U.S. Cellular(USM) - 2019 Q4 - Annual Report

PART I Item 1. Business 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] - 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] - 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] - 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][22] - 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] - 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] - 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] - 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] - 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] Item 1A. Risk Factors The company faces significant risks from intense competition, strategy execution challenges, liquidity concerns, and regulatory compliance - Key Risk Factors[64] - Intense competition in the markets in which U.S. Cellular operates could adversely affect revenues or increase costs to compete[64] - 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] - 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] - Significant indebtedness could adversely affect financial performance, ability to make payments, comply with debt covenants, and incur additional debt[71] - 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] - 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] - 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] - U.S. Cellular's smaller scale relative to larger competitors could cause it to be unable to compete successfully[88] - Complexities associated with deploying new technologies present substantial risk, and investments in unproven technologies may not produce expected benefits[95] - 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][122][123] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding U.S. Cellular's filings - No unresolved staff comments[129] Item 2. Properties 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] Gross Investment in Property, Plant and Equipment | As of December 31, 2019 | | | :---------------------- | :----------------- | | Gross Investment | $8,293 million | Item 3. Legal Proceedings 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] - Estimated losses from legal proceedings are accrued in financial statements if probable and reasonably estimable, with assessments being highly subjective and reviewed quarterly[132] Item 4. Mine Safety Disclosures This item is not applicable to U.S. Cellular - Not applicable[133] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - 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] - 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] Item 6. Selected Financial Data 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] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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] Item 8. Financial Statements and Supplementary Data 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] - The Consolidated Statement of Comprehensive Income was not included because