ARRAY DIGITAL INFRASTRUCTURE, INC. annual report, FY2019

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Business context and reporting period

This is United States Cellular Corporation’s Form 10-K for the fiscal year ended December 31, 2019—not a filing by Array Digital Infrastructure, Inc. U.S. Cellular (NYSE: USM) is a regional wireless carrier serving 4.9 million connections across 20 states. It is majority-owned and controlled by Telephone and Data Systems, Inc. (TDS).

Financial performance and position

The provided filing text incorporates U.S. Cellular’s consolidated financial statements and management discussion by reference to Exhibit 13, but does not include their figures. Accordingly, consolidated revenue, profit, cash flow, margins, debt balances, and liquidity values are not clear from the supplied text.

  • U.S. Cellular reported that its credit rating was below investment grade and cautioned that its forecast did not indicate a return on capital above its cost of capital in the foreseeable future.
  • It reported no cash borrowings outstanding under its revolving credit or receivables securitization facilities at December 31, 2019, or through the filing date.
  • Gross property, plant and equipment investment was $8.293 billion at year-end. The company received $92 million in high-cost universal service support during 2019.
  • It paid no cash dividends in recent periods and said it intended to retain earnings. No shares were repurchased in the fourth quarter; 5.311 million shares remained available under the repurchase program at year-end.

Separate partnership information: U.S. Cellular owns a 5.5% equity-method interest in the Los Angeles SMSA Limited Partnership. That partnership—not U.S. Cellular’s consolidated results—reported 2019 revenue of $5.306 billion, operating income of $1.439 billion, net income of $1.421 billion, operating cash flow of $1.109 billion, and capital expenditures of $385.4 million. For 2018, it reported revenue of $5.196 billion, operating income of $1.403 billion, net income of $1.419 billion, operating cash flow of $1.245 billion, and capital expenditures of $575.4 million. Its 2019 distributions to partners were $1.357 billion. These figures should not be treated as U.S. Cellular consolidated results or as amounts attributable solely to U.S. Cellular.

Material changes versus the prior period

  • In 2019, U.S. Cellular acquired FCC licenses in the 28 GHz and 24 GHz bands after winning 690 licenses in two auctions for an aggregate purchase price of $256 million.
  • The company began deploying 5G technology and reported VoLTE availability to nearly 70% of subscribers.
  • The Los Angeles SMSA partnership adopted lease accounting in 2019, recognizing operating lease right-of-use assets and liabilities; this is partnership information, not a U.S. Cellular consolidated balance-sheet figure.

Outlook, commentary, risks and contingencies

  • U.S. Cellular expected to launch commercial 5G services in selected markets in 2020; further VoLTE deployments were expected in 2020 and 2021. Management also described significant network and spectrum investment needs.
  • Management highlighted intense competition from larger national carriers, pricing and promotional pressure, possible customer churn, roaming economics, spectrum availability, and the cost and execution risks of 5G deployment.
  • The company warned that lower universal-service support, constrained access to financing, debt and covenant obligations, cyber incidents, regulation, and impairment of spectrum or other assets could adversely affect results or liquidity.
  • The filing describes ongoing legal and regulatory proceedings but does not provide a clear U.S. Cellular consolidated loss estimate in the supplied text. The separate Los Angeles SMSA partnership reported no accrual for its pending matters and said a reasonably possible loss range could not be estimated.
  • Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2019. No material fourth-quarter change in internal control was reported.

Important facts for investors to verify

  1. Confirm the registrant and ticker: the filing is for United States Cellular Corporation (USM), not Array Digital Infrastructure, Inc.
  2. Review Exhibit 13 for U.S. Cellular’s consolidated 2019 and comparative financial statements, MD&A, debt balances, cash flows, and guidance; those details are not present in the supplied text.
  3. Verify the funding, timing, and expected returns for spectrum purchases and 5G network deployment, including the outcome of the ongoing 37/39/47 GHz auction mentioned in the filing.
  4. Assess U.S. Cellular’s below-investment-grade credit rating, financing access, debt covenant headroom, and dependence on roaming and regulatory support.
  5. Distinguish the Los Angeles SMSA partnership’s financial results from U.S. Cellular’s consolidated results and its 5.5% equity-method interest.