduced service revenues and incremental bad debts), waived overage charges, contributed to Boys & Girls Clubs' COVID-19 Relief Fund, recognized income tax benefits from CARES Act[15](index=15&type=chunk) - Monitoring supply chain, network capacity, and roaming behaviors; expects to meet customer demand and continue 4G LTE modernization and 5G deployment without significant disruptions[15](index=15&type=chunk) [Terms Used by U.S. Cellular](index=7&type=section&id=Terms%20Used%20by%20U.S.%20Cellular) This section defines key industry, customer, regulatory, and non-GAAP financial terms used in the report - Definitions for 4G LTE, 5G, VoLTE, Account, Churn Rate, Connections, Connected Devices, Gross Additions, Net Additions (Losses), Retail Connections, Postpaid ARPA, Postpaid ARPU[20](index=20&type=chunk) - Definitions for Auction 103, CARES Act, FCC Keep Americans Connected Pledge, Universal Service Fund (USF)[20](index=20&type=chunk) - Definitions for non-GAAP financial measures: EBITDA, Free Cash Flow, OIBDA[20](index=20&type=chunk) [Operational Overview](index=8&type=section&id=Operational%20Overview) U.S. Cellular experienced decreased retail connections, increased postpaid handset net losses, and higher postpaid ARPU/ARPA year-over-year [Retail Connections and Activity](index=8&type=section&id=Retail%20Connections%20and%20Activity) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | | :-------------------------- | :-------- | :-------- | :----------- | | **Retail Connections – End of Period** | | | | | Postpaid | 4,359,000 | 4,440,000 | (81,000) | | Prepaid | 494,000 | 503,000 | (9,000) | | Total | 4,853,000 | 4,943,000 | (90,000) | | **Postpaid Activity and Churn** | | | | | Handset Gross Additions | 90,000 | 102,000 | (12)% | | Connected Device Gross Additions | 42,000 | 35,000 | 20 % | | Total Gross Additions | 132,000 | 137,000 | (4)% | | Handset Net Additions (Losses) | (20,000) | (14,000) | (43)% | | Connected Device Net Additions (Losses) | (6,000) | (18,000) | 67 % | | Total Net Additions (Losses) | (26,000) | (32,000) | 19 % | | Handset Churn | 0.95% | 0.99% | (0.04)% | | Connected Devices Churn | 3.11% | 3.08% | 0.03% | | Total Churn | 1.21% | 1.26% | (0.05)% | - Postpaid handset net losses increased due to lower gross additions (aggressive competition, COVID-19 lower consumer switching) partially offset by decreased defections[22](index=22&type=chunk) - Postpaid connected device net losses decreased due to increased gross additions of hotspots and routers, driven by business/government demand for remote connectivity due to COVID-19[23](index=23&type=chunk) [Postpaid Revenue (ARPU/ARPA)](index=8&type=section&id=Postpaid%20Revenue%20(ARPU%2FARPA)) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | | :------------------ | :-------- | :-------- | :----------- | | Postpaid ARPU | $45.44 | $47.23 | 4 % | | Postpaid ARPA | $118.84 | $122.92 | 3 % | - Increases in Postpaid ARPU and ARPA were primarily due to a higher proportion of handset connections, increased regulatory recovery revenues, and increased device protection plan revenues[24](index=24&type=chunk) [Financial Overview](index=9&type=section&id=Financial%20Overview) Total operating revenues were flat, with service revenues up and equipment sales down; operating income fell, but net income rose significantly due to CARES Act tax benefits [Operating Revenues](index=9&type=section&id=Operating%20Revenues) | Revenue Type | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :-------------------- | :----------------- | :----------------- | :----------- | | Retail service | $671 | $659 | 2 % | | Inbound roaming | $37 | $34 | 10 % | | Other service | $54 | $48 | 12 % | | **Total Service revenues** | **$762** | **$741** | **3 %** | | Equipment sales | $201 | $225 | (10)% | | **Total operating revenues** | **$963** | **$966** | **–** | - Retail service revenues increased due to higher Postpaid ARPU[31](index=31&type=chunk) - Equipment sales revenues decreased due to lower volume of device sales to retail customers, agents, and third-party distributors, and a decrease in average revenue per device, partially offset by increased used device sales to service providers[33](index=33&type=chunk) [Operating Expenses](index=9&type=section&id=Operating%20Expenses) | Expense Type | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------- | | System operations (excluding D, A & A) | $180 | $176 | 2 % | | Cost of equipment sold | $217 | $233 | (7)% | | Selling, general and administrative | $335 | $326 | 3 % | | Depreciation, amortization and accretion | $177 | $169 | 5 % | | (Gain) loss on asset disposals, net | $4 | $2 | 72 % | | (Gain) loss on sale of business and other exit costs, net | $0 | $(2) | N/M | | (Gain) loss on license sales and exchanges, net | $0 | $(2) | N/M | | **Total operating expenses** | **$913** | **$902** | **1 %** | - Selling, general and administrative expenses increased primarily due to higher bad debts expense (FCC Keep Americans Connected Pledge) and employee-related expenses, partially offset by lower advertising costs[36](index=36&type=chunk) - Depreciation, amortization, and accretion increased due to accelerated depreciation of certain assets from network technology changes[37](index=37&type=chunk) [Other Income (Expense) and Net Income](index=12&type=section&id=Other%20Income%20(Expense)%20and%20Net%20Income) | Metric | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :------------------------------------------ | :----------------- | :----------------- | :----------- | | Operating income | $50 | $64 | (22)% | | Equity in earnings of unconsolidated entities | $45 | $44 | 3 % | | Interest and dividend income | $4 | $6 | (33)% | | Interest expense | $(24) | $(29) | 19 % | | Other, net | $1 | $0 | (86)% | | **Total investment and other income** | **$26** | **$21** | **23 %** | | Income before income taxes | $76 | $85 | (11)% | | Income tax expense | $4 | $27 | (86)% | | **Net income** | **$72** | **$58** | **24 %** | | Net income attributable to U.S. Cellular shareholders | $71 | $54 | 30 % | - Interest expense decreased due to higher capitalized interest and a **$100 million principal prepayment** on a senior term loan in October 2019[40](index=40&type=chunk) - Income tax expense decreased significantly due to the CARES Act, which provided retroactive bonus depreciation and a 5-year carryback of net operating losses, resulting in a lower effective tax rate of **5.0% in Q1 2020** (vs. 31.4% in Q1 2019)[41](index=41&type=chunk)[42](index=42&type=chunk) [Liquidity and Capital Resources](index=13&type=section&id=Liquidity%20and%20Capital%20Resources) U.S. Cellular, a capital-intensive business, expects sufficient liquidity despite COVID-19, with higher 2020 capital expenditures for network and 5G deployment [Sources of Liquidity and Cash Position](index=13&type=section&id=Sources%20of%20Liquidity%20and%20Cash%20Position) - U.S. Cellular operates a capital-intensive business and has historically used internally-generated funds and external sources for general corporate purposes[43](index=43&type=chunk) - Believes existing cash, investments, revolving credit, receivables securitization agreements, and expected cash flows will provide sufficient liquidity for the coming year, despite COVID-19 uncertainties[44](index=44&type=chunk) | Metric | March 31, 2020 (Millions) | December 31, 2019 (Millions) | | :-------------------- | :-------------------------- | :--------------------------- | | Cash and cash equivalents | $258 | $285 | [Financing Activities](index=15&type=section&id=Financing%20Activities) - New **$300 million unsecured revolving credit agreement** entered in March 2020, maturing March 2025, with **$298 million unused capacity** as of March 31, 2020[50](index=50&type=chunk) - Amended senior term loan credit agreement in March 2020 to conform with revolving credit agreement[51](index=51&type=chunk) - Receivables securitization agreement: **$200 million unused capacity** as of March 31, 2020; borrowed **$125 million** under it in April 2020[52](index=52&type=chunk) [Capital Expenditures](index=15&type=section&id=Capital%20Expenditures) | Metric | Q1 2020 (Millions) | Q1 2019 (Millions) | | :-------------------- | :----------------- | :----------------- | | Capital expenditures | $236 | $102 | - Full-year 2020 capital expenditures expected to be between **$850 million and $950 million**[55](index=55&type=chunk) - Expenditures are for enhancing network coverage, deploying VoLTE and 5G technology, and investing in information technology[57](index=57&type=chunk) [Acquisitions, Divestitures and Exchanges](index=15&type=section&id=Acquisitions%2C%20Divestitures%20and%20Exchanges) - U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum licenses, including through FCC auctions[56](index=56&type=chunk) - Provisional winning bidder for **237 wireless spectrum licenses in Auction 103 for $146 million** in March 2020[58](index=58&type=chunk) - Paid **$24 million in Q1 2020** and substantially all remainder in April 2020 for Auction 103 licenses[58](index=58&type=chunk) [Common Share Repurchase Program](index=16&type=section&id=Common%20Share%20Repurchase%20Program) - Repurchased **803,836 Common Shares for $23 million** at an average cost of **$29.00 per share** during Q1 2020[60](index=60&type=chunk) - Total cumulative authorized repurchase amount as of March 31, 2020: **4,506,713 Common Shares**[60](index=60&type=chunk) [Consolidated Cash Flow Analysis](index=17&type=section&id=Consolidated%20Cash%20Flow%20Analysis) Operating cash flow increased to $342 million, while investing cash flow used significantly rose to $342 million due to higher capital expenditures and license acquisitions, leading to an overall $24 million decrease in cash | Cash Flow Activity | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :------------------------------------------ | :----------------- | :----------------- | :----------- | | Net cash provided by operating activities | $342 | $287 | $55 | | Net cash used in investing activities | $(342) | $(212) | $(130) | | Net cash used in financing activities | $(24) | $(6) | $(18) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(24) | $69 | $(93) | - Operating cash flow increase driven by net income adjusted for non-cash items, distributions from unconsolidated entities, and working capital changes (timing of vendor payments, customer/agent receivables, partially offset by bonus payments, inventory increase, and CARES Act tax impacts)[65](index=65&type=chunk) - Investing cash flow increase primarily due to higher cash paid for additions to property, plant and equipment (**$315 million in 2020** vs. $107 million in 2019) and wireless spectrum license acquisitions (**$26 million in 2020** vs. $1 million in 2019, excluding advance payments)[66](index=66&type=chunk)[68](index=68&type=chunk)[104](index=104&type=chunk) [Consolidated Balance Sheet Analysis](index=18&type=section&id=Consolidated%20Balance%20Sheet%20Analysis) Key balance sheet changes include decreased accounts receivable, increased inventory, higher income taxes receivable from CARES Act benefits, and lower accrued compensation - Accounts receivable decreased **$80 million** due primarily to timing of customer payments and vendor credits[70](index=70&type=chunk) - Inventory, net increased **$50 million** due primarily to increased quantities of higher priced devices on hand[71](index=71&type=chunk) - Income taxes receivable increased **$50 million** primarily reflecting future tax refunds attributable to the expected carryback of 2020 net operating losses, as allowed under the CARES Act[72](index=72&type=chunk) - Accrued compensation decreased **$29 million** due primarily to employee bonus payments in March 2020[73](index=73&type=chunk) [Supplemental Information Relating to Non-GAAP Financial Measures](index=19&type=section&id=Supplemental%20Information%20Relating%20to%20Non-GAAP%20Financial%20Measures) U.S. Cellular uses non-GAAP measures; Adjusted EBITDA and OIBDA remained flat, while Free Cash Flow significantly decreased to $27 million due to higher capital expenditures - Non-GAAP measures used: EBITDA, Adjusted EBITDA, Adjusted OIBDA, Free Cash Flow[75](index=75&type=chunk) - Management uses Adjusted EBITDA and Adjusted OIBDA as profitability measurements, providing additional relevant information by excluding significant non-cash charges, gains, losses, and investment activities[77](index=77&type=chunk) | Non-GAAP Metric | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :---------------------- | :----------------- | :----------------- | :----------- | | EBITDA | $277 | $283 | $(6) | | Adjusted EBITDA | $281 | $281 | $0 | | Adjusted OIBDA | $231 | $231 | $0 | | Free Cash Flow | $27 | $180 | $(153) | [Application of Critical Accounting Policies and Estimates](index=21&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) This section refers to U.S. Cellular's significant accounting policies and critical estimates detailed in its 2019 Form 10-K and current report notes - Significant accounting policies are discussed in Note 1, Note 2, and Note 10 of the current report and in the Form 10-K for December 31, 2019[81](index=81&type=chunk) [Recent Accounting Pronouncements](index=21&type=section&id=Recent%20Accounting%20Pronouncements) U.S. Cellular adopted ASU 2016-13 (Credit Losses) and ASU 2018-15 (Cloud Computing) on January 1, 2020, with no significant financial impact - Adopted ASU 2016-13 (Credit Losses) on January 1, 2020, using a modified retrospective method; no impact on retained earnings[126](index=126&type=chunk) - Adopted ASU 2018-15 (Cloud Computing Arrangement Implementation Costs) on January 1, 2020, using the prospective method; no significant impact on financial position or results of operations[129](index=129&type=chunk) [Regulatory Matters](index=21&type=section&id=Regulatory%20Matters) The FCC is proposing a $9 billion 5G Fund for rural areas, its 2017 'Restoring Internet Freedom' rules were largely reaffirmed, and U.S. Cellular won Auction 103 licenses for $146 million while preparing for Auction 105 - FCC proposed a new **$9 billion 5G Fund** for rural areas, to be disbursed over ten years via competitive auctions, replacing the Phase II Connect America Mobility Fund for 4G LTE[83](index=83&type=chunk) - FCC's 2017 "Restoring Internet Freedom" rules (reversing 2015 net neutrality decisions) were largely reaffirmed by the D.C. Circuit in October 2019, but state/local net neutrality laws remain a challenge[85](index=85&type=chunk)[86](index=86&type=chunk) - U.S. Cellular was the provisional winning bidder for **237 wireless spectrum licenses in Auction 103** (37, 39, and 47 GHz bands) for **$146 million** in March 2020[87](index=87&type=chunk) - FCC Auction 105 (3.5 GHz band) applications due May 7, 2020, auction scheduled for July 23, 2020[88](index=88&type=chunk) [Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement](index=22&type=section&id=Private%20Securities%20Litigation%20Reform%20Act%20of%201995%20Safe%20Harbor%20Cautionary%20Statement) This cautionary statement notes that forward-looking statements in the Form 10-Q may differ from actual results due to risks, referring readers to the Form 10-K Risk Factors - Report contains forward-looking statements, identified by words like "believes," "anticipates," "estimates," "expects," "plans," "intends," "projects"[91](index=91&type=chunk) - Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ significantly[91](index=91&type=chunk) - Readers should carefully consider Risk Factors in the Form 10-K for December 31, 2019, and this Form 10-Q[91](index=91&type=chunk) [Risk Factors](index=24&type=section&id=Risk%20Factors) The uncertain impact of the COVID-19 pandemic is a primary new material adverse risk to U.S. Cellular's business and financial condition, with other risks referenced from the 2019 Form 10-K - The impact of the COVID-19 pandemic is an uncertain but potentially material adverse risk to U.S. Cellular's business, financial condition, or results of operations[97](index=97&type=chunk) - COVID-19 poses risks such as inability to conduct business, maintain supply chain, attract customers, and execute strategies, compounded by increased unemployment, economic downturn, and credit market deterioration[97](index=97&type=chunk) - Other risks are detailed in the Form 10-K for December 31, 2019[96](index=96&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to market risk disclosures in the 2019 Form 10-K, noting no material changes between December 31, 2019, and March 31, 2020, and references Note 3 for long-term debt fair value - No material changes to market risk information between December 31, 2019, and March 31, 2020, as disclosed in the 2019 Form 10-K[98](index=98&type=chunk) - Fair value of long-term debt as of March 31, 2020, is provided in Note 3[99](index=99&type=chunk) [Financial Statements (Unaudited)](index=25&type=section&id=Financial%20Statements%20(Unaudited)) [Consolidated Statement of Operations](index=25&type=section&id=Consolidated%20Statement%20of%20Operations) For Q1 2020, total operating revenues were flat at $963 million, operating income decreased to $50 million, net income increased to $72 million, and diluted EPS rose to $0.81 due to lower income tax expense | Metric | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :------------------------------------------ | :----------------- | :----------------- | :----------- | | Total operating revenues | $963 | $966 | (0.3)% | | Operating income | $50 | $64 | (21.9)% | | Income before income taxes | $76 | $85 | (10.5)% | | Income tax expense | $4 | $27 | (85.2)% | | Net income | $72 | $58 | 24.1% | | Net income attributable to U.S. Cellular shareholders | $71 | $54 | 31.5% | | Basic earnings per share attributable to U.S. Cellular shareholders | $0.82 | $0.63 | 30.2% | | Diluted earnings per share attributable to U.S. Cellular shareholders | $0.81 | $0.62 | 30.6% | [Consolidated Statement of Cash Flows](index=26&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Net cash from operating activities increased to $342 million, while cash used in investing activities significantly rose to $342 million due to higher capital expenditures and license acquisitions, leading to an overall $24 million decrease in cash | Cash Flow Activity | Q1 2020 (Millions) | Q1 2019 (Millions) | Change (YoY) | | :------------------------------------------ | :----------------- | :----------------- | :----------- | | Net cash provided by operating activities | $342 | $287 | $55 | | Net cash used in investing activities | $(342) | $(212) | $(130) | | Net cash used in financing activities | $(24) | $(6) | $(18) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(24) | $69 | $(93) | | Cash, cash equivalents and restricted cash, End of period | $267 | $652 | $(385) | - Cash paid for additions to property, plant and equipment: **$315 million in Q1 2020** vs. $107 million in Q1 2019[104](index=104&type=chunk) - Repurchase of Common Shares: **$21 million in Q1 2020** vs. $0 in Q1 2019[104](index=104&type=chunk) [Consolidated Balance Sheet](index=28&type=section&id=Consolidated%20Balance%20Sheet) As of March 31, 2020, total assets slightly increased to $8,251 million, with decreased accounts receivable, increased inventory, and higher income taxes receivable; total liabilities and equity also saw slight increases | Balance Sheet Item | March 31, 2020 (Millions) | December 31, 2019 (Millions) | Change | | :------------------------------------------ | :-------------------------- | :--------------------------- | :------- | | Cash and cash equivalents | $258 | $285 | $(27) | | Accounts receivable (Customers and agents) | $865 | $919 | $(54) | | Inventory, net | $212 | $162 | $50 | | Income taxes receivable | $96 | $46 | $50 | | Licenses | $2,502 | $2,471 | $31 | | Property, plant and equipment, net | $2,268 | $2,207 | $61 | | Total assets | $8,251 | $8,164 | $87 | | Total current liabilities | $722 | $750 | $(28) | | Deferred income tax liability, net | $559 | $507 | $52 | | Long-term debt, net | $1,503 | $1,502 | $1 | | Total liabilities | $3,492 | $3,472 | $20 | | Total equity | $4,264 | $4,210 | $54 | - Consolidated total assets include **$933 million** from consolidated variable interest entities (VIEs) not available to settle U.S. Cellular's obligations[112](index=112&type=chunk) - Consolidated total liabilities include **$20 million** from consolidated VIEs for which creditors have no recourse to U.S. Cellular's general credit[112](index=112&type=chunk) [Consolidated Statement of Changes in Equity](index=31&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) Total U.S. Cellular shareholders' equity increased from $4,197 million to $4,252 million, driven by $71 million in net income, partially offset by $23 million in share repurchases | Equity Item | March 31, 2020 (Millions) | December 31, 2019 (Millions) | Change | | :------------------------------------------ | :-------------------------- | :--------------------------- | :------- | | Total U.S. Cellular shareholders' equity | $4,252 | $4,197 | $55 | | Net income attributable to U.S. Cellular shareholders | $71 | N/A | N/A | | Repurchase of Common Shares | $(23) | N/A | N/A | [Notes to Consolidated Financial Statements](index=33&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 Basis of Presentation](index=33&type=section&id=Note%201%20Basis%20of%20Presentation) - U.S. Cellular, an **83%-owned subsidiary of TDS**, prepares its unaudited consolidated financial statements in accordance with GAAP and SEC rules[120](index=120&type=chunk) - Adopted ASU 2016-13 (Credit Losses) on January 1, 2020, with no impact on retained earnings[126](index=126&type=chunk) - Adopted ASU 2018-15 (Cloud Computing Arrangement Implementation Costs) on January 1, 2020, with no significant impact[129](index=129&type=chunk) [Note 2 Revenue Recognition](index=35&type=section&id=Note%202%20Revenue%20Recognition) | Revenue Type | Q1 2020 (Millions) | Q1 2019 (Millions) | | :------------------------------------ | :----------------- | :----------------- | | Retail service | $671 | $659 | | Inbound roaming | $37 | $34 | | Other service | $35 | $32 | | Service revenues from contracts with customers | $743 | $725 | | Equipment sales | $201 | $225 | | Total revenues from contracts with customers | $944 | $950 | | Operating lease income | $19 | $16 | | Total operating revenues | $963 | $966 | - Transaction price allocated to remaining performance obligations for service revenues: **$180 million for remainder of 2020**, **$100 million for 2021**, **$164 million thereafter**, totaling **$444 million**[135](index=135&type=chunk) - Contract cost asset balance (commission fees) was **$127 million** at March 31, 2020; amortization was **$27 million** for Q1 2020[137](index=137&type=chunk) [Note 3 Fair Value Measurements](index=37&type=section&id=Note%203%20Fair%20Value%20Measurements) - No material financial or nonfinancial assets or liabilities required to be recorded at fair value[138](index=138&type=chunk) - Fair values of Cash and cash equivalents approximate book values[141](index=141&type=chunk) | Long-term debt (Millions) | March 31, 2020 Book Value | March 31, 2020 Fair Value | | :------------------------ | :------------------------ | :------------------------ | | Retail | $917 | $795 | | Institutional | $535 | $527 | | Other | $83 | $83 | [Note 4 Equipment Installment Plans](index=38&type=section&id=Note%204%20Equipment%20Installment%20Plans) | Metric | March 31, 2020 (Millions) | December 31, 2019 (Millions) | | :------------------------------------------ | :-------------------------- | :--------------------------- | | Equipment installment plan receivables, gross | $964 | $1,008 | | Allowance for credit losses | $(90) | $(84) | | Equipment installment plan receivables, net | $874 | $924 | - Allowance for credit losses activity for Q1 2020: beginning balance **$84 million**, bad debts expense **$25 million**, write-offs net of recoveries **$(19) million**, ending balance **$90 million**[146](index=146&type=chunk) [Note 5 Income Taxes](index=40&type=section&id=Note%205%20Income%20Taxes) - Effective tax rate: **5.0% in Q1 2020** vs. 31.4% in Q1 2019[147](index=147&type=chunk) - Lower rate due to CARES Act benefits: retroactive bonus depreciation and 5-year carryback of net operating losses, leading to a tax benefit from higher statutory federal tax rates in prior years (**35%** vs. current **21%**)[148](index=148&type=chunk) [Note 6 Earnings Per Share](index=40&type=section&id=Note%206%20Earnings%20Per%20Share) | Metric | Q1 2020 | Q1 2019 | | :---------------------------------------------------- | :------ | :------ | | Net income attributable to U.S. Cellular shareholders | $71 | $54 | | Weighted average number of shares used in basic EPS | 86 | 86 | | Basic earnings per share attributable to U.S. Cellular shareholders | $0.82 | $0.63 | | Diluted earnings per share attributable to U.S. Cellular shareholders | $0.81 | $0.62 | [Note 7 Intangible Assets](index=40&type=section&id=Note%207%20Intangible%20Assets) | Metric | Licenses (Millions) | | :-------------------------- | :------------------ | | Balance at December 31, 2019 | $2,471 | | Acquisitions | $30 | | Capitalized interest | $1 | | Balance at March 31, 2020 | $2,502 | - Provisional winning bidder for **237 wireless spectrum licenses in Auction 103 for $146 million**[151](index=151&type=chunk) [Note 8 Investments in Unconsolidated Entities](index=42&type=section&id=Note%208%20Investments%20in%20Unconsolidated%20Entities) | Investment Type | March 31, 2020 (Millions) | December 31, 2019 (Millions) | | :------------------------------------ | :-------------------------- | :--------------------------- | | Equity method investments | $461 | $440 | | Measurement alternative method investments | $8 | $7 | | Total investments in unconsolidated entities | $469 | $447 | | Combined Results of Equity Method Investments | Q1 2020 (Millions) | Q1 2019 (Millions) | | :------------------------------------------ | :----------------- | :----------------- | | Revenues | $1,657 | $1,689 | | Operating expenses | $1,162 | $1,215 | | Operating income | $495 | $474 | | Net income | $498 | $469 | [Note 9 Variable Interest Entities](index=42&type=section&id=Note%209%20Variable%20Interest%20Entities) - U.S. Cellular consolidates VIEs where it has a controlling financial interest, such as SPEs for equipment installment plan receivables securitization and limited partnerships for wireless spectrum and service[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) | Consolidated VIEs' Assets (Millions) | March 31, 2020 | | :----------------------------------- | :------------- | | Cash and cash equivalents | $24 | | Accounts receivable | $614 | | Licenses | $649 | | Property, plant and equipment, net | $106 | | Total assets | $1,769 | | Consolidated VIEs' Liabilities (Millions) | March 31, 2020 | | :-------------------------------------- | :------------- | | Current liabilities | $30 | | Long-term operating lease liabilities | $40 | | Other deferred liabilities and credits | $14 | | Total liabilities | $84 | [Note 10 Subsequent Events](index=45&type=section&id=Note%2010%20Subsequent%20Events) - Borrowed **$125 million** under receivables securitization agreement in April 2020[167](index=167&type=chunk) [Additional Required Information](index=46&type=section&id=Additional%20Required%20Information) [Controls and Procedures](index=46&type=section&id=Controls%20and%20Procedures) U.S. Cellular's management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting during Q1 2020 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[170](index=170&type=chunk) - No material changes in internal control over financial reporting during Q1 2020[171](index=171&type=chunk) [Legal Proceedings](index=46&type=section&id=Legal%20Proceedings) DOJ inquiries under the False Claims Act concern U.S. Cellular's participation in spectrum license auctions; while the DOJ declined to intervene, complaints were served, and the outcome remains unpredictable - DOJ inquiries under False Claims Act regarding U.S. Cellular's participation in FCC wireless spectrum license auctions 58, 66, 73, and 97[172](index=172&type=chunk) - DOJ declined to intervene in civil actions; private party plaintiffs served complaints in February 2020[172](index=172&type=chunk) - U.S. Cellular believes its arrangements complied with law but cannot predict outcome[172](index=172&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) U.S. Cellular repurchased 803,836 Common Shares for $23 million at an average of $29.00 per share during Q1 2020, with 4,506,713 shares remaining authorized | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------------------------------- | | January 1 - 31, 2020 | — | $— | 5,310,549 | | February 1 - 29, 2020 | 59,477 | $30.57 | 5,251,072 | | March 1 - 31, 2020 | 744,359 | $28.87 | 4,506,713 | | Total for or as of the end of the quarter ended March 31, 2020 | 803,836 | $29.00 | 4,506,713 | [Other Information](index=47&type=section&id=Other%20Information) U.S. Cellular had no cash borrowings outstanding under its credit or securitization agreements as of March 31, 2020, but borrowed $125 million under the latter in April 2020 - No cash borrowings outstanding under revolving credit agreement or receivables securitization agreement as of March 31, 2020[179](index=179&type=chunk)[180](index=180&type=chunk) - Borrowed **$125 million** under receivables securitization agreement in April 2020[180](index=180&type=chunk) [Exhibits](index=48&type=section&id=Exhibits) [Exhibits](index=48&type=section&id=Exhibits) This section lists exhibits filed with the Form 10-Q, including various agreements, incentive plans, certifications, and XBRL taxonomy documents - Includes Revolving Credit Agreement and Fourth Amendment to Amended and Restated Credit Agreement dated March 2, 2020[182](index=182&type=chunk) - Lists U.S. Cellular 2020 Executive Officer and Officer Annual Incentive Plans[182](index=182&type=chunk) - Contains certifications from principal executive officer, principal financial officer, and chief accounting officer[182](index=182&type=chunk) [Form 10-Q Cross Reference Index](index=49&type=section&id=Form%2010-Q%20Cross%20Reference%20Index) [Form 10-Q Cross Reference Index](index=49&type=section&id=Form%2010-Q%20Cross%20Reference%20Index) This index provides a cross-reference to page numbers for each item in Part I and Part II of the Form 10-Q, facilitating report navigation - Provides page numbers for Part I (Financial Information) and Part II (Other Information) items[185](index=185&type=chunk) [Signatures](index=50&type=section&id=Signatures) [Signatures](index=50&type=section&id=Signatures) The report was duly signed on April 30, 2020, by Kenneth R. Meyers, Douglas W. Chambers, Anita J. Kroll, and Jeffrey S. Hoersch, certifying its SEC submission - Report signed on April 30, 2020[188](index=188&type=chunk) - Signed by Kenneth R. Meyers (President and CEO), Douglas W. Chambers (SVP, CFO, and Treasurer), Anita J. Kroll (Chief Accounting Officer), and Jeffrey S. Hoersch (VP and Controller)[188](index=188&type=chunk)

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) U.S. Cellular provides wireless services to 4.9 million connections, focusing on customer retention, 5G deployment, and spectrum management - U.S. Cellular provides wireless telecommunications services to customers with **4.9 million connections** across 20 states, representing a total population of 31 million[12](index=12&type=chunk) - The company's strategy is to attract and retain wireless customers through a value proposition comprising a high-quality network, outstanding customer service, and competitive offerings, all with a local focus[14](index=14&type=chunk) - U.S. Cellular is a majority-owned subsidiary of Telephone and Data Systems, Inc. (TDS), with TDS owning **82% of Common Shares** and controlling **96% of voting power** as of December 31, 2019[14](index=14&type=chunk) - U.S. Cellular offers a comprehensive range of wireless devices, including handsets, tablets, mobile hotspots, home phones, and routers, compatible with its 4G LTE and 3G networks, and is expanding its smartphone portfolio with iconic devices from Samsung, Apple, Google, and Motorola[18](index=18&type=chunk)[22](index=22&type=chunk) - In 2019, U.S. Cellular completed a brand refresh with the marketing campaign 'Bringing Fairness to Wireless' and introduced new Basic, Everyday, and Even Better Unlimited plans[25](index=25&type=chunk) - The company operates in a highly competitive industry, facing 2-5 wireless service providers in each market, including national carriers (Verizon Wireless, AT&T Mobility, Sprint, T-Mobile USA) and cable providers (Comcast, Charter), all with substantially greater financial resources[36](index=36&type=chunk) - U.S. Cellular is deploying 5G technology in its network and expects to launch commercial 5G services in selected markets in 2020, initially focusing on mobility services using low-band spectrum and acquiring high-band spectrum for future services[43](index=43&type=chunk) - The company was the provisional winning bidder for **408 wireless spectrum licenses** in the 28 GHz auction (Auction 101) and **282 licenses** in the 24 GHz auction (Auction 102) for an aggregate purchase price of **$256 million**, with licenses granted in October and December 2019[52](index=52&type=chunk) - As of December 31, 2019, U.S. Cellular had approximately **5,500 full-time and part-time employees**, none of whom are represented by labor organizations[60](index=60&type=chunk) [Item 1A. Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from intense competition, strategy execution challenges, liquidity concerns, and regulatory compliance - Key Risk Factors[64](index=64&type=chunk) - Intense competition in the markets in which U.S. Cellular operates could adversely affect revenues or increase costs to compete[64](index=64&type=chunk) - A failure to successfully execute its business strategy or allocate resources/capital effectively could have an adverse effect on business, financial condition, or results of operations[68](index=68&type=chunk) - Uncertainty in future cash flow and liquidity or inability to access capital could limit financing, requiring reduction in construction, development, acquisition programs, spectrum acquisition, and/or share repurchases[69](index=69&type=chunk) - Significant indebtedness could adversely affect financial performance, ability to make payments, comply with debt covenants, and incur additional debt[71](index=71&type=chunk) - Changes in roaming practices or other factors could cause roaming revenues to decline, expenses to increase, or impact ability to service customers in non-network areas[73](index=73&type=chunk) - Failure to obtain access to adequate radio spectrum to meet current or anticipated future needs could adversely affect business, financial condition, or results of operations[78](index=78&type=chunk) - Failure to timely or fully comply with legislative and/or regulatory requirements or changes thereto could adversely affect business, financial condition, or results of operations[82](index=82&type=chunk) - U.S. Cellular's smaller scale relative to larger competitors could cause it to be unable to compete successfully[88](index=88&type=chunk) - Complexities associated with deploying new technologies present substantial risk, and investments in unproven technologies may not produce expected benefits[95](index=95&type=chunk) - Potential conflicts of interests between TDS (controlling shareholder) and U.S. Cellular, and provisions in the Restated Certificate of Incorporation, may discourage or make more difficult a change in control[119](index=119&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) [Item 1B. Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC regarding U.S. Cellular's filings - No unresolved staff comments[129](index=129&type=chunk) [Item 2. Properties](index=23&type=section&id=Item%202.%20Properties) U.S. Cellular owns or leases various properties across the United States, with a gross investment in property, plant, and equipment totaling $8,293 million as of December 31, 2019 - U.S. Cellular's properties, including corporate headquarters, local offices, cell sites, data centers, call centers, and retail stores, are located throughout the United States and are either owned or leased[130](index=130&type=chunk) Gross Investment in Property, Plant and Equipment | As of December 31, 2019 | | | :---------------------- | :----------------- | | Gross Investment | $8,293 million | [Item 3. Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) U.S. Cellular is routinely involved in legal proceedings, accruing for estimated losses when probable and reasonably estimable, with outcomes potentially differing from current assessments - U.S. Cellular is involved in legal proceedings before the FCC, other regulatory authorities, and state/federal courts[132](index=132&type=chunk) - Estimated losses from legal proceedings are accrued in financial statements if probable and reasonably estimable, with assessments being highly subjective and reviewed quarterly[132](index=132&type=chunk) [Item 4. Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to U.S. Cellular - Not applicable[133](index=133&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) U.S. Cellular has not paid cash dividends recently and plans to retain all earnings for business use, with 5,311,000 shares remaining available under its repurchase program as of December 31, 2019 - U.S. Cellular has not paid any cash dividends in recent periods and intends to retain all earnings for use in its business[136](index=136&type=chunk) - The Board of Directors authorized a share repurchase program for up to **1,300,000 Common Shares annually**, amended in 2016 to allow the Pricing Committee to determine the amount (zero to 1,300,000 shares) or default to zero if not specified[138](index=138&type=chunk) - As of December 31, 2019, the maximum number of shares that may yet be purchased under this program was **5,311,000**, with no purchases made during the fourth quarter of 2019[139](index=139&type=chunk) [Item 6. Selected Financial Data](index=24&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data for U.S. Cellular is incorporated by reference from Exhibit 13 of this Form 10-K - Selected Financial Data is incorporated by reference from Exhibit 13 to this Form 10-K Annual Report section entitled 'Selected Consolidated Financial Data'[140](index=140&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of U.S. Cellular's financial condition and results of operations is incorporated by reference from Exhibit 13 of this Form 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated by reference from Exhibit 13 to this Form 10-K Annual Report[140](index=140&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Quantitative and qualitative disclosures regarding market risk are incorporated by reference from Exhibit 13 of this Form 10-K - Quantitative and Qualitative Disclosures About Market Risk are incorporated by reference from Exhibit 13 to this Form 10-K Annual Report section entitled 'Market Risk'[140](index=140&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=24&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) U.S. Cellular's consolidated financial statements and supplementary data are incorporated by reference from Exhibit 13, with comprehensive income equaling net income for 2017-2019 - Financial Statements and Supplementary Data, including Consolidated Statement of Operations, Cash Flows, Balance Sheet, Changes in Equity, and Notes to Consolidated Financial Statements, are incorporated by reference from Exhibit 13[141](index=141&type=chunk) - The Consolidated Statement of Comprehensive Income was not included because

下 U.S.Cellular: | --- | --- | --- | |-------|-------|-------| | | | | | | | | Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 2 All information set forth in this presentation, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties tha ...

fDs YEARS 1969-2019 | TDS Third Quarter 2019 Results November 1, 2019 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 2 All information set forth in this presentation about Telephone and Data Systems, Inc. including its subsidiaries U.S. Cellular and TDS Telecom (the "company"), except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are ba ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-09712 UNITED STATES CELLULAR CORPORATION (Exact name of Registrant as specified in its charter) Delaware 62-1147325 (State o ...

Telephone and Data Systems, Inc. (NYSE:TDS) Q2 2019 Results Conference Call August 2, 2019 10:00 AM ET Company Participants Jane McCahon - Senior Vice President of Corporate Relations Ken Meyers - President and Chief Executive Officer Steve Campbell - Executive Vice President and Chief Administrative Officer Mike Irizarry - Executive Vice President and Chief Technology Officer, TDS Telecom Vicki Villacrez - Senior Vice President of Finance and Chief Financial Office Conference Call Participants Ric Prentiss ...

fDs YEARS 1969-2019 | TDS Second Quarter 2019 Results August 2, 2019 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 2 All information set forth in this presentation, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could c ...

Part I. Financial Information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on U.S. Cellular's financial results for the three and six months ended June 30, 2019, covering operational and financial performance, liquidity, capital resources, and strategic initiatives [Executive Overview](index=3&type=section&id=Executive%20Overview) U.S. Cellular, an 82%-owned TDS subsidiary, serves 5.0 million connections, focusing on network quality, customer service, and strategic 5G spectrum acquisitions - U.S. Cellular serves **5.0 million connections** across 21 states, including **4.4 million postpaid** and **0.5 million prepaid** customers[12](index=12&type=chunk) - The company's strategy is to provide a high-quality network, excellent customer service, and competitive offerings with a local focus[10](index=10&type=chunk) - Strategic efforts in 2019 include expanding services for business/government customers, deploying VoLTE technology, and beginning 5G deployment[14](index=14&type=chunk) - U.S. Cellular was the provisional winning bidder for **408 licenses** in the 28 GHz auction and **282 licenses** in the 24 GHz auction for a total of **$256 million** to support 5G expansion[14](index=14&type=chunk) [Operational Overview](index=7&type=section&id=Operational%20Overview) Retail connections decreased to 4.914 million, with increased postpaid net losses and churn in Q2 2019, despite rising ARPU and ARPA from higher-priced plans Postpaid Customer Metrics (Q2 2019 vs. Q2 2018) | Metric | Q2 2019 | Q2 2018 | Change | YTD 2019 | YTD 2018 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Gross Additions** | 137,000 | 146,000 | (6)% | 273,000 | 275,000 | (1)% | | **Total Net (Losses)** | (26,000) | (13,000) | (100)% | (58,000) | (50,000) | (16)% | | **Total Churn** | 1.23% | 1.19% | +0.04 p.p. | 1.24% | 1.21% | +0.03 p.p. | Postpaid Revenue Metrics | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **ARPU** | $45.90 | $44.74 | $45.66 | $44.54 | | **ARPA** | $119.46 | $118.57 | $119.15 | $118.38 | - The increase in postpaid churn and decrease in gross additions were attributed to aggressive industry-wide handset promotional activity[17](index=17&type=chunk)[18](index=18&type=chunk) [Financial Overview](index=8&type=section&id=Financial%20Overview) Q2 2019 operating revenues remained flat at $973 million, while operating income decreased 45% to $30 million due to higher expenses, despite modest growth in Adjusted OIBDA and EBITDA Financial Highlights (in millions) | Metric | Q2 2019 | Q2 2018 | % Change | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total operating revenues** | $973 | $974 | 0% | $1,939 | $1,915 | 1% | | **Operating income** | $30 | $56 | (45)% | $95 | $121 | (21)% | | **Net income** | $32 | $52 | (38)% | $90 | $107 | (15)% | | **Adjusted OIBDA (Non-GAAP)** | $212 | $205 | 4% | $443 | $423 | 5% | | **Adjusted EBITDA (Non-GAAP)** | $257 | $248 | 3% | $537 | $507 | 6% | | **Capital expenditures** | $195 | $86 | 127% | $297 | $155 | 91% | - Service revenues increased **2%** in Q2 2019, driven by higher Postpaid ARPU and a **13% increase** in inbound roaming revenue[20](index=20&type=chunk)[25](index=25&type=chunk) - Equipment sales revenue decreased **7%** in Q2 2019 due to fewer devices sold, partially offset by a higher average revenue per device[26](index=26&type=chunk) - Depreciation, amortization, and accretion increased **11%** in Q2 2019 due to new network assets and accelerated depreciation from technology changes[29](index=29&type=chunk) [Liquidity and Capital Resources](index=11&type=section&id=Liquidity%20and%20Capital%20Resources) U.S. Cellular maintains liquidity with $528 million cash and $498 million unused credit, projecting $625-725 million in 2019 capital expenditures for network and 5G deployment and spectrum acquisitions - Cash and cash equivalents totaled **$528 million** at June 30, 2019, down from **$580 million** at December 31, 2018[40](index=40&type=chunk) - As of June 30, 2019, the company had **$298 million** of unused capacity under its revolving credit agreement and **$200 million** under its receivables securitization agreement[42](index=42&type=chunk)[44](index=44&type=chunk) - Full-year 2019 capital expenditures are expected to be between **$625 million** and **$725 million**, primarily for network enhancement, VoLTE, and 5G deployment[48](index=48&type=chunk)[50](index=50&type=chunk) - The company paid **$256 million** for spectrum licenses acquired in FCC Auctions 101 and 102 during the first half of 2019[51](index=51&type=chunk) - No share repurchases were made in the six months ended June 30, 2019, with the remaining authorization for **5,901,000 Common Shares**[53](index=53&type=chunk)[54](index=54&type=chunk) [Consolidated Cash Flow Analysis](index=14&type=section&id=Consolidated%20Cash%20Flow%20Analysis) For the six months ended June 30, 2019, net cash from operating activities was $476 million, offset by $506 million used in investing activities for capital expenditures and license acquisitions, resulting in a $51 million net cash decrease Cash Flow Summary (Six Months Ended June 30, in millions) | (in millions) | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $476 | $365 | | **Net cash used in investing activities** | ($506) | ($101) | | **Net cash used in financing activities** | ($21) | ($19) | | **Net (decrease) increase in cash** | ($51) | $245 | [Consolidated Balance Sheet Analysis](index=15&type=section&id=Consolidated%20Balance%20Sheet%20Analysis) Balance sheet changes from December 2018 to June 2019 were driven by ASC 842 adoption, adding $888 million in lease assets and liabilities, and a $283 million increase in licenses from spectrum - The adoption of ASC 842 on January 1, 2019, resulted in the recognition of **$888 million** in Operating lease right-of-use assets, **$101 million** in Short-term operating lease liabilities, and **$858 million** in Long-term operating lease liabilities[65](index=65&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk) - The Licenses intangible asset increased by **$283 million** due to rights acquired through FCC auctions[64](index=64&type=chunk) - Accrued compensation decreased by **$33 million** due to employee bonus payments made in March 2019[66](index=66&type=chunk) [Supplemental Information Relating to Non-GAAP Financial Measures](index=16&type=section&id=Supplemental%20Information%20Relating%20to%20Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, showing Q2 2019 Adjusted EBITDA increased 3% to $257 million, Adjusted OIBDA rose 4% to $212 million, and YTD Free Cash Flow was $194 million Reconciliation of Net Income to Adjusted OIBDA (in millions) | | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net income (GAAP)** | $32 | $52 | $90 | $107 | | Add: Income tax, Interest, D&A | $220 | $206 | $444 | $415 | | **EBITDA (Non-GAAP)** | $252 | $258 | $534 | $522 | | Add/Deduct: (Gains)/losses | $5 | ($10) | $3 | ($15) | | **Adjusted EBITDA (Non-GAAP)** | $257 | $248 | $537 | $507 | | Deduct: Equity earnings, Interest income | $45 | $43 | $94 | $84 | | **Adjusted OIBDA (Non-GAAP)** | $212 | $205 | $443 | $423 | Free Cash Flow (in millions) | | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | | **Cash flows from operating activities (GAAP)** | $476 | $365 | | Less: Cash paid for additions to PP&E | $282 | $173 | | **Free cash flow (Non-GAAP)** | $194 | $192 | [Regulatory Matters](index=18&type=section&id=Regulatory%20Matters) U.S. Cellular was the provisional winning bidder for 690 spectrum licenses in the 28 GHz and 24 GHz auctions for $256 million, with FCC Auction 103 for 37, 39, and 47 GHz bands scheduled for December 2019 - U.S. Cellular was the provisional winning bidder for **408 licenses** in Auction 101 (28 GHz) and **282 licenses** in Auction 102 (24 GHz)[79](index=79&type=chunk) - The aggregate purchase price for the licenses from Auctions 101 and 102 was **$256 million**[79](index=79&type=chunk) - The FCC has established procedures for Auction 103 (37, 39, and 47 GHz bands), with bidding scheduled to begin on December 10, 2019[80](index=80&type=chunk) [Financial Statements (Unaudited)](index=22&type=section&id=Item%201.%20Financial%20Statements) The unaudited financial statements show U.S. Cellular's June 30, 2019, financial position, with YTD net income of $90 million on $1.939 billion revenue, and total assets increasing to $8.223 billion due to lease accounting and spectrum [Consolidated Statement of Operations](index=22&type=section&id=Consolidated%20Statement%20of%20Operations) Q2 2019 total operating revenues were $973 million, with operating income at $30 million and net income attributable to shareholders at $31 million, or $0.35 per diluted share Consolidated Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total operating revenues** | $973 | $974 | $1,939 | $1,915 | | **Operating income** | $30 | $56 | $95 | $121 | | **Net income attributable to U.S. Cellular shareholders** | $31 | $49 | $86 | $93 | | **Diluted earnings per share** | $0.35 | $0.56 | $0.97 | $1.08 | [Consolidated Statement of Cash Flows](index=24&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) For the six months ended June 30, 2019, net cash from operating activities was $476 million, offset by $506 million used in investing activities for capital expenditures and license acquisitions, resulting in a $51 million net cash decrease Consolidated Statement of Cash Flows Summary (Six Months Ended June 30, in millions) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $476 | $365 | | **Net cash used in investing activities** | $(506) | $(101) | | **Net cash used in financing activities** | $(21) | $(19) | | **Net (decrease) increase in cash** | $(51) | $245 | [Consolidated Balance Sheet](index=26&type=section&id=Consolidated%20Balance%20Sheet) As of June 30, 2019, total assets increased to **$8.223 billion** from **$7.274 billion** due to **$888 million** in operating lease assets and **$283 million** in licenses, while total liabilities rose to **$4.048 billion** from **$3.207 billion** due to lease liabilities Consolidated Balance Sheet Summary (in millions) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $528 | $580 | | Licenses | $2,469 | $2,186 | | Property, plant and equipment, net | $2,154 | $2,202 | | Operating lease right-of-use assets | $888 | $0 | | **Total assets** | **$8,223** | **$7,274** | | **Liabilities and Equity** | | | | Total current liabilities | $747 | $691 | | Long-term debt, net | $1,596 | $1,605 | | Long-term operating lease liabilities | $858 | $0 | | **Total liabilities** | **$4,048** | **$3,207** | | **Total U.S. Cellular shareholders' equity** | **$4,162** | **$4,057** | [Notes to Consolidated Financial Statements](index=33&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including ASC 842 adoption materially increasing assets and liabilities, revenue recognition, intangible asset growth from spectrum, and disclosures on consolidated Variable Interest Entities - **Note 2 (Revenue Recognition):** Total revenues from contracts with customers were **$957 million** for Q2 2019, with **$502 million** in future service revenue expected from remaining performance obligations on contracts longer than one year as of June 30, 2019[124](index=124&type=chunk)[131](index=131&type=chunk) - **Note 6 (Intangible Assets):** The license balance increased by **$283 million** in the first half of 2019, primarily due to a **$257 million** acquisition of spectrum licenses from FCC auctions[145](index=145&type=chunk) - **Note 8 (Leases):** The company adopted ASC 842 on Jan 1, 2019, recognizing **$899 million** of Operating lease right-of-use assets and **$979 million** of corresponding lease liabilities on its balance sheet[150](index=150&type=chunk)[153](index=153&type=chunk) - **Note 9 (Variable Interest Entities):** U.S. Cellular consolidates several VIEs, which held total assets of **$1.757 billion** and total liabilities of **$85 million** as of June 30, 2019[165](index=165&type=chunk)[170](index=170&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk information have occurred since the 2018 Form 10-K, with long-term debt fair value disclosed in Note 3 to the financial statements - There have been no material changes to market risk disclosures since the 2018 Form 10-K[88](index=88&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2019, with the only material change to internal control over financial reporting being the implementation of controls for ASC 842 - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2019[178](index=178&type=chunk) - A change in internal control over financial reporting occurred due to the implementation of controls for the new lease accounting standard, ASC 842[179](index=179&type=chunk) Part II. Other Information [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The DOJ is investigating U.S. Cellular's participation in FCC spectrum auctions under the False Claims Act regarding bidding credits, with the company cooperating and believing its actions complied with the law - The Department of Justice is investigating U.S. Cellular's participation in FCC spectrum auctions 58, 66, 73, and 97 under the False Claims Act[180](index=180&type=chunk) - The company believes its arrangements with limited partnerships that received bidding credits complied with applicable laws and FCC rules[180](index=180&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) No material changes to 2018 Form 10-K risk factors were identified, with key forward-looking risks including intense competition, strategy execution, liquidity, technology reliance, and regulatory uncertainties - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018, were identified[87](index=87&type=chunk) - Key risks include intense competition, failure to execute strategy, inability to access capital, changes in roaming practices, and failure to obtain adequate radio spectrum[83](index=83&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No U.S. Cellular Common Shares were repurchased in Q2 2019, with 5,901,000 shares remaining authorized under the share repurchase program as of June 30, 2019 - No U.S. Cellular Common Shares were repurchased during the quarter ended June 30, 2019[183](index=183&type=chunk) - The remaining authorization under the share repurchase program is for **5,901,000 Common Shares** as of June 30, 2019[183](index=183&type=chunk) [Other Information](index=48&type=section&id=Item%205.%20Other%20Information) No cash borrowings or repayments occurred under U.S. Cellular's revolving credit or receivables securitization agreements in Q2 2019, with no outstanding borrowings as of June 30, 2019 - U.S. Cellular had no cash borrowings outstanding under its revolving credit agreement or its receivables securitization agreement as of June 30, 2019[185](index=185&type=chunk)[186](index=186&type=chunk)

fps YEARS 1969-2019 | TDS First Quarter 2019 Results May 3, 2019 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 2 All information set forth in this presentation, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could cause ...