AD 10-Q Quarter ended March 31, 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x]

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

For the quarterly period ended March 31, 2018

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 or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

8410 West Bryn Mawr, Chicago, Illinois 60631

(Address of principal executive offices) (Zip code)

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

Yes

No

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

[x]

[  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[x]

[  ]

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

Large accelerated filer

[  ]

Accelerated filer

[x]

Non-accelerated filer

[  ]

(Do not check if a smaller reporting company)

Smaller reporting company

[  ]

Emerging growth company

[  ]

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

[  ]

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

[  ]

[x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at March 31, 2018

Common Shares, $1 par value

52,210,981 Shares

Series A Common Shares, $1 par value

33,005,877 Shares

United States Cellular Corporation
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2018
Index		Page No.
	Management Discussion and Analysis of Financial Condition and Results of Operations	1
	Executive Overview	1
	Terms used by U.S. Cellular	4
	Operational Overview	5
	Financial Overview	7
	Liquidity and Capital Resources	10
	Consolidated Cash Flow Analysis	13
	Consolidated Balance Sheet Analysis	14
	Supplemental Information Relating to Non-GAAP Financial Measures	15
	Application of Critical Accounting Policies and Estimates	18
	Recent Accounting Pronouncements	18
	Regulatory Matters	18
	Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement	19
	Risk Factors	21
	Quantitative and Qualitative Disclosures About Market Risk	21
	Financial Statements (Unaudited)	22
	Consolidated Statement of Operations	22
	Consolidated Statement of Cash Flows	23
	Consolidated Balance Sheet	24
	Consolidated Statement of Changes in Equity	26
	Notes to Consolidated Financial Statements	28
	Controls and Procedures	41
	Legal Proceedings	41
	Unregistered Sales of Equity Securities and Use of Proceeds	41
	Other Information	42
	Exhibits	43
	Form 10-Q Cross Reference Index	44
	Signatures	45

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

Executive Overview

The following discussion and analysis compares United States Cellular Corporation ’s ( U.S. Cellular) financial results for the three months ended March 31, 2018 , to the three months ended March 31, 2017 .  It should be read in conjunction with U.S. Cellular’s interim consolidated financial statements and notes included herein , and with the description of U. S. Cellular’s business, its audited consolidated financial statements and Management's Discussion and Analysis ( MD&A ) of Financial Condition and Results of Operations included in U.S. Cellular’s Annual Report on Form 10-K (Form 10-K ) for the year ended December 31, 2017 . Certain numbers included herein are rounded to millions for ease of presentation; however, calculated amounts and percentages are determined using the unrounded numbers .

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

U.S. Cellular uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A.  A discussion of the reason U.S. Cellular determines these metrics to be useful and a reconciliation of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the Unit ed States of America (GAAP) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section w ithin the MD&A of this Form 10-Q Report.

General

U.S. Cellular owns, operates, and invests in wireless markets throughout the United States. U.S. Cellular is an 83% -owned subsidiary of Telephone and Data Systems , Inc. (TDS).  U.S. Cellular’s strategy is to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, all provided with a local focus.

OPERATIONS

Serves customers with approximately 5.1 million connections including 4.5 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections Operates in 22 states Employs approximately 5,900 associates 6,473 cell sites including 4,099 owned towers in service

U.S. Cellular Mission and Strategy

U.S. Cellular’s mission is to provide exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the mid-sized and rural markets served.

In 2018, U.S. Cellular continues to execute on its strategies to protect its current customer base, grow revenues, drive improvements in the overall cost structure, and invest in its network and online platforms.  Strategic efforts include:

• U.S. Cellular continues to offer economical and competitively priced service plans and devices to its customers, and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as fixed wire less broadband.  In addition, U.S. Cellular is focused on expanding its solutions available to business and government customers, including a growing suite of connected machine-to-machine solutions and software applications across various categories.
• U. S. Cellular continues to devote efforts to enhance its network capabilities.  VoLTE technology has been launched successfully in Iowa and Wisconsin, and deployments in several additional operating markets will occur later this year.  VoLTE technology allow s customers to utilize a 4G LTE network for both voice and data services, and offers enhanced services such as high definition voice and simultaneous voice and data session s. In addition, the deployment of VoLTE technology expands U.S. Cellular’s ability to offer roaming services to other wireless carriers.
• U.S. Cellular is committed to continuous technology innovation as demonstrated by its ongoing evaluation of 5G technology.  U.S. Cellular has successfully tested 5G technology in both indoor and outdo or environments and is currently engaged in efforts related to the development of 5G standards and identifying potential use cases for the technology . When deployed commercially, 5G technology is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed and reliability as well as low latency.
• U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operation s and maximizing its long-term return on capital.  As part o f this strategy, U.S. Cellular actively seeks att ractive opportunities to acquire wireless spec trum, including pursuant to FCC auctions.

Terms U sed b y U.S. Cellular

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

• 4G LTE – fourth generation Long-Term Evolution which is a wireless broadband technology.
• 5G – fifth generation wireless broadband technology.
• Account – represents an individual or business financially responsible for one or m ultiple associated connections.  An account may include a variety of types of connection s such as handsets and connected devices.
• ASU 2014 -09 – the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers , including any subsequent modification s to such guidance . This ASU rep laces existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.
• Churn Rate – represents the percentage of the c onnections that disconnect service each month. These rates rep resent the average monthly churn rate for each respective period.
• Connections – individual line s of service associated with each device activated by a customer . This includes smartphones, feature phones, tablets, modems, hotspots, and machine-to-machine de vices.
• Connected Devices – non-handset devices that connect directly to the U.S. Cellular network.  Connected devices include products such as tablets, modems, and hotspots.
• EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document.  See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
• Eligible Telecommunications Carrier (ETC) – designati on by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms.
• Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to propert y, plant and equipment.
• Gross Additions – represents the to tal number of new connections a dded during the p eriod , without regard to connections that wer e terminated during that period.
• Machine-to-Machin e or M2M – technology that involves the transmission of data between networked devices, as well as the performance of actions by devices without human intervention. U.S. Cell ular sells and supports M2M sol utions to customers, provides connectivity for M2M solutions via the U.S. Cellular network, and has agr eements with device manufacturers and software developers which offer M2M solutions.
• Net Additions – represents the tota l number of new connections add ed during the period, net of connections that were terminated during that period .
• OIBDA – refers to opera ting income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document.  See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
• Postp aid Average Bil lings per Account (Postpaid AB PA) – non-GAAP metric which is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period .
• Postpaid Average Billings per User (Postpaid ABPU ) – non-GAAP metric which is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.
• Postpaid Average Revenue per Account (Postpaid ARPA ) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
• Postpaid Average R evenue per User ( Postpaid ARPU ) – met ric which is calculated by dividing total postpaid service revenue s by the average number of postpaid connections and by the number of months in the period.
• Retail Connections – the sum of postpaid connections and prepaid connections.
• Tax Act – refers to comprehensive federal tax legislation enacted on December 22, 2017, which made broad and complex changes to the U.S. tax code.  Now titled H.R.1, the Tax Act was originally identified as the Tax Cuts and Jobs Act of 2017.
• Universal Serv ice Fund (USF ) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.
• VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and relate d services over 4G LTE networks.

		As of March 31,				2018		2017
		Retail Connections – End of Period
				Postpaid		4,481,000		4,455,000
				Prepaid		525,000		480,000
				Total		5,006,000		4,935,000
		Quarter Ended March 31,				2018		2017
		Postpaid Activity:
			Gross Additions			129,000		146,000
			Net Losses			(37,000)		(27,000)
			Churn			1.23%		1.29%

Postpaid handset gross additions for the three months ended March 31, 2018, were 96,000, slightly higher than in the same period last year.  In addition, postpaid handset churn improved year over year, from 1.08% to 0.97%.  As a result, the net loss on postpaid handsets for the three months ended March 31, 2018, of 16,000 was sign ificantly reduced from the net loss in the prior year period.

Total postpaid net losses increased for the three months ended March 31, 2018 , when compared to the same period last year, due to net losses for conne cted devices, which reflected both lower tablet gross additions and an increase in tablet churn. The decline in tablet gross additions reflects U.S. Cellular ‘s decision to curtail promotions of heavily discounted tablets .

Postpaid Revenue

		Three Months Ended
		March 31,
		2018			2017
Average Revenue Per User (ARPU)		$	44.34		$	45.42
Average Billings Per User (ABPU) 1		$	57.10		$	55.82
Average Revenue Per Account (ARPA)		$	118.22		$	121.88
Average Billings Per Account (ABPA) 1		$	152.26		$	149.78
1	Postpaid ABPU and Postpaid ABPA are non-GAAP financial measures.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of these measures.

On January 1, 2018, U.S. Cellular adopted the provisions of ASU 2014-09, using a modified retrospective method.  Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment t o retained earnings at January 1, 2018.  See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details.

Postpaid ARPU and Postpaid ARPA decreased for the three months ended March 31, 2018 , when compared to the same period last year, reflecting industry-wide price competition resulting in overall price reductions on plan offerings as well as the impact of adopting the provisions of ASU 2014-09, as discuss ed above.  Application of the new accounting standard had the impact of reducing ARPU and ARPA for the three months ended March 31, 2018, by $0.53 and $1.11, respectively. Such factors were partially offset by increases in regulatory cost recovery and Dev ice Protection plan revenues.

Under equipment installment plans, customers pay for their wireless devices in installments over a period of time.  In order to show the trend in estimated cash collections from postpaid customer billings for both service and equipment, U.S. Cellular has presented Postpaid ABPU and Postpaid ABPA, which are calculated as Postpaid ARPU and Postpaid ARPA plus average monthly equipment installment plan billings per connection and account, respectively.

Equipment installment plan b illings increased for the three months ended March 31, 2018 , due mainly to increased penetration of equipment installment plans. Postpaid ABPU and ABPA increased for the three months ended March 31, 2018 , as the increase in equipmen t installment plan billings more than offset the decline in Postpaid A RPU and ARPA discussed above.

Financial Overview

					Three Months Ended
					March 31,
											2018 vs.
					2018¹			2017			2017
(Dollars in millions)
Retail service					$	649		$	657		(1)%
Inbound roaming						27			27		3%
Other						48			62		(23)%
	Service revenues					724			746		(3)%
Equipment sales						218			190		14%
	Total operating revenues					942			936		1%
System operations (excluding Depreciation, amortization and accretion reported below)						179			175		2%
Cost of equipment sold						219			228		(4)%
Selling, general and administrative						326			339		(4)%
Depreciation, amortization and accretion						159			153		3%
(Gain) loss on asset disposals, net						1			4		(62)%
(Gain) loss on license sales and exchanges, net						(7)			(17)		61%
	Total operating expenses					877			882		(1)%
Operating income					$	65		$	54		21%
Net income					$	55		$	28		97%
Adjusted OIBDA (Non-GAAP) 2					$	218		$	194		13%
Adjusted EBITDA (Non-GAAP) 2					$	259		$	229		13%
Capital expenditures					$	70		$	61		14%
1	As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
2	Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

	S ervice revenues consist of: Retail Service – Charges for access, airtime, roaming, recovery of regulatory costs and value added services, including data services and products Inbound Roaming – Charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming Other Service – Amounts received from the Federal USF and tower rental revenues.  Imputed interest on equipment installment plan contracts is included in 2017; however, it is not included in 2018 due to the impact of adopting the provisions of ASU 2014-09 Equi pment revenues consist of: Sales of wireless devices and related accessories to new and existing customers, agent s, and third-party distributors

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

Total operating revenues

Service revenues d ecreased for the three months ended March 31, 2018 , when compared to the same period last year, as a result of (i) the decline in Postpaid ARPU as previously discussed in the Operational Overview section; and (ii) the impact of adopting the provisions of ASU 2014-09.

Federal USF revenue remained flat year over year at $ 23 million.  See the Regulatory Matters section in this MD&A for a description of the FCC Mob ility Fund II Order (MF2 Order) and its expected impacts on U.S. Cellular’s current Federal USF support.

Equipment sales revenues increased for the three months ended March 31, 2018 , due to the impact of adopting the provisions of ASU 2014-09, an increase in the average revenue per device sold , a mix shift from feature phones and connected devices to higher end smartphone devices, an d an increase in accessories revenues. Such factors were partially offset by a decrease in the number of devices sold and a reduction in guarantee liability amortization for equipment installment contracts as a result of changes in plan offerings.

See Note 2 — Revenue Recognition in the Notes to Consolida ted Financial Sta tements for additional details on the financial statement impact of ASU 2014-09.

System operations expenses

System operations expenses increased for the three months ended March 31, 2018 , due to higher maintenance, utility and cell site expenses largely reflecting increased cell site rent and tower maintenance and repair costs.  Such factors were partially offset by a decrease in roaming expenses primarily driven by lower data roaming rates, parti ally offset by increased data roaming usage.

Cost of equipment sold

Cost of equipment sold decr eased for the three months ended March 31, 2018 , mainly due to a decrease in the number of devices sold as well as the impact of adopting the provisions of ASU 2014-09.  Such factors were partially offset by increases due to a mi x shift from feature phones and connected dev ices to higher cost smartphones, an increase in the average cost per device sold, and an increase in accessories cost.

Loss on equipment sold, defined as Equipment sales revenues less Cost of equipment sold, was $1 million and $38 million for the three months ended March 31, 2018 and 2017, respecti vely.

Selling, general and administrative expenses

Selling expenses decr eased by $4 million for the three months ended March 31, 2018 , du e to lower advertising expenses and lower commissions expenses.

General and administ rative expenses decreased by $9 million for the three months ended March 31, 2018 , mainly due to lower expenses for bad debts driven primarily by improved receivables collectability, lower employee rela ted and consulting expenses, as well as reductions in numerous other general and administrative expense categories.

Depreciation, amortization and accretion

Depreciation, amortization and accretion increased for the three months ended March 31, 2018 , due primarily to an increase in amortization expense related to billing system upgrades.

(Gain) loss on license sales and exchanges , net

Net gains in 2018 and 2017 were due to gains recognized on license sale and exchange transactions with various third parties.

Components of Other Income (Expense)
						Three Months Ended
						March 31,
												2018 vs.
						2018¹			2017			2017
(Dollars in millions)
Operating income						$	65		$	54		21%
Equity in earnings of unconsolidated entities							38			33		16%
Interest and dividend income							4			3		32%
Interest expense							(29)			(28)		(3)%
Other, net							(1)			(1)		(22)%
Total investment and other income							12			7		69%
Income before income taxes							77			61		27%
Income tax expense							22			33		(33)%
Net income							55			28		97%
Less: Net income attributable to noncontrolling interests, net of tax							10			2		>100%
Net income attributable to U.S. Cellular shareholders						$	45		$	26		69%
1		As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented.  See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities r epresents U.S. Cellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for by the equity method. U.S. Cellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed $19 million and $ 16 million to Equity in earnings of unconsolidated entities for the three months ended March 31, 2018 and 2017, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for addi tional information .

Income tax expense

The effective tax rate on Income before income taxes for the three months ended March 31, 2018 and 2017 , was 28.8% and 54.2% , respectively. The lower rate in 2018 a s compared to 2017 is due primarily to the reduction of the U.S. federal corporate tax rate from 35% to 21% as a result of the Tax Act enacted in December 2017, as well as immaterial tax adjustments having a distortive impact on the tax rate in 2017. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information related to income taxes.

Net income attributable to noncontrolling interests, net of tax

Net income attributable to noncontrolling interests, net of tax increase d mainly due to out-of-period adjustments recorded during the three months ended March 31, 2018.  U.S. Cellular determined such adjustments were not material to any of the periods impacted. See Note 9 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

Sources of Liquidity

U.S. Cellular operates a capital-intensive business.  Historically, U.S. Cellular has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes.  In t he past, U.S. Cellular’s existing cash and investment balances, funds available under its revolving credit facility, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating, certain investing and fi nancing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for U.S. Cellular to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions, primarily of spectrum licenses.  There is no assurance that this will be the case in the future.  See Market Risk for additional information regarding maturities of long-term debt.

Although U.S. Cellular currently has a si gnificant cash balance, U.S. Cellular has incurred negative free cash flow at times in the past and this could occur in the future.  However, U.S. Cellular believes that existing cash and investment balances, funds available under its revolving credit faci lity, receivables securitization facility and expected cash flows from operating and investing activities will provide sufficient liquidity for U.S. Cellular to meet its normal day-to-day operating needs and debt service requirements for the coming year.

U.S. Cellular may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of wireless telecommunications services, spectrum license or system acquisitions, system development and network capacity expansion, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments.  It may be necessary from time to time to increase the size of the existing revolving credit facility, to put in place a new credit facility, or to obtain other forms of financing in order to fund potential expenditures.  U.S. Cellular’s liquidity would be adversely affected if, among other things, U.S. Cellular is unable to obtain short or long- term financing on acceptable terms, U.S. Cellular makes significant spectrum license purchases, the LA Partnership discontinues or reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline.  In add ition, although sales of assets or businesses by U.S. Cellular have been an important source of liquidity in prior periods, U.S. Cellular does not expect a similar level of such sales in the future.

U.S. Cellular’s credit rating currently is sub-investm ent grade.  There can be no assurance that sufficient funds will continue to be available to U.S. Cellular or its subsidiaries on terms or at prices acceptable to U.S. Cellular.  Insufficient cash flows from operating activities, changes in its credit rati ngs, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of U.S. Cellular or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to U.S. Cellular, which could require U.S. Cellular to reduce its acquisition, capital expenditure and business deve lopment programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends.  U.S. Cellular cannot provide assurance that circumstances that could have a material adverse effect on its liquidity o r capital resources will not occur.  Any of the foregoing would have an adverse impact on U.S. Cellular’s businesses, financial condition or results of operations.

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market investment s . The primary objective of U.S. Cellular’s Cash and cash equivalents is for use in its operations and acquisition, capital expenditure and business development programs .

Financing

U.S. Cellular has an unsecured revolving credit facility available for general corporate purposes, including spectrum purchases and capital expenditures.  This credit facility matures in June 2021.

U.S. Cellula r’s unused capacity under its revolving credit facility was $ 298 million as of March 31, 2018 .  U.S. Cellular believes it was in compliance with all of the financial covenants and require ments set forth in its revolving credit facility as of that date.  U.S. Cellular is in the process of seeking to replace this credit facility with a new facility that would mature in 2023.

U.S. Cellular, through its subsidiaries, also has a receivables securitization facility to permit securitized borrowings using its equipment installment plan receivables for general corporate purposes.  The unused capacity under this facility was $ 200 million as of March 31, 2018 , subject to sufficient collateral to satisfy the asset borrowing base provisions of the facility.  As of March 31, 2018 , the USCC Master Note Trust (Trust) held $ 8 million of assets available to be pledged as collateral for the receivables securitization facility.  U.S. Cellular believes it was in compliance with all of the financial covenants and requirements set forth in its receivables securitization facility as of that date.

U.S. Cellular has in place an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities.

Long-term debt payments due for the remainder of 2018 and the next four years are $ 219 million, which represent 13% of t he total gross long-term debt obligation at March 31, 2018 .

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures), which in clude the effects of accruals and capitalized interest , for the three months ended March 31, 2018 and 2017 , were as follows:

U.S. Cellular plans to finance its capital expenditures program for 2018 using primarily Cash flows from operating activities, existing cash balances and, if required, its receivables securitization and/or revolvin g credit facilities.

Acquisitions, Divestitures and Exchanges

U .S. Cellu lar may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties or wireless s pectrum.  In general, U.S. Cellular may not disclose such transactions until there is a definitive agreement.  U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and max imizing its long-term return on capital.  As part of this strategy, U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions. U.S. Cellular also may seek to divest outright or include in exchan ges for other wireless interests those interests that are not strategic to its long-term success.

Variable Interest Entities

U.S. Cellular consolidates certain “variable interest entities” as defined under GAAP. See Note 9 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. U.S. Cellular may elect to make additional capital c ontributions and/or advances to these variable interest entities in future periods in order to fund their operations.

Common Share Repurchase Program

U.S. Cellular has repurchased and expects to continue to repurchase its Common Shares, subject to its repu rchase program. However, there were no share repurchases made under this program in the three months ended March 31, 2018 or in t he year ended December 31, 2017 .

As of March 31, 2018 , the total cumulative amount of U.S. Cellular Common Shares authorized to be purchased is 5,900,849 . For additional information related to the current repurchase authorization , see Unregistered Sales of Equity Securities and U se of Proceeds.

Contractual and Other Obligations

There w ere no material change s outside the ordinary course of bu siness between December 31, 2017 and March 31, 2018 , to the Contractual and Other Obligations disclosed in Management’s Discussion and Ana lysis of Financial Condition and Results of Operations included in U.S. Cellular’s Form 10-K for the year ended December 31, 2017 .

Off-Balance Sheet Arrangements

U.S. Cellular had n o transactions, agreements or other contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that had or are reasonably likely to have a material current or future effect on its financial co ndition, results of operations, liquidity, capital expenditures or capital resources.

Consolidated Cash Flow Analysis

U.S. Cellular operates a capital- and marketing-intensive business. U.S. Cellular makes substantial investments to acquire wireless licenses and properties and to construct and upgrade wireless telecommunications networks and facilities as a basis for cre ating long-term value for shareholders.  In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue ‑ enhancing and cost-reducing upgrades to U.S. Cellular’s networks. U.S. Cellular utiliz es cash on hand, cash from operating activities, cash proceeds from divestitures and dispositions of investments, and short-term and long-term debt financing to fund its acquisitions (including spectrum licenses), construction costs, operating expenses and share repurchases.  Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors.  The following discussion summarizes U.S. Cellular's cash flow a ctivities for the three months ended March 31, 2018 and 2017 .

2018 Commentary

U.S. C ellular’s Cash, cash equivalents and restricted cash increased $ 158 million in the first quarter of 2018.  Net cash provided by operating activities was $ 188 million in 2018 due primarily to net income of $ 55 million plus non-cash items of $ 158 million and distributions received from unconsolidated entities of $ 17 million.  This was partially offset by changes in working cap ital items which decreased net cash by $ 42 million.  The working capital decrease was primarily influenced by timing of annual employee bonus, vendor and tax payments, partially offset by collections of customer and agent receiva bles.  The adoption of ASU 2014-09 caused fluctuations in working capital items in the Consolidated Balance Sheet; however, it did not have an impact on total Net cash provided by operating activities.

Cash flows used for investing activities were $ 23 million.  Cash paid in 2018 for additions to property, plant and equipment totaled $ 76 million.  This was partially offset by cash received for investments of $ 50 m illion, resulting from the redemption of short-term Treasury bills.

Cash flows used for financing activities were $ 7 million, reflecting ordinary activity such as the scheduled repayments of debt.

2017 Commentary

U.S. Cellular’s Cash, cash equivalents and restricted cash decreased $ 14 million in 2017. Net cash provided by operating activities was $ 61 million in 2017, due primarily to net income of $ 28 million plus non-cash items of $ 139 million and distributions received from unconsolidated entities of $ 1 1 million.  This was partially offset by changes in working capital items which decreased cash by $ 117 million.  The decrease in working capital items was due in part to a $ 44 million increase in equipment installment plan receivables.  The decrease was also a result of a $ 78 million decrease in accounts payable.

The net cash provided by operating activities was offset by c ash flows used for investing activities of $ 75 million. Cash paid for additions to property, plant and equipment in the first quarter of 2017 totaled $ 88 million. Cash paid for acquisitions and licens es was $ 3 million which was offset by Cash received from divestitures and exchanges of $ 16 million.

Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein.  This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes.  Changes in financial condition during 2018 were as follows:

Cash and cash equivalents

See the Consolidated Cash Flow Analysis above for a discussion of cash and cash equivalents.

Short -term investments

Short-term investments decreased $ 50 million due to the maturity of short-term investments, which consisted of U.S. Treasury Bills with original maturities of six months.

Other assets and deferred charges

Other assets and deferred charges increased $ 147 million due primarily to the creation of contract assets and contract cost assets as a result of the adoption of ASU 2014-09.  See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Customer deposits and deferred revenues

Customer deposits and deferred revenues dec reased $ 53 million due in large part to the impact of reclassifying certain deferred revenues to Other assets and deferred charges to reflect the net contract position for each customer contract on the Consolidated Balance Sheet as required by ASU 2014-09, which was adopted on January 1, 2018.  See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Accrued c ompensation

Accrued compensation decreased $ 31 million due primarily to employee bonus payments in March 2018.

Deferred income tax liability, net

Deferred income tax liability, net, increased $ 65 million due primarily to the adoption of ASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis without a corresponding increase in tax basis, as well as the impact of full expensing of qualified property additions following the enactment of the Tax Act.

Supplemental Information Relating to Non-GAAP Financial Measures

U.S. Cellular sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with U.S. GAAP to evaluate the performance of its business. Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. Specifically, U.S. Cellular has referred to the following measures in this Form 10-Q Rep ort:

• EBITDA
• Adjusted EBITDA
• Adjusted OIBDA
• Free cash flow
• Postpaid ABPU

• Postpaid ABPA

Following are explanations of each of these measures.

EBITDA, Adjusted EBITDA and Adjusted OIBDA

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

Management uses Adju sted EBITDA and Adjusted OIBDA as measurements of profitability and, therefore, reconciliations to Net income are deemed appropriate.  Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of U.S. Cellular’s operating results before si gnificant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of U.S. Cellular’s financial data in evaluating the effectiveness of its oper ations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.  Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, whil e Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.  The followin g table reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income.

			Three Months Ended
			March 31,
			2018¹			2017
(Dollars in millions)
Net income (GAAP)			$	55		$	28
Add back:
	Income tax expense			22			33
	Interest expense			29			28
	Depreciation, amortization and accretion			159			153
EBITDA (Non-GAAP)				265			242
Add back or deduct:
	(Gain) loss on asset disposals, net			1			4
	(Gain) loss on license sales and exchanges, net			(7)			(17)
Adjusted EBITDA (Non-GAAP)				259			229
Deduct:
	Equity in earnings of unconsolidated entities			38			33
	Interest and dividend income			4			3
	Other, net			(1)			(1)
Adjusted OIBDA (Non-GAAP)				218			194
Deduct:
	Depreciation, amortization and accretion			159			153
	(Gain) loss on asset disposals, net			1			4
	(Gain) loss on license sales and exchanges, net			(7)			(17)
Operating income (GAAP)			$	65		$	54
1		As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented.  See Note 2 — Revenue Recognition in the Notes to Consolid ated Financial Statements for additional information.

Free Cash Flow

The following table presents Free cash flow. Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

		Three Months Ended March 31,
		2018			2017
(Dollars in millions)
Cash flows from operating activities (GAAP)		$	188		$	61
Less: Cash paid for additions to property, plant and equipment			76			88
	Free cash flow (Non-GAAP)	$	112		$	(27)

Postpaid ABPU and Postpaid ABPA

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect estimated cash collections from postpaid customer billings for both service and equipment resulting from the increased adoption of equipment installment plans.  Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to inves tors and other users of its financial information in showing trends in both service and equipment sales revenues received from customers.

			Three Months Ended March 31,
			2018¹			2017
(Dollars and connection counts in millions)
Calculation of Postpaid ARPU
Postpaid service revenues			$	598		$	608
Average number of postpaid connections				4.50			4.46
Number of months in period				3			3
	Postpaid ARPU (GAAP metric)		$	44.34		$	45.42
Calculation of Postpaid ABPU
Postpaid service revenues			$	598		$	608
Equipment installment plan billings				172			139
	Total billings to postpaid connections		$	770		$	747
Average number of postpaid connections				4.50			4.46
Number of months in period				3			3
	Postpaid ABPU (Non-GAAP metric)		$	57.10		$	55.82
Calculation of Postpaid ARPA
Postpaid service revenues			$	598		$	608
Average number of postpaid accounts				1.69			1.66
Number of months in period				3			3
	Postpaid ARPA (GAAP metric)		$	118.22		$	121.88
Calculation of Postpaid ABPA
Postpaid service revenues			$	598		$	608
Equipment installment plan billings				172			139
	Total billings to postpaid accounts		$	770		$	747
Average number of postpaid accounts				1.69			1.66
Number of months in period				3			3
	Postpaid ABPA (Non-GAAP metric)		$	152.26		$	149.78
1		As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Application of Critical Accounting Policies a nd Estimates

U.S. Cellular prepares its consolidated financial statemen ts in accordance with GAAP. U.S. Cellular’s significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Notes to Consolidat ed Financial Statements and U.S. Cellular’s Application of Critical Accounting Po licies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, b oth of which are included in U.S. Cellular ’ s Form 10-K for the year ended December 31, 2017 .

Recent Accounting Pronouncements

See Note 1 — Basis of Prese ntation in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.

Regulatory Matters

FCC Mobility Fund Phase II Order

In October 2011, the FCC adopted its USF/Intercarrier Compensation Transformation Order (USF Order).  Pursuant to this order, U.S. Cellular’s then current Federal USF support was to be phased down at the rate of 20% per year beginning July 1, 2012.  The USF Order contemplated the establishment of a new mobile USF program and provided for a pa use in the phase down if that program was not timely implemented by July 2014.  The Phase II Connect America Mobility Fund (MF2) was not operational as of July 2014 and, therefore, as provided by the USF Order, the phase down was suspended at 60% of the ba seline amount until such time as the FCC had taken steps to establish the MF2.  In February 2017, the FCC adopted the MF2 Order addressing the framework for MF2 and the resumption of the phase down.  The MF2 Order establishes a support fund of $453 million annually for ten years to be distributed through a market-based, multi-round reverse auction.  For areas that receive support under MF2, legacy support to MF2 Auction winners will terminate and be replaced with MF2 support effective the first day of the m onth following release of the public notice closing the auction.  Legacy support  in areas where the legacy support recipient is not an MF2 winner will be subject to phase down over two years unless there is no winner in a particular census block, in which case it will be continued for one legacy support recipient only.  The MF2 Order further states that the phase down of legacy support for areas that were not eligible for support under MF2 will commence on the first day of the month following the completio n of the auction and will conclude two years later.

In August 2017, the FCC adopted the MF2 Challenge Process Order, which laid out procedures for establishing areas that would be eligible for support under the MF2 program.  This will include a collectio n process to be followed by a challenge window, a challenge response window, and finally adjudication of any coverage disputes.  In September 2017, the FCC issued a public notice initiating the collection of 4G LTE coverage data.  Responses submitting the collected data were due on January 4, 2018.

On February 27, 2018, the FCC issued public notices providing detailed challenge procedures and a schedule for the challenge process.  Pursuant to these notices, the challenge window began on March 29, 2018 and will close on August 27, 2018.  No earlier than thirty days after the FCC processes the challenges, it will open a thirty-day challenge response window.  Following the challenge response window, the FCC will adjudicate any disputes.  This entire process m ust be completed before an auction can be commenced .

U.S. Cellular cannot predict at this time when the MF2 auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the MF2 auction will provide opportunities to U.S. Cellular to offset any loss in existing support.  U.S. Cellular currently expects that its legacy support will continue at the 2017 level through 2018.

Millimeter Wave Spectrum Auctions

At its open meeting on April 17, 2018, the FCC adopted a public notice seeking comment on procedures for two auctions of spectrum licenses in the 28 GHz and 24 GHz bands.  As proposed , the 28GHz auction (Auction 101) would commence on November 14, 2018, and would offer two 425 MHz licenses in the 28 GHz band over portions of the United States that do not have incumbent licensees.  Following the completion of Auction 101, the FCC would co mmence the 24 GHz auction (Auction 102), which would offer up to seven 100 MHz licenses in the 24 GHz band in Partial Economic Areas cov ering most of the United States.

Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, that address activities, events or developments that U.S. Cellular intends, expects, projects, believes, estimates, plans or antici pates will or may occur in the future are forward-looking statements.  The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are no t the exclusive means of identifying them.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors include those set forth below, as more fully described under “Risk Factors” in U.S. Cellular’s Form 10-K for the year ended December 31, 2017 .  Each of the following risks could have a material adverse effect on U.S. Cellular’s business, financial condition or results of operations.  However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document.  Other unknown or unpredictable factors also could have m aterial adverse effects on future results, performance or achievements.  U.S. Cellular undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.  You should carefully cons ider the Risk Factors in U.S. Cellular’s Form 10-K for the year ended December 31, 2017 , the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to U.S. Cellular’s business, financial condition or results of operations.

• Intense competition in the markets in which U.S. Cellular operates could adversely affect U.S. Cellular’s revenues or increase its costs to compete.
• A failu re by U.S. Cellular to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, divestitures and exchanges) or allocate resources or capital could have an adverse effect on U.S. Cellular’s business, financial condi tion or results of operations.
• Uncertainty in U.S. Cellular’s future cash flow and liquidity or in the ability to access capital, deterioration in the capital markets, other changes in U.S. Cellular’s performance or market conditions, changes in U.S. Cellu lar’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to U.S. Cellular, which could require U.S. Cellular to reduce its construction, development or acquisition programs , reduce the acqui sition of spectrum licenses, and/or reduce or cease share repurchases .
• U.S. Cellular has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedne ss, comply with terms of debt covenants and incur additional debt.
• Changes in roaming practices or other factors could cause U.S. Cellular's roaming revenues to decline from current levels , roaming expenses to increase from current levels and/or impact U.S . Cellular's ability to service its customers in geographic areas where U.S. Cellular does not have its own network, which could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.
• A failure by U.S. Cellular to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• To th e extent conducted by the FCC, U.S. Cellular may participate in FCC auctions for additional spectrum or for funding in certain Universal Service programs in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-co llusion rules, which could have an adverse effect on U.S. Cellular.
• F ailure by U.S. Cellular to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect U.S. Cellular’s busines s, financial condition or results of operations.
• An inability to attract people of outstanding potential, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.
• U.S. Cellular’s assets and revenue are concentrated in the U.S. wireless telecommunications industry. Consequently , its operating results may fluctuate based on f actors related primarily to conditions in this industry.
• U.S. Cellular’s smaller scale relative to larger competitors that may have greater financial and other resources than U.S. Cellular could cause U.S. Cellular to be unable to compete successfully, whi ch could adversely affect its business, financial condition or results of operations.

• Changes in various business factors , including changes in demand, customer preferences and perceptions, price competition, churn from customer switching activity and othe r factors, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• Advances or changes in technology could render certain technologies used by U.S. Cellular obsolete, could put U.S. Cellular at a competitive disadvantage, could reduce U.S. Cellular’s revenues or could increase its costs of doing business.
• Complexities associated with deploying new technologies present substantial risk and U.S. Cellular investments in unproven technologies may not produce the benefits that U.S. Cellular expects .
• U.S. Cellular receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty , which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations .
• Performance under device purchase agreements could have a material adverse impact on U.S. Cellular's busi ness, financial condition or results of operations.
• Changes in U.S. Cellular’s enterprise value, changes in the market supply or demand for wireless licenses, adverse developments in the business or the industry in which U.S. Cellular is involved and/or o ther factors could require U.S. Cellular to recognize impairments in th e carrying value of its licenses and/or physical assets.
• Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or licenses a nd/or expansion of U.S. Cellular’s business could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• A failure by U.S. Cellular to complete significant network construction and systems implementation activitie s as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
• Difficulties involving third parties with which U.S. Cellular d oes business, including changes in U.S. Cellular's relationships with or financial or operational difficulties of key suppliers or independent agents and third party national retailers who market U.S. Cellular ’s services, could adversely affect U.S. Cellul ar’s business, financial condition or results of operations.
• U.S. Cellular has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on U.S. Cellular’s financial condition or res ults of operations.
• A failure by U.S. Cellular to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• U.S. Cellular has experienced and, in the future, expects to experience c yber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on U.S. Cellula r's business, financial condition or results of operations.
• The market price of U.S. Cellular’s Common Shares is subject to fluctuations due to a variety of factors.
• Changes in facts or circumstances, including new or additional information, could require U.S. Cellular to record charges relating to adjustments of amounts reflected in the financial statements, which could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede U.S. Cellular’s access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resultin g from pending and future litigation could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may in terfere with various electronic medical devices such as pacemakers, could have an adverse effect on U.S. Cellular’s business, financial condition or results of operations.
• Claims of infringement of intellectual property and proprietary rights of others, pr imarily involving patent infringement claims, could prevent U.S. Cellular from using necessary technology to provide products or services or subject U.S. Cellular to expensive intellectual property litigation or monetary penalties, which could have an adve rse effect on U.S. Cellular’s business, financial condition or results of operations.
• There are potential conflicts of interests between TDS and U.S. Cellular.