Terms UsedUsed by U.S. Cellular

• 4G LTE – fourth generation Long-Term Evolution which is a wireless broadband technology.
• Account – represents an individual or business financially responsible for one or multiple associated connections.  An account may include a variety of types of connections such as handsets and connected devices.
• Auctions 1000, 1001, and 1002 – Auction 1000 is an FCC auction of 600 MHz spectrum licenses that started in 2016 and continued into 2017 involving: (1) a “reverse auction” in which broadcast television licensees submit bids to voluntarily relinquish spectrum usage rights in exchange for payments (referred to as Auction 1001);  (2) a “repacking” of the broadcast television bands in order to free up certain broadcast spectrum for other uses; and (3) a “forward auction” of licenses for spectrum cleared through this process to be used for wireless communications (referred to as Auction 1002).
• Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
• Connections – individual lines of service associated with each device activated by a customer. This includes smartphones, feature phones, tablets, modems, hotspots, and machine-to-machine devices.
• 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. 
• FCC – Federal Communications Commission.
• Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
• Machine-to-Machine 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. Cellular sells and supports M2M solutions to customers, provides connectivity for M2M solutions via the U.S. Cellular network, and has agreements with device manufacturers and software developers which offer M2M solutions.
• Net Additions – represents the total number of new connections added during the period, net of connections that were terminated during that period.
• OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. 
• Postpaid Average Billings per Account (Postpaid ABPA) – non-GAAP metric 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 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 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 Revenue per User (Postpaid ARPU) – metric is calculated by dividing total postpaid service revenues 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.
• Universal Service 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 related services over 4G LTE networks.

Table of Contents

As of March 31,			2019		2018
Retail Connections – End of Period
	Postpaid		4,440,000		4,481,000
	Prepaid		503,000		525,000
	Total		4,943,000		5,006,000

Operational Overview

										Q3	Q3	YTD	YTD
										2017	2016	2017	2016
						Postpaid Activity and Churn
							Gross Additions:			191,000	174,000	511,000	586,000
									Handsets	139,000	115,000	357,000	363,000
									Connected Devices	52,000	59,000	154,000	223,000
As of September 30,							Net Additions (Losses):			35,000	(6,000)	31,000	75,000
		2017		2016					Handsets	29,000	(27,000)	20,000	(45,000)
Retail Connections – End of Period									Connected Devices	6,000	21,000	11,000	120,000
	Postpaid	4,513,000		4,484,000			Churn:			1.16%	1.34%	1.19%	1.27%
	Prepaid	515,000		480,000					Handsets	0.96%	1.22%	0.98%	1.17%
	Total	5,028,000		4,964,000					Connected Devices	2.33%	2.04%	2.41%	1.97%

The increase in postpaid net

Postpaid ARPU and Postpaid ARPA increased for the three months ended March 31, 2019, when compared to the same period last year, was driven mainly by higher handsets gross additions as well as lower handsets churn. These impacts were slightly offset bydue to several factors including: having proportionately more handset connections, which on a declineper-unit basis contribute more revenue than connected device connections; a shift in tablet gross additions and higher tablet churn which are included in the connected devices line above.

The decrease in postpaid net additions for the nine months ended September 30, 2017, when comparedmix to the same period last year, was driven mainly by lower tablet gross additionshigher-priced service plans; and an increase in tablet churn, partially offset by an improvement in handsets net additions largely reflecting a decline in handsets churn.

device protection plan revenues.

5

Financial Overview

	Three Months Ended March 31,
	2019				2018				2019 vs. 2018
(Dollars in millions)
Retail service	$	659			$	649			2	%
Inbound roaming	34				27				22	%
Other	48				48				1	%
Service revenues	741				724				2	%
Equipment sales	225				218				3	%
Total operating revenues	966				942				3	%
System operations (excluding Depreciation, amortization and accretion reported below)	176				179				(1	)%
Cost of equipment sold	233				219				7	%
Selling, general and administrative	326				326				–
Depreciation, amortization and accretion	169				159				6	%
(Gain) loss on asset disposals, net	2				1				55	%
(Gain) loss on sale of business and other exit costs, net	(2		)		—				N/M
(Gain) loss on license sales and exchanges, net	(2		)		(7		)		69	%
Total operating expenses	902				877				3	%
Operating income	$	64			$	65			(1	)%
Net income	$	58			$	55			6	%
Adjusted OIBDA (Non-GAAP)1	$	231			$	218			6	%
Adjusted EBITDA (Non-GAAP)1	$	281			$	259			8	%
Capital expenditures	$	102			$	70			46	%

N/M - Percentage change not meaningful

1	Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

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Operating Revenues

Three Months Ended March 31, 2019 and 2018

(Dollars in millions)

Postpaid Revenue

		Three Months Ended							Nine Months Ended
		September 30,							September 30,
		2017			2016			2017			2016
Average Revenue Per User (ARPU)		$	43.41		$	47.08		$	44.46		$	47.54
Average Billings Per User (ABPU)1		$	54.71		$	56.79		$	55.21		$	56.34
Average Revenue Per Account (ARPA)		$	116.36		$	125.31		$	119.26		$	125.21
Average Billings Per Account (ABPA)1		$	146.65		$	151.16		$	148.12		$	148.37
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.

Postpaid ARPU and Postpaid ARPA decreased for the three and nine months ended September 30, 2017, due primarily to industry-wide price competition resulting in overall price reductions on plan offerings.

Equipment installment plans increase equipment sales revenue as customers pay for their wireless devices in installments at a total device price that is generally higher than the device price offered to customers in conjunction with alternative plans that are subject to a service contract. Equipment installment plans also have the impact of reducing serviceService revenues as certain equipment installment plans provide for reduced monthly service charges. In order to show the trends in total service and equipment revenues received, 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.consist of:

Equipment installment plan billings increased for the three and nine months ended September 30, 2017, when compared to the same periods last year, mainly due to increased penetration of equipment installment plans. Postpaid ABPU and ABPA decreased for the three and nine months ended September 30, 2017, when compared to the same periods last year, as the increase in equipment installment plan billings was more than offset by the decline in Postpaid ARPU and ARPA discussed above.  U.S. Cellular expects the penetration of equipment installment plans to continue to increase over time due to the fact that, effective in September 2016, all equipment sales to retail customers are made under installment plans. 

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Financial Overview

					Three Months Ended								Nine Months Ended
					September 30,								September 30,
											2017 vs.							2017 vs.
					2017			2016			2016		2017			2016			2016
(Dollars in millions)
Retail service					$	636		$	681		(7)%		$	1,940		$	2,044		(5)%
Inbound roaming						37			45		(17)%			94			118		(20)%
Other1						64			58		12%			189			168		13%
	Service revenues1					737			784		(6)%			2,223			2,330		(5)%
Equipment sales						226			239		(5)%			639			655		(3)%
	Total operating revenues1					963			1,023		(6)%			2,862			2,985		(4)%
System operations (excluding Depreciation, amortization and accretion reported below)						185			196		(6)%			549			572		(4)%
Cost of equipment sold						261			280		(7)%			749			799		(6)%
Selling, general and administrative						350			370		(5)%			1,041			1,089		(4)%
Depreciation, amortization and accretion						153			155		(2)%			460			462		–
Loss on impairment of goodwill						370			–		N/M			370			–		N/M
(Gain) loss on asset disposals, net						5			7		(26)%			14			16		(17)%
(Gain) loss on sale of business and other exit costs, net						(1)			–		N/M			(1)			–		>(100)%
(Gain) loss on license sales and exchanges, net						–			(7)		100%			(19)			(16)		(16)%
	Total operating expenses					1,323			1,001		32%			3,163			2,922		8%
Operating income (loss)¹					$	(360)		$	22		>(100)%		$	(301)		$	63		>(100)%
Net income (loss)					$	(298)		$	18		>(100)%		$	(259)		$	54		>(100)%
Adjusted OIBDA (Non-GAAP)1,2					$	167		$	177		(6)%		$	523		$	525		–
Adjusted EBITDA (Non-GAAP)2					$	204		$	216		(6)%		$	631		$	639		(1)%
Capital expenditures					$	112		$	103		8%		$	257		$	275		(7)%
N/M - Percentage change not meaningful
1	Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017.  All prior period numbers have been recast to conform to this accounting change.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.
2	Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

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▪
Service 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 – Primarily amounts- Amounts received from the Federal USF, imputed interest recognized on equipment installment plan contracts and tower rental revenues, Equipment and miscellaneous other service revenues consist of:

Equipment revenues consist of:

▪	Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors

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

Total operating revenues

On 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

Retail service revenues in the Consolidated Statement of Operations.  All prior period numbers have been recast to conform to this accounting change.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. 

Service revenues decreasedincreased for the three and nine months ended September 30, 2017,March 31, 2019, primarily as a result of (i) a decreasethe increase in retail servicePostpaid ARPU as previously discussed in the Operational Overview section.

Inbound roaming revenues increased for the three months ended March 31, 2019, primarily driven by industry-wide price competition resulting in overall price reductions on plan offerings; and (ii) a decrease in inbound roaming revenues primarily driven by lower roaming rates.  Such reductions werehigher data usage, partially offset by an increase in imputed interest incomelower rates.

Equipment sales revenues increased for the three months ended March 31, 2019, due to an increase in the total number of active equipment installment plans.

Federal USFaverage revenue remained flat at $23 million and $69 million for the three and nine months ended September 30, 2017, respectively, when compared to the same periods last year.  See the Regulatory Matters section in this MD&A forper device sold, partially offset by a description of the FCC Mobility Fund II Order (MF2 Order) and its expected impacts on U.S. Cellular’s current Federal USF support.

Equipment sales revenues decreased for the three months ended September 30, 2017, when compared to the same period last year, due a reduction in guarantee liability amortization for equipment installment contracts as a result of changes in plan offerings and an overall reductiondecrease in the number of devices sold.  See Note 3 – Equipment Installment Plans in the Notes to Consolidated Financial Statements for additional details regarding the amortization of the guarantee liability.  These impacts were partially offset by a mix shift to higher end smartphone devices as well as an increase in accessories revenues.

Equipment sales revenues decreased for the nine months ended September 30, 2017, when compared to the same period last year, as a result of an overall reduction in the number of devices sold and, as a result of changes in plan offerings, a decrease in guarantee liability amortization for equipment installment contracts and lower device activation fees.  These impacts were partially offset by an increase in the proportion of new device sales made under equipment installment plans, a mix shift from feature phones and connected devices to smartphones and, to a lesser extent, an increase in accessories revenues.

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System operations expenses

System operations expenses decreased for the three and nine months ended September 30, 2017, when comparedMarch 31, 2019, due to the same periods last year,(i) lower customer usage expenses driven primarily by decreased circuit costs and (ii) lower maintenance, utility and cell site rent expenses. Such factors were offset by an increase in roaming expense as a result of (i) a decrease inhigher data roaming expenses driven primarily by lower roaming rates,usage, partially offset by increased data roaming usage; and (ii) a decrease in customer usage expenses primarily driven by decreased circuit costs.

lower rates.

Cost of equipment sold

The decrease in

Cost of equipment sold increased for the three and nine months ended September 30, 2017, when compared to the same periods last year, was mainlyMarch 31, 2019, due to a reductionhigher average cost per device sold, partially offset by a decrease in the number of devices sold as well as a decrease in the average cost of smartphones, partially offset by a mix shift from feature phonessold.

Depreciation, amortization and connected devices to higher cost smartphones.  Loss on equipment, defined as Equipment sales revenues less Cost of equipment sold, was $35 millionaccretion

Depreciation, amortization, and $41 millionaccretion increased for the three months ended September 30, 2017 and 2016, respectively, and $110 million and $144 million for the nine months ended September 30, 2017 and 2016, respectively.

Selling, general and administrative expenses

Selling expenses for the three and nine months ended September 30, 2017, decreased by $8 million and $24 million, respectively, mainlyMarch 31, 2019, due to lower advertising expenses, including a decrease in sponsorship expenses related to the terminationadditional network assets being placed into service and acceleration of a naming rights agreement during the third quarterdepreciation of 2016; increases in commissions expenses were partially offsetting.  General and administrative expenses for the three and nine months ended September 30, 2017, decreased $11 million and $25 million, respectively, mainlycertain assets due to lower bad debts and phone program expenses together with reductionschanges in numerous other general and administrative categories. 

Loss on impairment of goodwill

During the third quarter of 2017, U.S. Cellular recorded a $370 million loss on impairment related to goodwill.  See Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.  

(Gain) loss on license sales and exchanges, net

Net gains in 2017 and 2016 were due to gains recognized on license exchange transactions with third parties.  See Note 5 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information. 

network technology.

Components of Other Income (Expense)
					Three Months Ended								Nine Months Ended
					September 30,								September 30,
											2017 vs.								2017 vs.
					2017			2016			2016		2017			2016			2016
(Dollars in millions)
Operating income (loss)¹					$	(360)		$	22		>(100)%		$	(301)		$	63		>(100)%
Equity in earnings of unconsolidated entities						35			38		(7)%			101			110		(8)%
Interest and dividend income1						2			1		68%			6			4		45%
Interest expense						(28)			(28)		(2)%			(85)			(84)		(1)%
Other, net						–			–		29%			1			–		(9)%
Total investment and other income1						9			11		(21)%			23			30		(25)%
Income (loss) before income taxes						(351)			33		>(100)%			(278)			93		>(100)%
Income tax expense (benefit)						(53)			15		>(100)%			(19)			39		>(100)%
Net income (loss)						(298)			18		>(100)%			(259)			54		>(100)%
Less: Net income (loss) attributable to    noncontrolling interests, net of tax						1			1		(9)%			2			1		>100%
Net income (loss) attributable to U.S. Cellular   shareholders					$	(299)		$	17		>(100)%		$	(261)		$	53		>(100)%
1	Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017.  All prior period numbers have been recast to conform to this accounting change.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.

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Components of Contents

Other Income (Expense)

	Three Months Ended March 31,
	2019				2018				2019 vs. 2018
(Dollars in millions)
Operating income	$	64			$	65			(1	)%
Equity in earnings of unconsolidated entities	44				38				16	%
Interest and dividend income	6				4				59	%
Interest expense	(29		)		(29		)		–
Other, net	—				(1		)		92	%
Total investment and other income	21				12				65	%
Income before income taxes	85				77				10	%
Income tax expense	27				22				20	%
Net income	58				55				6	%
Less: Net income attributable to noncontrolling interests, net of tax	4				10				(64	)%
Net income attributable to U.S. Cellular shareholders	$	54			$	45			22	%

Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities represents 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 $17$21 million to Equityand $19 million in earnings of unconsolidated entities for both the three months ended September 30, 2017March 31, 2019 and 2016, and $50 million and $57 million for the nine months ended September 30, 2017 and 2016,2018, respectively. See Note 7 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Interest and dividend income

Interest and dividend income increased as a result of an increase in U.S. Cellular's money market investments balance, classified within Cash and cash equivalents, in 2019.

Income tax expense

U.S. Cellular’s

The effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30, 2017,March 31, 2019 and 2018, was not meaningful31.4% and 28.8%, respectively. The higher rate in 2019 as compared to 2018 is due primarily to a discrete benefit recorded in the recognitionfirst quarter of 2018 to adjust a loss on impairmentprovisional estimate made in conjunction with the Tax Act.

Net income attributable to noncontrolling interests, net of goodwill and fortax

Net income attributable to noncontrolling interests, net of tax decreased during the three and nine months ended September 30, 2016, was 46.0% and 41.4%, respectively. DueMarch 31, 2019, due primarily to difficultyan out-of-period adjustment recorded in reliably projecting an annual tax rate, U.S. Cellular calculated income taxesthe first quarter of 2018. See Note 9 — Variable Interest Entities in the Notes to Consolidated Financial Statements for the nine months ended September 30, 2017, based on an estimated year-to-date tax rate.

A reconciliation of U.S. Cellular’s income tax expense (benefit) computed at the statutory rate to the reported income tax expense (benefit) and effective tax rate is as follows:

			Nine Months Ended
			September 30,
			2017				2016
			Amount	Rate			Amount	Rate
(Dollars in millions)
Pretax income (loss)		$	(278)	N/A		$	93	N/A
Statutory federal income tax expense (benefit) and rate			(97)	35.0 %			33	35.0%
Goodwill impairment1			76	(27.3)%			–	0.0%
Other differences, net			2	(0.7)%			6	6.4%
Total tax expense (benefit) and rate		$	(19)	7.0 %		$	39	41.4%
1	Goodwill impairment reflects an adjustment to increase federal and state income tax expense by $76 million related to a portion of the goodwill impairment U.S. Cellular recorded which is nondeductible for tax purposes.  See Note 6 - Intangible Assets for a detailed discussion regarding the goodwill impairment.

additional information.

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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 the past, U.S. Cellular’s existing cash and investment balances, funds available under its revolving credit facility,and receivables securitization agreements, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating and certain investing and financing 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 significant cash balance, in certain recent periods, U.S. Cellular has incurred negative free cash flow (non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment)at times in the past and this will continuecould occur in the future if operating results do not improve or capital expenditures are not reduced.  U.S. Cellular currently expects to have negative free cash flow in 2017.future. However, U.S. Cellular believes that existing cash and investment balances, funds available under its revolving credit facility,and receivables securitization agreements, 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,capital expenditures, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments. U.S. Cellular is a qualified bidder for spectrum auctions during 2019 (see Regulatory Matters - Millimeter Wave Spectrum Auctions), and expects capital expenditures in 2019 to be higher than in 2018, due primarily to investments to enhance network speed and capacity and to deploy 5G technology. It may be necessary from time to time to increase the size of the existing revolving credit facility,agreement, to put in place a new credit facility,agreement, or to obtain other forms of financing in order to fund potential expenditures.  U.S. Cellular is exploring a potential securitized borrowing using its equipment installment plan receivables, which may occur in 2018. U.S. Cellular’s liquidity would be adversely affected if, among other things, U.S. Cellular is unable to obtain shortshort- or long-term financing on acceptable terms, U.S. Cellular makes significant spectrum license purchases, the LA Partnership discontinues or significantly reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline. In addition, 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 has beencurrently is sub-investment grade since 2014.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 itsU.S. Cellular's credit ratings, 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 development programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends. Any of the foregoing developments would have an adverse impact on U.S. Cellular’s business, financial condition or results of operations. U.S. Cellular cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or 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 investments. 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.

At December 31, 2016, U.S. Cellular’s cash and cash equivalents totaled $586 million compared to $498 million at September 30, 2017.  The majority of U.S. Cellular’s Cash and cash equivalents was held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies across a range of eligible money market investments that may include, but are not limited to, government agency repurchase agreements, government agency debt, U.S. Treasury repurchase agreements, U.S. Treasury debt, and other securities collateralized by U.S. government obligations. U.S. Cellular monitors the financial viability of the money market funds and direct investments in which it invests and believes that the credit risk associated with these investments is low.

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Cash and Cash Equivalents

(Dollars in millions)

At March 31, 2019, U.S. Cellular's cash and cash equivalents totaled $648 million compared to $580 million at December 31, 2018.

TableThe majority of Contents

Short-termU.S. Cellular’s Cash and cash equivalents is held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies across a range of eligible money market investments

At September 30, 2017, that may include, but are not limited to, government agency repurchase agreements, government agency debt, U.S. Treasury repurchase agreements, U.S. Treasury debt, and other securities collateralized by U.S. government obligations. U.S. Cellular held $50 millionmonitors the financial viability of Short-term investments which consisted of U.S. Treasury Billsthe money market funds and believes that the credit risk associated with original maturities of six months.  For these investments U.S. Cellular’s objective is to earn a higher rate of return on funds that are not anticipated to be required to meet liquidity needs in the immediate future while maintaining low investment risk.  See Note 2 – Fair Value Measurements in the Notes to Consolidated Financial Statements for additional details on short-term investments.

low.

Financing

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

U.S. Cellular’s unused capacityMay 2023. As of March 31, 2019, there were no outstanding borrowings under itsthe revolving credit facilityagreement, except for letters of credit, and the unused borrowing capacity was $298 million as of September 30, 2017.million.

In March 2019, U.S. Cellular amended its senior term loan credit agreement in order to reduce the interest rate. There were no significant changes to the maturity date or other key terms of the agreement.

U.S. Cellular believes that it was in compliance with all of the financial covenants and requirements set forth in its revolving credit facilityagreement and the senior term loan credit agreement as of March 31, 2019.

U.S. Cellular, through its subsidiaries, also has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables for general corporate purposes. The unused capacity under this agreement was $200 million as of March 31, 2019, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of March 31, 2019, the USCC Master Note Trust (Trust) held $78 million of assets available to be pledged as collateral for the receivables securitization agreement. U.S. Cellular believes that it was in compliance with all of the financial covenants and requirements set forth in its receivables securitization agreement 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 20172019 and the next four years are $200 million, which represent less than 4%12% of U.S. Cellular’sthe total gross long-term debt obligation as of September 30, 2017.

at March 31, 2019.

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures), which include the effects of accruals and capitalized interest, in 2017for the three months ended March 31, 2019 and 20162018, were as follows:

Capital Expenditures

(Dollars in millions)

U.S. Cellular’s capital expenditures for the three months ended March 31, 2019 and 2018, were $102 million and $70 million, respectively.

Capital expenditures for the full year 2019 are expected to be between $625 million and $725 million. These expenditures are expected to be used principally for the following purposes:

Capital expenditures for the nine months ended September 30, 2016

▪

Enhance and 2017 were $275 million and $257 million, respectively. Capital expenditures for the full year 2017 are expected to be approximately $500 million.  These expenditures are expected to be for the following general purposes:  Expand and enhancemaintain U.S. Cellular's network coverage, including continuing to deploy VoLTE technology in certain markets and providing additional speed and capacity to accommodate increased network usage, principally data usage by current customers;

▪	Deployment of VoLTEDeploy 5G technology; and

▪	Invest in information technology in certain markets; Expandto support existing and enhance the retail store network; Consolidatenew services and upgrade its office facilities; andproducts. Develop and enhance billing and other systems.

U.S. Cellular plansintends to finance its capital expenditures program for 20172019 using primarily Cash flows from operating activities, and existing cash balances.

balances and, if required, its receivables securitization and/or revolving credit agreements.

Acquisitions, Divestitures and Exchanges

U.S. Cellular 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 spectrum. 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 maximizing its long-term return on capital. As part of this strategy, U.S. Cellular reviewsactively seeks attractive opportunities to acquire additional wireless operating markets and wireless spectrum, including pursuant to FCC auctions. U.S. Cellular also may seek to divest outright or include in exchanges for other wireless interests those interests that are not strategic to its long-term success.

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.  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.  Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016.  U.S. Cellular paid the remaining $186 million to the FCC and was granted the licenses during the second quarter of 2017.

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. 

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