UNITED STATES CELLULAR CORP, 10-Q filed on 8/4/2017
Quarterly Report
Document And Entity Information
6 Months Ended
Jun. 30, 2017
Entity Registrant Name
United States Cellular Corporation 
Entity Central Index Key
0000821130 
Document Type
10-Q 
Document Period End Date
Jun. 30, 2017 
Amendment Flag
false 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Accelerated Filer 
Document Fiscal Year Focus
2017 
Document Fiscal Period Focus
Q2 
Trading Symbol
USM 
Common Shares
 
Entity Common Stock, Shares Outstanding
52,107,327 
Series A Common Shares
 
Entity Common Stock, Shares Outstanding
33,005,877 
Consolidated Statement Of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Operating revenues
 
 
 
 
Service
$ 740 
$ 774 
$ 1,486 
$ 1,545 
Equipment sales
223 
218 
413 
417 
Total operating revenues
963 
992 
1,899 
1,962 
Operating expenses
 
 
 
 
System operations (excluding Depreciation, amortization and accretion reported below)
189 
193 
364 
376 
Cost of equipment sold
260 
262 
488 
518 
Selling, general and administrative (including charges from affiliates of $21 million and $23 million, respectively, for the three months, and $43 million and $48 million, respectively, for the six months)
351 
357 
691 
719 
Depreciation, amortization and accretion
155 
154 
307 
307 
(Gain) loss on asset disposals, net
10 
(Gain) loss on license sales and exchanges, net
(2)
(9)
(19)
(9)
Total operating expenses
958 
962 
1,840 
1,921 
Operating income
30 
59 
41 
Investment and other income (expense)
 
 
 
 
Equity in earnings of unconsolidated entities
33 
37 
66 
72 
Interest and dividend income
Interest expense
(28)
(28)
(56)
(56)
Other, net
 
(1)
(1)
 
Total investment and other income
10 
14 
19 
Income before income taxes
12 
40 
73 
60 
Income tax expense
 
13 
33 
23 
Net income
12 
27 
40 
37 
Less: Net income attributable to noncontrolling interests, net of tax
 
 
Net income attributable to U.S. Cellular shareholders
$ 12 
$ 27 
$ 38 
$ 36 
Basic weighted average shares outstanding
85 
85 
85 
85 
Basic earnings per share attributable to U.S. Cellular shareholders
$ 0.14 
$ 0.32 
$ 0.45 
$ 0.43 
Diluted weighted average shares outstanding
86 
85 
86 
85 
Diluted earnings per share attributable to U.S. Cellular shareholders
$ 0.14 
$ 0.32 
$ 0.44 
$ 0.43 
Consolidated Statement Of Operations Parenthetical (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Operating expenses
 
 
 
 
Selling, general and administrative, charges from affiliates
$ 21 
$ 23 
$ 43 
$ 48 
Consolidated Statement of Cash Flows (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash flows from operating activities
 
 
Net income
$ 40 
$ 37 
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
 
 
Depreciation, amortization and accretion
307 
307 
Bad debts expense
47 
44 
Stock-based compensation expense
14 
12 
Deferred income taxes, net
(27)
Equity in earnings of unconsolidated entities
(66)
(72)
Distributions from unconsolidated entities
65 
30 
(Gain) loss on asset disposals, net
10 
(Gain) loss on license sales and exchanges, net
(19)
(9)
Noncash interest expense
Other operating activities
 
(2)
Changes in assets and liabilities from operations
 
 
Accounts receivable
(5)
Equipment installment plans receivable
(107)
(94)
Inventory
(2)
(27)
Accounts payable
(53)
35 
Customer deposits and deferred revenues
(6)
(18)
Accrued taxes
45 
41 
Accrued interest
 
(1)
Other assets and liabilities
(23)
(49)
Net cash provided by operating activities
220 
261 
Cash flows from investing activities
 
 
Cash paid for additions to property, plant and equipment
(155)
(177)
Cash paid for licenses
(189)
(46)
Cash received from divestitures and exchanges
17 
17 
Federal Communications Commission deposit
 
(143)
Other investing activities
 
(1)
Net cash used in investing activities
(327)
(350)
Cash flows from financing activities
 
 
Repayment of long-term debt
(6)
(6)
Common shares reissued for benefit plans, net of tax payments
 
Common shares repurchased
 
(2)
Payment of debt issuance costs
 
(2)
Distributions to noncontrolling interests
(2)
(1)
Other financing activities
Net cash used in financing activities
(7)
(5)
Net decrease in cash and cash equivalents
(114)
(94)
Cash and cash equivalents
 
 
Beginning of period
586 
715 
End of period
$ 472 
$ 621 
Consolidated Balance Sheet (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current assets
 
 
Cash and cash equivalents
$ 472 
$ 586 
Accounts receivable
 
 
Customers and agents, less allowances of $51 and $51, respectively
664 
658 
Roaming
16 
16 
Affiliated
Other, less allowances of $1 and $1, respectively
51 
51 
Inventory, net
141 
138 
Prepaid expenses
80 
84 
Other current assets
15 
23 
Total current assets
1,440 
1,558 
Assets held for sale
Licenses
2,226 
1,886 
Goodwill
370 
370 
Investments in unconsolidated entities
414 
413 
Property, plant and equipment
 
 
In service and under construction
7,702 
7,712 
Less: Accumulated depreciation and amortization
5,398 
5,242 
Property, plant and equipment, net
2,304 
2,470 
Other assets and deferred charges
319 
405 
Total assets
7,077 1
7,110 1
Current liabilities
 
 
Current portion of long-term debt
11 
11 
Accounts payable
 
 
Affiliated
12 
Trade
250 
309 
Customer deposits and deferred revenues
183 
190 
Accrued taxes
79 
39 
Accrued compensation
46 
73 
Other current liabilities
74 
84 
Total current liabilities
651 
718 
Deferred liabilities and credits
 
 
Deferred income tax liability, net
799 
826 
Other deferred liabilities and credits
316 
302 
Long-term debt, net
1,613 
1,618 
Commitments and contingencies
   
   
Noncontrolling interests with redemption features
U.S. Cellular shareholders' equity
 
 
Series A Common and Common Shares Authorized 190 shares (50 Series A Common and 140 Common Shares) Issued 88 shares (33 Series A Common and 55 Common Shares) Outstanding 85 shares (33 Series A Common and 52 Common Shares) Par Value ($1.00 per share) ($33 Series A Common and $55 Common Shares)
88 
88 
Additional paid-in capital
1,536 
1,522 
Treasury Shares, at cost, 3 Common Shares
(121)
(136)
Retained earnings
2,183 
2,160 
Total U.S. Cellular shareholders' equity
3,686 
3,634 
Noncontrolling interests
11 
11 
Total equity
3,697 
3,645 
Total liabilities and equity
$ 7,077 1
$ 7,110 1
Consolidated Balance Sheet Parenthetical (USD $)
In Millions, except Per Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Accounts receivable
 
 
Customer and agent allowances
$ 51 
$ 51 
Other allowances
U.S. Cellular shareholders' equity
 
 
Authorized shares
190 
190 
Issued shares
88 
88 
Outstanding shares
85 
85 
Par value
88 
88 
Variable Interest Entities VIEs
 
 
Total VIE assets that can be used to settle only the VIEs' obligations
779 
827 
Total VIE liabilities for which creditors have no recourse
19 
19 
Series A Common Shares
 
 
U.S. Cellular shareholders' equity
 
 
Authorized shares
50 
50 
Issued shares
33 
33 
Outstanding shares
33 
33 
Par value per share
$ 1.00 
$ 1.00 
Par value
33 
33 
Common Shares
 
 
U.S. Cellular shareholders' equity
 
 
Authorized shares
140 
140 
Issued shares
55 
55 
Outstanding shares
52 
52 
Par value per share
$ 1.00 
$ 1.00 
Par value
$ 55 
$ 55 
Treasury shares
Consolidated Statement of Changes in Equity (USD $)
In Millions
Total
Series A Common and Common shares
Additional paid-in capital
Treasury shares
Retained earnings
Total U.S. Cellular shareholders' equity
Noncontrolling interests
Beginning balance at Dec. 31, 2015
$ 3,571 
$ 88 
$ 1,497 
$ (157)
$ 2,133 
$ 3,561 
$ 10 
Net income attributable to U.S. Cellular shareholders
36 
 
 
 
36 
36 
 
Net income attributable to noncontrolling interests classified as equity
 
 
 
 
 
Repurchase of Common shares
(2)
 
 
(2)
 
(2)
 
Incentive and compensation plans
 
 
22 
(19)
 
Stock-based compensation awards
13 
 
13 
 
 
13 
 
Distributions to noncontrolling interests
(1)
 
 
 
 
 
(1)
Ending balance at Jun. 30, 2016
3,621 
88 
1,510 
(137)
2,150 
3,611 
10 
Beginning balance at Dec. 31, 2016
3,645 
88 
1,522 
(136)
2,160 
3,634 
11 
Net income attributable to U.S. Cellular shareholders
38 
 
 
 
38 
38 
 
Net income attributable to noncontrolling interests classified as equity
 
 
 
 
 
Incentive and compensation plans
 
 
 
15 
(15)
 
 
Stock-based compensation awards
14 
 
14 
 
 
14 
 
Distributions to noncontrolling interests
(2)
 
 
 
 
 
(2)
Ending balance at Jun. 30, 2017
$ 3,697 
$ 88 
$ 1,536 
$ (121)
$ 2,183 
$ 3,686 
$ 11 
Basis of Presentation
Basis of Presentation

Note 1 Basis of Presentation

United States Cellular Corporation (U.S. Cellular), a Delaware corporation, is an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).

The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).  The consolidated financial statements include the accounts of U.S. Cellular, subsidiaries in which it has a controlling financial interest, general partnerships in which U.S. Cellular has a majority partnership interest and certain entities in which U.S. Cellular has a variable interest that require consolidation under GAAP.  All material intercompany accounts and transactions have been eliminated.

The unaudited consolidated financial statements included herein have been prepared by U.S. Cellular pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  However, U.S. Cellular believes that the disclosures included herein are adequate to make the information presented not misleading.  Certain numbers included herein are rounded to millions for ease of presentation; however, calculated amounts and percentages are determined using the unrounded numbers.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in U.S. Cellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2016.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of U.S. Cellular’s financial position as of June 30, 2017 and December 31, 2016, its results of operations for the three and six months ended June 30, 2017 and 2016, and its cash flows and changes in equity for the six months ended June 30, 2017 and 2016.  The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and six months ended June 30, 2017 and 2016, equaled net income.  These results are not necessarily indicative of the results to be expected for the full year.  U.S. Cellular has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2016, except as described below.

Equipment Installment Plans

U.S. Cellular equipment revenue under equipment installment plan contracts is recognized at the time the device is delivered to the end-user customer for the selling price of the device, net of any deferred imputed interest or trade-in right, if applicable.  Imputed interest is reflected as a reduction to the receivable balance and recognized over the duration of the plan as Service revenues.  See Note 3 — Equipment Installment Plans.  Effective January 1, 2017, U.S. Cellular elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations.  U.S. Cellular believes this classification is preferable because financing of devices as part of enrolling customers for service is an activity that is central to U.S. Cellular’s operations, and it is consistent with the presentation by others in the industry.  Comparative financial statements of prior years have been adjusted to apply the new classification retrospectively.  As a result of this change in classification, Service revenues for the three and six months ended June 30, 2016, increased by $12 million and $24 million, respectively, from previously reported amounts, with a corresponding decrease in Interest and dividend income.  In comparison, Service revenues for the three and six months ended June 30, 2017, include $17 million and $33 million, respectively, of equipment installment plan interest income.  This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three or six months ended June 30, 2016, nor did it have a cumulative impact to Retained earnings as of any date presented.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09) and has since amended the standard with Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.  These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.  U.S. Cellular is required to adopt ASU 2014-09, as amended, on January 1, 2018.  Early adoption as of January 1, 2017, is permitted; however, U.S. Cellular did not adopt early.  ASU 2014-09, as amended, impacts U.S. Cellular’s revenue recognition related to the allocation of contract revenues between various services and equipment, and the timing of when those revenues are recognized.  In addition, ASU 2014-09 requires deferral of incremental contract acquisition and fulfillment costs and subsequent expense recognition over the contract period or expected customer life.  U.S. Cellular has identified that new systems, processes and controls are required to adopt ASU 2014-09, as amended.  U.S. Cellular has substantially completed the design and development of new systems to perform revenue recognition accounting under the provisions of ASU 2014-09, as amended, and is currently engaged in the process of testing these new systems.  U.S. Cellular expects to transition to the new standard under the modified retrospective transition method whereby a cumulative effect adjustment to retained earnings is recognized upon adoption and the guidance is applied prospectively.  Upon adoption, the cumulative effect adjustment is expected to include the establishment of contract asset and contract liability accounts with a corresponding adjustment to retained earnings to reflect the reallocation of revenues between service and equipment performance obligations for which control is transferred to customers in different periods.  Reallocation impacts generally arise when bundle discounts are provided in a contract arrangement that includes equipment and service performance obligations.  In these cases, the revenue will be reallocated according to the relative stand-alone selling prices of the performance obligations included in the bundle and this may be different than how the revenue is billed to the customer and recognized under current guidance.  In addition, contract cost assets will be established to reflect costs that will be deferred as incremental contract acquisition costs.  Incremental contract acquisition costs generally relate to commissions paid to sales associates.  U.S. Cellular is evaluating the effects that adoption of ASU 2014-09, as amended, will have on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02).  ASU 2016-02 requires lessees to record a right-of-use asset and lease liability for almost all leases.  This ASU does not substantially impact the lessor accounting model.  However, some changes to the lessor accounting guidance were made to align with lessee accounting changes within Accounting Standards Codification (ASC) 842, Leases and certain key aspects of ASC 606, Revenue from Contracts with Customers.  U.S. Cellular is required to adopt ASU 2016-02 on January 1, 2019.  Early adoption is permitted.  Upon adoption of ASU 2016-02, U.S. Cellular expects a substantial increase to assets and liabilities on its balance sheet.  U.S. Cellular is evaluating the effects that adoption of ASU 2016-02 will have on its results of operations.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13).  ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses.  It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances.  U.S. Cellular is required to adopt ASU 2016-13 on January 1, 2020.  Early adoption as of January 1, 2019 is permitted.  U.S. Cellular is evaluating the effects that adoption of ASU 2016-13 will have on its financial position, results of operations and disclosures.

In December 2016, the FASB issued Accounting Standards Update 2016-19 Technical Corrections and Improvements (ASU 2016-19).  ASU 2016-19 includes an amendment to Accounting Standards Codification Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which clarifies that a software license within the scope of the Subtopic will be accounted for as the acquisition of an intangible asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition.  U.S. Cellular adopted this standard prospectively for all arrangements entered into or materially modified after January 1, 2017.

In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04).  ASU 2017-04 eliminates Step 2 of the current goodwill impairment test.  Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value.  U.S. Cellular is required to adopt ASU 2017-04 on January 1, 2020.  Early adoption is permitted.  U.S. Cellular is assessing whether it will early adopt ASU 2017-04.

In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05).  ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets.  U.S. Cellular is required to adopt ASU 2017-05 on January 1, 2018.  Early adoption is permitted.  The adoption of ASU 2017-05 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (ASU 2017-09).  ASU 2017-09 clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as modifications.  U.S. Cellular is required to adopt ASU 2017-09 on January 1, 2018.  Early adoption is permitted.  The adoption of ASU 2017-09 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

Amounts Collected from Customers and Remitted to Governmental Authorities

U.S. Cellular records amounts collected from customers and remitted to governmental authorities on a net basis within a tax liability account if the tax is assessed upon the customer and U.S. Cellular merely acts as an agent in collecting the tax on behalf of the imposing governmental authority.  If the tax is assessed upon U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations.  The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $14 million and $28 million for the three and six months ended June 30, 2017, respectively, and $16 million and $34 million for the three and six months ended June 30, 2016, respectively.

Fair Value Measurements
Fair Value Measurements

Note 2 Fair Value Measurements

As of June 30, 2017 and December 31, 2016, U.S. Cellular did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements.  Level 1 inputs include quoted market prices for identical assets or liabilities in active markets.  Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets.  Level 3 inputs are unobservable.  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.

U.S. Cellular has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

 

 

 

Level within the Fair Value Hierarchy

 

June 30, 2017

 

December 31, 2016

 

 

 

 

Book Value

 

Fair Value

 

Book Value

 

Fair Value

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

1

 

$

472 

 

$

472 

 

$

586 

 

$

586 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

2

 

 

917 

 

 

966 

 

 

917 

 

 

929 

 

Institutional

2

 

 

533 

 

 

552 

 

 

533 

 

 

532 

 

Other

2

 

 

197 

 

 

197 

 

 

203 

 

 

203 

 

The fair value of Cash and cash equivalents approximates the book value due to the short-term nature of these financial instruments.  Long-term debt excludes capital lease obligations and the current portion of Long-term debt.  The fair value of “Retail” Long-term debt was estimated using market prices for the 6.95% Senior Notes, 7.25% 2063 Senior Notes and 7.25% 2064 Senior Notes.  U.S. Cellular’s “Institutional” debt consists of the 6.7% Senior Notes which are traded over the counter.  U.S. Cellular’s “Other” debt consists of a senior term loan credit facility.  U.S. Cellular estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 3.88% to 6.55% and 3.78% to 6.93% at June 30, 2017 and December 31, 2016, respectively.

Equipment Installment Plans
Equipment Installment Plans

Note 3 Equipment Installment Plans

U.S. Cellular sells devices to customers under equipment installment contracts over a specified time period.  For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.  U.S. Cellular values this trade-in right as a guarantee liability.  The guarantee liability is initially measured at fair value and is determined based on assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the device being traded-in at the time of trade-in.  When a customer exercises the trade-in option, the difference between the outstanding receivable balance forgiven and the fair value of the used device is offset against the guarantee liability.  If the customer does not exercise the trade-in option at the time of eligibility, U.S. Cellular begins amortizing the liability and records this amortization as additional equipment revenue.  As of June 30, 2017 and December 31, 2016, the guarantee liability related to these plans was $24 million and $33 million, respectively, and is reflected in Customer deposits and deferred revenues in the Consolidated Balance Sheet.

U.S. Cellular equipment installment plans do not provide for explicit interest charges.  Because equipment installment plans have a duration of greater than twelve months, U.S. Cellular imputes interest.  U.S. Cellular records imputed interest as a reduction to the related accounts receivable and recognizes it over the term of the installment agreement.  Equipment installment plan receivables had a weighted average effective imputed interest rate of 12.1% and 11.2% as of June 30, 2017 and December 31, 2016, respectively.

The following table summarizes equipment installment plan receivables as of June 30, 2017 and December 31, 2016.

 

 

June 30, 2017

 

December 31, 2016

(Dollars in millions)

 

 

 

 

 

 

Equipment installment plan receivables, gross

 

$

722 

 

$

628 

Deferred interest

 

 

(63)

 

 

(53)

Equipment installment plan receivables, net of deferred interest

 

 

659 

 

 

575 

Allowance for credit losses

 

 

(57)

 

 

(50)

Equipment installment plan receivables, net

 

$

602 

 

$

525 

 

 

 

 

 

 

 

Net balance presented in the Consolidated Balance Sheet as:

 

 

 

 

 

 

Accounts receivable — Customers and agents (Current portion)

 

$

363 

 

$

345 

Other assets and deferred charges (Non-current portion)

 

 

239 

 

 

180 

Equipment installment plan receivables, net

 

$

602 

 

$

525 

 

 

U.S. Cellular uses various inputs, including internal data, information from the credit bureaus and other sources, to evaluate the credit profiles of its customers.  From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any.  Customers assigned to credit classes requiring no down payment represent a lower risk category, whereas those assigned to credit classes requiring a down payment represent a higher risk category.  The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:

 

 

June 30, 2017

 

December 31, 2016

 

 

Lower Risk

 

Higher Risk

 

Total

 

Lower Risk

 

Higher Risk

 

Total

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled

 

$

636 

 

$

48 

 

$

684 

 

$

553 

 

$

38 

 

$

591 

Billed — current

 

 

25 

 

 

2 

 

 

27 

 

 

23 

 

 

2 

 

 

25 

Billed — past due

 

 

9 

 

 

2 

 

 

11 

 

 

10 

 

 

2 

 

 

12 

Equipment installment plan receivables, gross

 

$

670 

 

$

52 

 

$

722 

 

$

586 

 

$

42 

 

$

628 

 

 

Activity for the six months ended June 30, 2017 and 2016, in the allowance for credit losses balance for the equipment installment plan receivables was as follows:

 

 

June 30, 2017

 

June 30, 2016

(Dollars in millions)

 

 

 

 

 

 

Allowance for credit losses, beginning of period

 

$

50 

 

$

26 

Bad debts expense

 

 

31 

 

 

28 

Write-offs, net of recoveries

 

 

(24)

 

 

(17)

Allowance for credit losses, end of period

 

$

57 

 

$

37 

 

Earnings Per Share
Earnings per Share

Note 4 Earnings Per Share

Basic earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income attributable to U.S. Cellular shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income attributable to U.S. Cellular shareholders by the weighted average number of common shares outstanding during the period adjusted to include the effects of potentially dilutive securities.  Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.

The amounts used in computing earnings per common share and the effects of potentially dilutive securities on the weighted average number of common shares were as follows:

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2017

 

2016

 

2017

 

2016

(Dollars and shares in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to U.S. Cellular shareholders

$

12 

 

$

27 

 

$

38 

 

$

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic

  earnings per share

 

85 

 

 

85 

 

 

85 

 

 

85 

Effects of dilutive securities

 

1 

 

 

 

 

 

1 

 

 

 

Weighted average number of shares used in diluted

  earnings per share

 

86 

 

 

85 

 

 

86 

 

 

85 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to U.S. Cellular

  shareholders

$

0.14 

 

$

0.32 

 

$

0.45 

 

$

0.43 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to

  U.S. Cellular shareholders

$

0.14 

 

$

0.32 

 

$

0.44 

 

$

0.43 

 

 

Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in average diluted shares outstanding for the calculation of Diluted earnings per share attributable to U.S. Cellular shareholders because their effects were antidilutive.  The number of such Common Shares excluded was 3 million shares for both the three and six months ended June 30, 2017, and 3 million shares for both the three and six months ended June 30, 2016.

Acquisitions, Divestitures and Exchanges
Acquisitions, Divestitures and Exchanges

Note 5 Acquisitions, Divestitures and Exchanges

In February 2016, U.S. Cellular entered into an agreement with a third party to exchange certain 700 MHz licenses for certain AWS and PCS licenses and $28 million of cash.  This license exchange was accomplished in two closings.  The first closing occurred in the second quarter of 2016, at which time U.S. Cellular received $13 million of cash and recorded a gain of $9 million.  The second closing occurred in the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million.

In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002.  Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016 to establish its initial bidding eligibility.  In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million.  U.S. Cellular paid the remaining $186 million to the FCC and was granted the licenses during the second quarter of 2017.

Intangible Assets
Intangible Assets

Note 6 Intangible Assets

Activity related to Licenses for the six months ended June 30, 2017, is presented below.  There were no changes to Goodwill during the six months ended June 30, 2017.

Licenses

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

 

 

Balance December 31, 2016

$

1,886 

 

Acquisitions

 

331 

 

Transferred to Assets held for sale

 

(4)

 

Exchanges - Licenses received

 

14 

 

Exchanges - Licenses surrendered

 

(1)

Balance June 30, 2017

$

2,226 

 

Investments in Unconsolidated Entities
Investments in Unconsolidated Entities

Note 7 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S. Cellular holds a noncontrolling interest.  These investments are accounted for using either the equity or cost method.

The following table, which is based in part on information provided by third parties, summarizes the combined results of operations of U.S. Cellular’s equity method investments.

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

1,630 

 

$

1,636 

 

$

3,239 

 

$

3,318 

Operating expenses

 

1,224 

 

 

1,168 

 

 

2,435 

 

 

2,398 

Operating income

 

406 

 

 

468 

 

 

804 

 

 

920 

Other expense, net

 

(1)

 

 

(3)

 

 

(1)

 

 

(6)

Net income

$

405 

 

$

465 

 

$

803 

 

$

914 

 

Variable Interest Entities
Variable Interest Entities

Note 8 Variable Interest Entities

Consolidated VIEs

U.S. Cellular consolidates variable interest entities (VIEs) in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary.  A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE.  U.S. Cellular reviews these criteria initially at the time it enters into agreements and subsequently when events warranting reconsideration occur.  These VIEs have risks similar to those described in the “Risk Factors” in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.

During the first quarter of 2017, U.S. Cellular formed USCC EIP LLC, a special purpose entity (SPE), to facilitate a potential securitized borrowing using its equipment installment plan receivables in the future.  Under a Receivables Sale Agreement, U.S. Cellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment contracts to USCC EIP LLC.  This SPE will aggregate device equipment installment plan contracts for further transfer into a separate bankruptcy remote securitization trust structure, perform servicing, collection and all other administrative activities related to accounting for equipment installment plan contracts. 

USCC EIP LLC’s sole business consists of the acquisition of the receivables from U.S. Cellular affiliated entities for the future transfer of receivables into a trust.  Given that U.S. Cellular has the power to direct the activities of this SPE, and that this SPE lacks sufficient equity to finance its activities, U.S. Cellular is deemed to have a controlling financial interest in the SPE and, therefore, consolidates it.

During the six months ended June 30, 2017, net equipment installment plan receivables totaling $883 million were transferred to the newly formed SPE from affiliated entities.  There were no receivables transferred as of December 31, 2016.  Because U.S. Cellular fully consolidates USCC EIP LLC, the transfer of receivables into this SPE did not have a material impact to the consolidated financial statements of U.S. Cellular.  As of June 30, 2017, U.S. Cellular had not executed a securitized borrowing from a third party specific to its equipment installment plan receivables. 

The following VIEs were formed to participate in FCC auctions of wireless spectrum and to fund, establish, and provide wireless service with respect to any FCC licenses won in the auctions:

  • Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc. (Sunshine Spectrum), the general partner of Advantage Spectrum (former general partner was Frequency Advantage, L.P. (Frequency Advantage));
  • Aquinas Wireless, L.P. (Aquinas Wireless); and
  • King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.

 

These particular VIEs are collectively referred to as designated entities.  The power to direct the activities that most significantly impact the economic performance of these VIEs is shared.  Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships.  The general partner of each partnership needs the consent of the limited partner, an indirect U.S. Cellular subsidiary, to sell or lease certain licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships.  Although the power to direct the activities of these VIEs is shared, U.S. Cellular has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that U.S. Cellular is the primary beneficiary of the VIEs.  Therefore, in accordance with GAAP, these VIEs are consolidated.

In January 2017, Sunshine Spectrum and the other owner of Frequency Advantage (the previous general partner of Advantage Spectrum) completed a series of transactions whereby Frequency Advantage was dissolved and Sunshine Spectrum became the new general partner of Advantage Spectrum.  Consistent with its previous treatment of Frequency Advantage and in accordance with GAAP, U.S. Cellular consolidates Sunshine Spectrum in its financial statements. 

U.S. Cellular also consolidates other VIEs that are limited partnerships that provide wireless service.  A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner.  For certain limited partnerships, U.S. Cellular is the general partner and manages the operations.  In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner.  Therefore, these limited partnerships are also recognized as VIEs and are consolidated under the variable interest model. 


The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in U.S. Cellular’s Consolidated Balance Sheet.

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

$

2 

 

$

2 

 

Accounts receivable

 

404 

 

 

44 

 

Other current assets

 

6 

 

 

6 

 

Assets held for sale

 

 

 

 

2 

 

Licenses

 

655 

 

 

652 

 

Property, plant and equipment, net

 

98 

 

 

105 

 

Other assets and deferred charges

 

242 

 

 

16 

 

 

Total assets

$

1,407 

 

$

827 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities

$

42 

 

$

21 

 

Deferred liabilities and credits

 

13 

 

 

13 

 

 

Total liabilities

$

55 

 

$

34 

 

 

Unconsolidated VIEs

U.S. Cellular manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.

U.S. Cellular’s total investment in these unconsolidated entities was $4 million and $6 million at June 30, 2017 and December 31, 2016, respectively, and is included in Investments in unconsolidated entities in U.S. Cellular’s Consolidated Balance Sheet.  The maximum exposure from unconsolidated VIEs is limited to the investment held by U.S. Cellular in those entities. 

Other Related Matters

U.S. Cellular made contributions, loans and/or advances to its VIEs totaling $676 million, of which $659 million is related to USCC EIP LLC as discussed above, and $26 million during the six months ended June 30, 2017 and June 30, 2016, respectively.  U.S. Cellular may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of licenses granted in various auctions.  U.S. Cellular may finance such amounts with a combination of cash on hand, borrowings under its revolving credit agreement and/or other long-term debt.  There is no assurance that U.S. Cellular will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Significant Accounting Policies)

The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).  The consolidated financial statements include the accounts of U.S. Cellular, subsidiaries in which it has a controlling financial interest, general partnerships in which U.S. Cellular has a majority partnership interest and certain entities in which U.S. Cellular has a variable interest that require consolidation under GAAP.  All material intercompany accounts and transactions have been eliminated.

The unaudited consolidated financial statements included herein have been prepared by U.S. Cellular pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  However, U.S. Cellular believes that the disclosures included herein are adequate to make the information presented not misleading.  Certain numbers included herein are rounded to millions for ease of presentation; however, calculated amounts and percentages are determined using the unrounded numbers.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in U.S. Cellular’s Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2016.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of U.S. Cellular’s financial position as of June 30, 2017 and December 31, 2016, its results of operations for the three and six months ended June 30, 2017 and 2016, and its cash flows and changes in equity for the six months ended June 30, 2017 and 2016.  The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and six months ended June 30, 2017 and 2016, equaled net income.  These results are not necessarily indicative of the results to be expected for the full year.  U.S. Cellular has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2016, except as described below.

U.S. Cellular equipment revenue under equipment installment plan contracts is recognized at the time the device is delivered to the end-user customer for the selling price of the device, net of any deferred imputed interest or trade-in right, if applicable.  Imputed interest is reflected as a reduction to the receivable balance and recognized over the duration of the plan as Service revenues.  See Note 3 — Equipment Installment Plans.  Effective January 1, 2017, U.S. Cellular elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations.  U.S. Cellular believes this classification is preferable because financing of devices as part of enrolling customers for service is an activity that is central to U.S. Cellular’s operations, and it is consistent with the presentation by others in the industry.  Comparative financial statements of prior years have been adjusted to apply the new classification retrospectively.  As a result of this change in classification, Service revenues for the three and six months ended June 30, 2016, increased by $12 million and $24 million, respectively, from previously reported amounts, with a corresponding decrease in Interest and dividend income.  In comparison, Service revenues for the three and six months ended June 30, 2017, include $17 million and $33 million, respectively, of equipment installment plan interest income.  This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three or six months ended June 30, 2016, nor did it have a cumulative impact to Retained earnings as of any date presented.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09) and has since amended the standard with Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.  These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.  U.S. Cellular is required to adopt ASU 2014-09, as amended, on January 1, 2018.  Early adoption as of January 1, 2017, is permitted; however, U.S. Cellular did not adopt early.  ASU 2014-09, as amended, impacts U.S. Cellular’s revenue recognition related to the allocation of contract revenues between various services and equipment, and the timing of when those revenues are recognized.  In addition, ASU 2014-09 requires deferral of incremental contract acquisition and fulfillment costs and subsequent expense recognition over the contract period or expected customer life.  U.S. Cellular has identified that new systems, processes and controls are required to adopt ASU 2014-09, as amended.  U.S. Cellular has substantially completed the design and development of new systems to perform revenue recognition accounting under the provisions of ASU 2014-09, as amended, and is currently engaged in the process of testing these new systems.  U.S. Cellular expects to transition to the new standard under the modified retrospective transition method whereby a cumulative effect adjustment to retained earnings is recognized upon adoption and the guidance is applied prospectively.  Upon adoption, the cumulative effect adjustment is expected to include the establishment of contract asset and contract liability accounts with a corresponding adjustment to retained earnings to reflect the reallocation of revenues between service and equipment performance obligations for which control is transferred to customers in different periods.  Reallocation impacts generally arise when bundle discounts are provided in a contract arrangement that includes equipment and service performance obligations.  In these cases, the revenue will be reallocated according to the relative stand-alone selling prices of the performance obligations included in the bundle and this may be different than how the revenue is billed to the customer and recognized under current guidance.  In addition, contract cost assets will be established to reflect costs that will be deferred as incremental contract acquisition costs.  Incremental contract acquisition costs generally relate to commissions paid to sales associates.  U.S. Cellular is evaluating the effects that adoption of ASU 2014-09, as amended, will have on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02).  ASU 2016-02 requires lessees to record a right-of-use asset and lease liability for almost all leases.  This ASU does not substantially impact the lessor accounting model.  However, some changes to the lessor accounting guidance were made to align with lessee accounting changes within Accounting Standards Codification (ASC) 842, Leases and certain key aspects of ASC 606, Revenue from Contracts with Customers.  U.S. Cellular is required to adopt ASU 2016-02 on January 1, 2019.  Early adoption is permitted.  Upon adoption of ASU 2016-02, U.S. Cellular expects a substantial increase to assets and liabilities on its balance sheet.  U.S. Cellular is evaluating the effects that adoption of ASU 2016-02 will have on its results of operations.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13).  ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses.  It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances.  U.S. Cellular is required to adopt ASU 2016-13 on January 1, 2020.  Early adoption as of January 1, 2019 is permitted.  U.S. Cellular is evaluating the effects that adoption of ASU 2016-13 will have on its financial position, results of operations and disclosures.

In December 2016, the FASB issued Accounting Standards Update 2016-19 Technical Corrections and Improvements (ASU 2016-19).  ASU 2016-19 includes an amendment to Accounting Standards Codification Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which clarifies that a software license within the scope of the Subtopic will be accounted for as the acquisition of an intangible asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition.  U.S. Cellular adopted this standard prospectively for all arrangements entered into or materially modified after January 1, 2017.

In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04).  ASU 2017-04 eliminates Step 2 of the current goodwill impairment test.  Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value.  U.S. Cellular is required to adopt ASU 2017-04 on January 1, 2020.  Early adoption is permitted.  U.S. Cellular is assessing whether it will early adopt ASU 2017-04.

In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05).  ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets.  U.S. Cellular is required to adopt ASU 2017-05 on January 1, 2018.  Early adoption is permitted.  The adoption of ASU 2017-05 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (ASU 2017-09).  ASU 2017-09 clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as modifications.  U.S. Cellular is required to adopt ASU 2017-09 on January 1, 2018.  Early adoption is permitted.  The adoption of ASU 2017-09 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

U.S. Cellular consolidates variable interest entities (VIEs) in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary.  A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE.  U.S. Cellular reviews these criteria initially at the time it enters into agreements and subsequently when events warranting reconsideration occur.  These VIEs have risks similar to those described in the “Risk Factors” in U.S. Cellular’s Form 10-K for the year ended December 31, 2016.

Fair Value Measurements (Table)
Fair value measurements

U.S. Cellular has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

 

 

 

Level within the Fair Value Hierarchy

 

June 30, 2017

 

December 31, 2016

 

 

 

 

Book Value

 

Fair Value

 

Book Value

 

Fair Value

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

1

 

$

472 

 

$

472 

 

$

586 

 

$

586 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

2

 

 

917 

 

 

966 

 

 

917 

 

 

929 

 

Institutional

2

 

 

533 

 

 

552 

 

 

533 

 

 

532 

 

Other

2

 

 

197 

 

 

197 

 

 

203 

 

 

203 

 

Equipment Installment Plans (Table)

The following table summarizes equipment installment plan receivables as of June 30, 2017 and December 31, 2016.

 

 

June 30, 2017

 

December 31, 2016

(Dollars in millions)

 

 

 

 

 

 

Equipment installment plan receivables, gross

 

$

722 

 

$

628 

Deferred interest

 

 

(63)

 

 

(53)

Equipment installment plan receivables, net of deferred interest

 

 

659 

 

 

575 

Allowance for credit losses

 

 

(57)

 

 

(50)

Equipment installment plan receivables, net

 

$

602 

 

$

525 

 

 

 

 

 

 

 

Net balance presented in the Consolidated Balance Sheet as:

 

 

 

 

 

 

Accounts receivable — Customers and agents (Current portion)

 

$

363 

 

$

345 

Other assets and deferred charges (Non-current portion)

 

 

239 

 

 

180 

Equipment installment plan receivables, net

 

$

602 

 

$

525 

 

The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:

 

 

June 30, 2017

 

December 31, 2016

 

 

Lower Risk

 

Higher Risk

 

Total

 

Lower Risk

 

Higher Risk

 

Total

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled

 

$

636 

 

$

48 

 

$

684 

 

$

553 

 

$

38 

 

$

591 

Billed — current

 

 

25 

 

 

2 

 

 

27 

 

 

23 

 

 

2 

 

 

25 

Billed — past due

 

 

9 

 

 

2 

 

 

11 

 

 

10 

 

 

2 

 

 

12 

Equipment installment plan receivables, gross

 

$

670 

 

$

52 

 

$

722 

 

$

586 

 

$

42 

 

$

628 

 

Activity for the six months ended June 30, 2017 and 2016, in the allowance for credit losses balance for the equipment installment plan receivables was as follows:

 

 

June 30, 2017

 

June 30, 2016

(Dollars in millions)

 

 

 

 

 

 

Allowance for credit losses, beginning of period

 

$

50 

 

$

26 

Bad debts expense

 

 

31 

 

 

28 

Write-offs, net of recoveries

 

 

(24)

 

 

(17)

Allowance for credit losses, end of period

 

$

57 

 

$

37 

 

Earnings Per Share (Tables)
Earnings per share

The amounts used in computing earnings per common share and the effects of potentially dilutive securities on the weighted average number of common shares were as follows:

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2017

 

2016

 

2017

 

2016

(Dollars and shares in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to U.S. Cellular shareholders

$

12 

 

$

27 

 

$

38 

 

$

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic

  earnings per share

 

85 

 

 

85 

 

 

85 

 

 

85 

Effects of dilutive securities

 

1 

 

 

 

 

 

1 

 

 

 

Weighted average number of shares used in diluted

  earnings per share

 

86 

 

 

85 

 

 

86 

 

 

85 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to U.S. Cellular

  shareholders

$

0.14 

 

$

0.32 

 

$

0.45 

 

$

0.43 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to

  U.S. Cellular shareholders

$

0.14 

 

$

0.32 

 

$

0.44 

 

$

0.43 

 

Intangible Assets (Tables)
Licenses

Activity related to Licenses for the six months ended June 30, 2017, is presented below.  There were no changes to Goodwill during the six months ended June 30, 2017.

Licenses

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

 

 

Balance December 31, 2016

$

1,886 

 

Acquisitions

 

331 

 

Transferred to Assets held for sale

 

(4)

 

Exchanges - Licenses received

 

14 

 

Exchanges - Licenses surrendered

 

(1)

Balance June 30, 2017

$

2,226 

 

Investment in Unconsolidated Entities (Tables)
Equity method investments, summarized results of operations

The following table, which is based in part on information provided by third parties, summarizes the combined results of operations of U.S. Cellular’s equity method investments.

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

1,630 

 

$

1,636 

 

$

3,239 

 

$

3,318 

Operating expenses

 

1,224 

 

 

1,168 

 

 

2,435 

 

 

2,398 

Operating income

 

406 

 

 

468 

 

 

804 

 

 

920 

Other expense, net

 

(1)

 

 

(3)

 

 

(1)

 

 

(6)

Net income

$

405 

 

$

465 

 

$

803 

 

$

914 

 

Variable Interest Entities (Tables)
Consolidated VIE assets and liabilities

The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in U.S. Cellular’s Consolidated Balance Sheet.

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

$

2 

 

$

2 

 

Accounts receivable

 

404 

 

 

44 

 

Other current assets

 

6 

 

 

6 

 

Assets held for sale

 

 

 

 

2 

 

Licenses

 

655 

 

 

652 

 

Property, plant and equipment, net

 

98 

 

 

105 

 

Other assets and deferred charges

 

242 

 

 

16 

 

 

Total assets

$

1,407 

 

$

827 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities

$

42 

 

$

21 

 

Deferred liabilities and credits

 

13 

 

 

13 

 

 

Total liabilities

$

55 

 

$

34 

 

Basis of Presentation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Basis of Presentation [Line Items]
 
 
 
 
Amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities
$ 14 
$ 16 
$ 28 
$ 34 
Equipment Installment Plans Accounting Change
 
 
 
 
Service revenue
740 
774 
1,486 
1,545 
Interest and dividend income
Adjustment
 
 
 
 
Equipment Installment Plans Accounting Change
 
 
 
 
Service revenue
17 
12 
33 
24 
Interest and dividend income
 
$ (12)
 
$ (24)
TDS
 
 
 
 
Basis of Presentation [Line Items]
 
 
 
 
TDS ownership of U.S. Cellular
83.00% 
 
83.00% 
 
Fair Value Measurements (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended 12 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2017
Dec. 31, 2016
Jun. 30, 2016
Dec. 31, 2015
Jun. 30, 2017
Institutional and Other
Minimum
Dec. 31, 2016
Institutional and Other
Minimum
Jun. 30, 2017
Institutional and Other
Maximum
Dec. 31, 2016
Institutional and Other
Maximum
Jun. 30, 2017
Fair Value
Level 1
Dec. 31, 2016
Fair Value
Level 1
Jun. 30, 2017
Fair Value
Level 2
Retail
Dec. 31, 2016
Fair Value
Level 2
Retail
Jun. 30, 2017
Fair Value
Level 2
Institutional
Dec. 31, 2016
Fair Value
Level 2
Institutional
Jun. 30, 2017
Fair Value
Level 2
Other
Dec. 31, 2016
Fair Value
Level 2
Other
Jun. 30, 2017
Book Value
Dec. 31, 2016
Book Value
Jun. 30, 2017
Book Value
Retail
Dec. 31, 2016
Book Value
Retail
Jun. 30, 2017
Book Value
Institutional
Dec. 31, 2016
Book Value
Institutional
Jun. 30, 2017
Book Value
Other
Dec. 31, 2016
Book Value
Other
Financial Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$ 472 
$ 586 
$ 621 
$ 715 
 
 
 
 
$ 472 
$ 586 
 
 
 
 
 
 
$ 472 
$ 586 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
 
$ 966 
$ 929 
$ 552 
$ 532 
$ 197 
$ 203 
 
 
$ 917 
$ 917 
$ 533 
$ 533 
$ 197 
$ 203 
Fair value assumption, interest rate
 
 
 
 
3.88% 
3.78% 
6.55% 
6.93% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment Installment Plan Receivables, EIP Receivables (Details) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Equipment installment plans [Line Items]
 
 
Equipment installment plan receivables, gross
$ 722 
$ 628 
Deferred interest
(63)
(53)
Equipment installment plan receivables, net of deferred interest
659 
575 
Allowance for credit losses
(57)
(50)
Equipment installment plan receivables, net
602 
525 
Accounts receivable - Customers and agents
 
 
Equipment installment plans [Line Items]
 
 
Equipment installment plan receivables, net
363 
345 
Other assets and deferred charges
 
 
Equipment installment plans [Line Items]
 
 
Equipment installment plan receivables, net
$ 239 
$ 180 
Equipment Installment Plan Receivables, Gross Receivables by Credit Category (Details) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables, gross
$ 722 
$ 628 
Unbilled
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
684 
591 
Billed
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
27 
25 
Equipment installment plan receivables, past due
11 
12 
Lower Risk
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables, gross
670 
586 
Lower Risk |
Unbilled
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
636 
553 
Lower Risk |
Billed
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
25 
23 
Equipment installment plan receivables, past due
10 
Higher Risk
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables, gross
52 
42 
Higher Risk |
Unbilled
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
48 
38 
Higher Risk |
Billed
 
 
Financing Receivable, Recorded Investment [Line Items]
 
 
Equipment installment plan receivables
Equipment installment plan receivables, past due
$ 2 
$ 2 
Equipment Installment Plan Receivables, Allowance for Credit Losses (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Dec. 31, 2016
Jun. 30, 2017
Equipment Installment Plan Receivable
Jun. 30, 2016
Equipment Installment Plan Receivable
Financing Receivable, Allowance for Credit Losses [Roll Forward]
 
 
 
 
Allowance for credit losses, beginning of period
$ 57 
$ 50 
$ 50 
$ 26 
Bad debts expense
 
 
31 
28 
Write-offs, net of recoveries
 
 
(24)
(17)
Allowance for credit losses, end of period
$ 57 
$ 50 
$ 57 
$ 37 
Equipment Installment Plan Receivables, Narrative (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2017
Dec. 31, 2016
Equipment installment plans [Line Items]
 
 
Guarantee liability
$ 24 
$ 33 
Imputed interest rate
12.10% 
11.20% 
Earnings Per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Earnings per share
 
 
 
 
Net income attributable to U.S. Cellular shareholders
$ 12 
$ 27 
$ 38 
$ 36 
Weighted average number of shares used in basic earnings per share
85 
85 
85 
85 
Effects of dilutive securities
 
 
Weighted average number of shares used in diluted earnings per share
86 
85 
86 
85 
Basic earnings per share attributable to U.S. Cellular shareholders
$ 0.14 
$ 0.32 
$ 0.45 
$ 0.43 
Diluted earnings per share attributable to U.S. Cellular shareholders
$ 0.14 
$ 0.32 
$ 0.44 
$ 0.43 
Earnings per share, Other disclosures
 
 
 
 
Antidilutive securities
Acquisitions, Divestitures and Exchanges (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Feb. 29, 2016
License exchange 1
Jun. 30, 2016
License exchange 1, first closing
Mar. 31, 2017
License exchange 1, second closing
Apr. 30, 2017
Auction 1002
Jun. 30, 2016
Auction 1002
Jun. 30, 2017
Auction 1002
Acquisitions
 
 
 
 
 
 
 
 
 
 
Cash paid for licenses
 
 
$ 189 
$ 46 
 
 
 
 
 
$ 186 
Federal Communications Commission deposit
 
 
 
143 
 
 
 
 
143 
 
Fcc License Auction Total Licenses Won
 
 
 
 
 
 
 
188 
 
 
Fcc License Auction Total Winning Bid
 
 
 
 
 
 
 
329 
 
 
Exchanges
 
 
 
 
 
 
 
 
 
 
Net cash to be received
 
 
 
 
28 
 
 
 
 
 
Cash received from divestitures and exchanges
 
 
17 
17 
 
13 
15 
 
 
 
Gain on license sales and exchanges
$ 2 
$ 9 
$ 19 
$ 9 
 
$ 9 
$ 17 
 
 
 
Intangible Assets (Details) (Licenses, USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Licenses
 
Licenses
 
Balance, beginning of period
$ 1,886 
Acquisitions
331 
Transferred to Assets held for sale
(4)
Exchanges - Licenses received
14 
Exchanges - Licenses surrendered
(1)
Balance, end of period
$ 2,226 
Investments in Unconsolidated Entities (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Equity method investments, combined income statements
 
 
 
 
Revenues
$ 1,630 
$ 1,636 
$ 3,239 
$ 3,318 
Operating expenses
1,224 
1,168 
2,435 
2,398 
Operating income
406 
468 
804 
920 
Other expense, net
(1)
(3)
(1)
(6)
Net income
$ 405 
$ 465 
$ 803 
$ 914 
Variable Interest Entities, Consolidated Balance Sheet (Details) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Jun. 30, 2016
Dec. 31, 2015
Assets
 
 
 
 
Cash and cash equivalents
$ 472 
$ 586 
$ 621 
$ 715 
Accounts receivable
664 
658 
 
 
Other current assets
15 
23 
 
 
Assets held for sale
 
 
Licenses
2,226 
1,886 
 
 
Property, plant and equipment, net
2,304 
2,470 
 
 
Other assets and deferred charges
319 
405 
 
 
Liabilities
 
 
 
 
Current liabilities
651 
718 
 
 
Consolidated Variable Interest Entities
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
 
Accounts receivable
404 
44 
 
 
Other current assets
 
 
Assets held for sale
 
 
 
Licenses
655 
652 
 
 
Property, plant and equipment, net
98 
105 
 
 
Other assets and deferred charges
242 
16 
 
 
Total assets
1,407 
827 
 
 
Liabilities
 
 
 
 
Current liabilities
42 
21 
 
 
Deferred liabilities and credits
13 
13 
 
 
Total liabilities
$ 55 
$ 34 
 
 
Variable Interest Entities, Narrative (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Variable Interest Entities, Other Disclosures
 
 
 
Capital contributions, loans or advances
$ 676 
$ 26 
 
Investments in unconsolidated entities, maximum exposure
 
Transfer of net equipment installment plan receivables
883 
 
 
USCC EIP LLC
 
 
 
Variable Interest Entities, Other Disclosures
 
 
 
Capital contributions, loans or advances
$ 659