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Business Context and Reporting Period

This summary covers the Form 10-Q for United States Cellular Corporation (UScellular) for the quarterly period ended June 30, 2024. UScellular is an 82%-owned subsidiary of Telephone and Data Systems, Inc. (TDS). During Q2 2024, the company modified its reporting structure to disaggregate operations into two segments: Wireless and Towers, reflecting a strategic shift toward the planned disposal of its wireless operations.

On May 28, 2024, UScellular announced a definitive agreement to sell its wireless operations and select spectrum assets to T-Mobile US, Inc. for a purchase price of $4.4 billion (subject to adjustment), payable in cash and the assumption of up to $2.0 billion in debt. The transaction is expected to close in mid-2025, pending regulatory approvals.

Key Financial Metrics (Six Months Ended June 30, 2024)

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased 3% year-over-year (YoY) to $1.877 billion for the six months ended June 30, 2024, compared to $1.942 billion in 2023. Wireless service revenues declined due to a decrease in average postpaid and prepaid connections, partially offset by higher Average Revenue Per User (ARPU).
• Profitability Improvement: Operating income increased 44% YoY to $88 million, driven by cost management and lower interest expense. Net income attributable to shareholders more than doubled to $35 million from $18 million in the prior year period.
• Wireless Segment: Postpaid handset net losses widened to 76,000 for the six-month period (vs. 54,000 losses in 2023) due to lower gross additions and aggressive industry competition. However, churn rates improved slightly.
• Towers Segment: Revenues increased 3% YoY to $116 million. Operating income rose 10% to $41 million. Colocations decreased slightly due to terminations.
• Strategic Expenses: The company incurred $21 million in third-party expenses related to the strategic alternatives review during the first six months of 2024.

Guidance, Outlook, and Risks

• Capital Expenditure Guidance: Full-year 2024 capital expenditures are expected to range between $550 million and $650 million, primarily for 5G mid-band spectrum deployment and IT investments.
• Transaction Outlook: The sale to T-Mobile is expected to close in mid-2025. Upon closing, UScellular expects an increase in third-party tower revenues under a Master License Agreement, though intra-company revenues will cease.
• Regulatory Risks: A July 2024 ruling by the U.S. Court of Appeals for the Fifth Circuit declared the Universal Service Fund (USF) program unconstitutional as currently administered. UScellular received $92 million in high-cost support in 2023; future support levels are uncertain and could materially impact results.
• Credit Ratings: Following the T-Mobile agreement, Moody's placed UScellular's rating on review for downgrade, and Fitch placed it on rating watch negative. The company remains in compliance with debt covenants.

Investor Verification Checklist

• Transaction Closing Conditions: Verify the status of regulatory approvals required for the T-Mobile sale and the timeline for the mid-2025 closing.
• USF Funding Impact: Assess the potential financial impact of the Fifth Circuit ruling on the Universal Service Fund and the likelihood of future high-cost support payments.
• Wireless Subscriber Trends: Monitor postpaid handset net losses and churn rates to evaluate the health of the wireless business prior to divestiture.
• Debt Covenant Compliance: Confirm continued compliance with the Consolidated Leverage Ratio (max 4.00:1.00) and Interest Coverage Ratio (min 3.00:1.00) as the company navigates the transition.
• Strategic Review Costs: Track ongoing expenses related to the strategic alternatives review and the monetization of spectrum assets not included in the T-Mobile deal.