UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

OR

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

For the transition period from                                    to

Commission file number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware						36-2669023
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602

(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (312) 630-1900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, $.01 par value

TDS

New York Stock Exchange

Depository Shares each representing a 1/1000th interest in a share of 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock, $.01 par value

TDSPrU

New York Stock Exchange

Depository Shares each representing a 1/1000th interest in a share of 6.000% Series VV Cumulative Redeemable Perpetual Preferred Stock, $.01 par value

TDSPrV

New York Stock Exchange

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

Yes

☒

No

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

No

☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

☐

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

Yes

☐

No

☒

The number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 2023, is 105,275,400 Common Shares, $.01 par value, and 7,482,300 Series A Common Shares, $.01 par value.

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Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q

For the Period Ended June 30, 2023

Index			Page No.
Management Discussion and Analysis of Financial Condition and Results of Operations			1
Executive Overview			1
Terms Used by TDS			3
Results of Operations – TDS Consolidated			4
UScellular Operations			7
TDS Telecom Operations			12
Liquidity and Capital Resources			18
Consolidated Cash Flow Analysis			22
Consolidated Balance Sheet Analysis			23
Supplemental Information Relating to Non-GAAP Financial Measures			24
Application of Critical Accounting Policies and Estimates			27
Regulatory Matters			27
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement			28
Risk Factors			30
Quantitative and Qualitative Disclosures About Market Risk			30
Financial Statements (Unaudited)			31
Consolidated Statement of Operations			31
Consolidated Statement of Comprehensive Income			32
Consolidated Statement of Cash Flows			33
Consolidated Balance Sheet			34
Consolidated Statement of Changes in Equity			36
Notes to Consolidated Financial Statements			40
Controls and Procedures			56
Legal Proceedings			56
Unregistered Sales of Equity Securities and Use of Proceeds			57
Exhibits			58
Form 10-Q Cross Reference Index			59
Signatures			60

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Table of Contents

			Telephone and Data Systems, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and six months ended June 30, 2023, to the three and six months ended June 30, 2022. It should be read in conjunction with TDS’ interim consolidated financial statements and notes included herein, and with the description of TDS’ business, its audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2022. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. 

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

The accounting policies of TDS conform to accounting principles generally accepted in the United States of America (GAAP). However, TDS uses certain “non-GAAP financial measures” in the MD&A. A discussion of the reasons TDS determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with GAAP are included in the disclosure under the heading Supplemental Information Relating to Non-GAAP Financial Measures within the MD&A of this report.

General

TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide. TDS provides wireless services through its 83%-owned subsidiary, United States Cellular Corporation (UScellular). TDS also provides broadband, video and voice services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). TDS operates entirely in the United States. UScellular and TDS Telecom are reporting segments of TDS. See Note 12 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

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TDS Mission and Strategy

TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, support the communities it serves, and build value over the long term for its shareholders. Across all of its businesses, TDS is focused on providing exceptional customer experiences through best-in-class services and products and superior customer service. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities. TDS continues to make progress on developing and enhancing its Environmental, Social and Governance (ESG) program, including the publication of the most recent TDS ESG Report in July 2023, which is available on the TDS website.

TDS’ long-term strategy calls for the majority of its operating capital to be reinvested in its businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders primarily through the payment of a regular quarterly cash dividend.

TDS plans to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused services and products. Strategic efforts include:

▪UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as device protection plans and from new services such as fixed wireless home internet. In addition, UScellular is focused on increasing revenues from prepaid plans, tower rent revenues and expanding its solutions available to business and government customers. 

▪UScellular continues to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. Through the end of 2022, UScellular's 5G deployment has predominantly used low-band spectrum, and as of December 31, 2022, UScellular has launched 5G services in portions of substantially all of its markets. During 2023, UScellular is continuing to invest in 5G with a focus on deployment of mid-band spectrum, which will largely overlap portions of areas already covered with low-band 5G service. 5G service deployed over mid-band spectrum will further enhance speed and capacity for UScellular's mobility and fixed wireless services. In addition, a portion of UScellular's mid-band spectrum is not expected to be available for use until late 2023.

▪UScellular 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, UScellular may seek attractive opportunities to acquire wireless spectrum, including pursuant to Federal Communications Commission (FCC) auctions.

▪TDS Telecom strives to be the preferred broadband provider in its markets with the ability to provide value-added bundling with video and voice service options. TDS Telecom focuses on driving growth by investing in fiber deployment primarily in its expansion markets and also in its incumbent markets that have historically utilized copper and coaxial cable technologies.

▪TDS Telecom seeks to grow its operations by creating clusters of markets in attractive, growing locations and may seek to acquire and/or divest of assets to support its strategy.

Recent Development

On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies have decided to initiate a process to explore a range of strategic alternatives for UScellular.

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Terms Used by TDS

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

▪5G – fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.

▪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.

▪Alternative Connect America Cost Model (A-CAM) – a USF support mechanism for certain carriers, which provides revenue support through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations.

▪Auction 107 – Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021.

▪Broadband Connections – refers to the individual customers provided internet access through various transmission technologies, including fiber, coaxial and copper.

▪Broadband Penetration – metric which is calculated by dividing total broadband connections by total service addresses.

▪Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.

▪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.

▪Connected Devices – non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.

▪EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Enhanced Alternative Connect America Cost Model (EA-CAM) – a USF support mechanism for certain carriers, which provides revenue support through 2038. This support comes with an obligation to provide 100/20 Mbps service to a certain number of locations.

▪Expansion Markets – markets utilizing fiber networks in areas where TDS does not serve as the incumbent service provider.

▪Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.

▪Incumbent Markets – markets where TDS is positioned as the traditional local telephone or cable company.

▪IPTV – internet protocol television.

▪Net Additions (Losses) – 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. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.

▪Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

▪Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.

▪Residential Revenue per Connection – metric which is calculated by dividing total residential revenue by the average number of residential connections and by the number of months in the period.

▪Retail Connections – individual lines of service associated with each device activated by a postpaid or prepaid customer. Connections are associated with all types of devices that connect directly to the UScellular network.

▪Service Addresses – number of single residence homes, multi-dwelling units, and business locations that are capable of being connected to the TDS network, based on best available information.

▪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.

▪Video Connections – represents the individual customers provided video services.

▪Voice Connections – refers to the individual circuits connecting a customer to TDS' central office facilities that provide voice services or the billable number of lines into a building for voice services.

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Results of Operations — TDS Consolidated

The following discussion and analysis compares financial results for the three and six months ended June 30, 2023, to the three and six months ended June 30, 2022

			Three Months Ended June 30,																		Six Months Ended June 30,
			2023						2022						2023 vs. 2022						2023						2022						2023 vs. 2022
(Dollars in millions)
Operating revenues
UScellular			$	957					$	1,027					(7)		%				$	1,942					$	2,037					(5)		%
TDS Telecom			257						256						1		%				510						507						1		%
All other1			53						66						(19)		%				118						120						(2)		%
Total operating revenues			1,267						1,349						(6)		%				2,570						2,664						(4)		%
Operating expenses
UScellular			923						987						(7)		%				1,881						1,926						(2)		%
TDS Telecom			251						233						8		%				496						456						9		%
All other1			60						66						(7)		%				131						124						6		%
Total operating expenses			1,234						1,286						(4)		%				2,508						2,506						—
Operating income
UScellular			34						40						(13)		%				61						111						(45)		%
TDS Telecom			7						23						(71)		%				15						51						(72)		%
All other1			(8)						—						N/M						(14)						(4)						N/M
Total operating income			33						63						(47)		%				62						158						(61)		%
Investment and other income (expense)
Equity in earnings of unconsolidated entities			38						38						1		%				82						83						(1)		%
Interest and dividend income			6						5						10		%				11						7						61		%
Interest expense			(62)						(40)						(54)		%				(116)						(72)						(59)		%
Other, net			—						—						(34)		%				1						—						26		%
Total investment and other income (expense)			(18)						3						N/M						(22)						18						N/M
Income before income taxes			15						66						(77)		%				40						176						(77)		%
Income tax expense			15						27						(43)		%				28						65						(56)		%
Net income			—						39						(100)		%				12						111						(90)		%
Less: Net income attributable to noncontrolling interests, net of tax			2						4						(63)		%				6						15						(67)		%
Net income (loss) attributable to TDS shareholders			(2)						35						N/M						6						96						(93)		%
TDS Preferred Share dividends			17						17						—						35						35						—
Net income (loss) attributable to TDS common shareholders			$	(19)					$	18					N/M						$	(29)					$	61					N/M
Adjusted OIBDA (Non-GAAP)2			$	263					$	302					(13)		%				$	534					$	626					(15)		%
Adjusted EBITDA (Non-GAAP)2			$	307					$	345					(11)		%				$	628					$	716					(12)		%
Capital expenditures3			$	278					$	391					(29)		%				$	621					$	633					(2)		%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful

1Consists of corporate and other operations and intercompany eliminations.

2Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

3Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.

Refer to individual segment discussions in this MD&A for additional details on operating revenues and expenses at the segment level.

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Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for using the equity method or the net asset value practical expedient. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $18 million and $16 million for the three months ended June 30, 2023 and 2022, respectively and $38 million and $34 million for the six months ended June 30, 2023 and 2022, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Interest expense

Interest expense increased for the three and six months ended June 30, 2023 due primarily to interest rate increases on variable rate debt. See Market Risk for additional information regarding maturities of long-term debt and weighted average interest rates.

Income tax expense

Income tax expense decreased for the three and six months ended June 30, 2023 due primarily to the decrease in Income before income taxes, partially offset by increases to state valuation allowances that reduce the net value of deferred tax assets.

In April 2023, TDS received a federal income tax refund of $57 million related to the 2020 net operating loss carryback enabled by the CARES Act.

Net income attributable to noncontrolling interests, net of tax

			Three Months Ended June 30,												Six Months Ended June 30,
			2023						2022						2023						2022
(Dollars in millions)
UScellular noncontrolling public shareholders’			$	1					$	4					$	3					$	12
Noncontrolling shareholders’ or partners’			1						—						3						3
Net income attributable to noncontrolling interests, net of tax			$	2					$	4					$	6					$	15

Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public shareholders’ share of UScellular’s net income, the noncontrolling shareholders’ or partners’ share of certain UScellular subsidiaries’ net income and other TDS noncontrolling interests.

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Earnings

(Dollars in millions)

Three Months Ended

Net income decreased due primarily to lower operating revenues and higher interest expense, partially offset by lower operating and income tax expenses. Adjusted EBITDA decreased due primarily to lower operating revenues, partially offset by lower operating expenses.

Six Months Ended

Net income decreased due primarily to lower operating revenues and higher interest expense, partially offset by lower income tax expense. Adjusted EBITDA decreased due primarily to lower operating revenues.

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

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			UScellular OPERATIONS

Business Overview

UScellular owns, operates, and invests in wireless markets throughout the United States. UScellular is an 83%-owned subsidiary of TDS. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. 

OPERATIONS

▪Serves customers with 4.7 million retail connections including 4.2 million postpaid and 0.5 million prepaid connections

▪Operates in 21 states

▪Employs approximately 4,600 associates

▪4,341 owned towers

▪6,952 cell sites in service

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Table of Contents

Operational Overview — UScellular

As of June 30,									2023						2022
Retail Connections – End of Period
			Postpaid						4,194,000						4,296,000
			Prepaid						462,000						490,000
			Total						4,656,000						4,786,000

			Q2 2023						Q2 2022						Q2 2023 vs. Q2 2022						YTD 2023						YTD 2022			YTD 2023 vs. YTD 2022
Postpaid Activity and Churn
Gross Additions
Handsets			83,000						94,000						(12)		%				176,000						185,000			(5)		%
Connected Devices			42,000						34,000						24		%				85,000						69,000			23		%
Total Gross Additions			125,000						128,000						(2)		%				261,000						254,000			3		%
Net Additions (Losses)
Handsets			(29,000)						(31,000)						6		%				(54,000)						(67,000)			19		%
Connected Devices			1,000						(9,000)						N/M						1,000						(17,000)			N/M
Total Net Additions (Losses)			(28,000)						(40,000)						30		%				(53,000)						(84,000)			37		%
Churn
Handsets			1.01		%				1.10		%										1.03		%				1.10		%
Connected Devices			2.65		%				2.73		%										2.72		%				2.72		%
Total Churn			1.21		%				1.30		%										1.24		%				1.30		%

N/M - Percentage change not meaningful

UScellular had net handset losses during the three and six months ended June 30, 2023, due to aggressive industry-wide competition.

Total postpaid handset net losses decreased for the three and six months ended June 30, 2023, when compared to the same period last year due primarily to lower defections as a result of improvements in voluntary churn.

Total postpaid connected device net additions increased for the three and six months ended June 30, 2023, when compared to the same period last year due primarily to higher demand for fixed wireless home internet as well as a decrease in tablet churn.

Postpaid Revenue

			Three Months Ended June 30,																		Six Months Ended June 30,
			2023						2022						2023 vs. 2022						2023						2022						2023 vs. 2022
Average Revenue Per User (ARPU)			$	50.64					$	50.07					1		%				$	50.64					$	49.88					2		%
Average Revenue Per Account (ARPA)			$	130.19					$	130.43					—		%				$	130.49					$	130.17					—		%

Postpaid ARPU and Postpaid ARPA increased for the three and six months ended June 30, 2023, when compared to the same period last year, due to favorable plan and product offering mix and an increase in device protection plan revenues. These increases were partially offset by an increase in promotional discounts.

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Financial Overview — UScellular

The following discussion and analysis compares financial results for the three and six months ended June 30, 2023, to the three and six months ended June 30, 2022

			Three Months Ended June 30,																		Six Months Ended June 30,
			2023						2022						2023 vs. 2022						2023						2022						2023 vs. 2022
(Dollars in millions)
Retail service			$	686					$	700					(2)		%				$	1,378					$	1,402					(2)		%
Inbound roaming			8						18						(55)		%				17						39						(56)		%
Other			66						65						2		%				132						129						2		%
Service revenues			760						783						(3)		%				1,527						1,570						(3)		%
Equipment sales			197						244						(20)		%				415						467						(11)		%
Total operating revenues			957						1,027						(7)		%				1,942						2,037						(5)		%
System operations (excluding Depreciation, amortization and accretion reported below)			190						192						(1)		%				372						377						(1)		%
Cost of equipment sold			228						275						(17)		%				480						533						(10)		%
Selling, general and administrative			341						339						1		%				686						663						3		%
Depreciation, amortization and accretion			161						172						(7)		%				330						342						(4)		%
Loss on impairment of licenses			—						3						N/M						—						3						N/M
(Gain) loss on asset disposals, net			3						6						(44)		%				13						8						73		%
Total operating expenses			923						987						(7)		%				1,881						1,926						(2)		%
Operating income			$	34					$	40					(13)		%				$	61					$	111					(45)		%
Net income			$	5					$	22					(76)		%				$	20					$	74					(73)		%
Adjusted OIBDA (Non-GAAP)1			$	198					$	221					(10)		%				$	404					$	464					(13)		%
Adjusted EBITDA (Non-GAAP)1			$	239					$	261					(8)		%				$	491					$	550					(11)		%
Capital expenditures2			$	143					$	268					(47)		%				$	351					$	405					(13)		%

N/M - Percentage change not meaningful

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

2Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.

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Operating Revenues

Three Months Ended June 30, 2023 and 2022

(Dollars in millions)

Operating Revenues

Six Months Ended June 30, 2023 and 2022

(Dollars in millions)

Service revenues consist of:

▪Retail Service - Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges

▪Inbound Roaming - Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming

▪Other Service - Amounts received from the Federal USF, tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT)

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

Retail service revenues decreased for the three and six months ended June 30, 2023, as a result of a decrease in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU as previously discussed in the Operational Overview section.

Inbound roaming revenues decreased for the three and six months ended June 30, 2023, primarily driven by lower data revenues resulting from lower rates. UScellular expects inbound roaming revenues to continue to decline for the remainder of 2023 relative to prior year levels, due primarily to continued reductions in roaming rates.

Equipment sales revenues decreased for the three and six months ended June 30, 2023, due primarily to a decline in smartphone upgrades and gross additions.

Wireless service providers have been aggressive promotionally and on price in order to attract and retain customers. This includes both traditional carriers and cable companies operating through mobile virtual network operators (MVNOs). UScellular expects promotional aggressiveness by traditional carriers and pricing pressures from cable companies to continue during 2023. Operating revenues and Operating income have been negatively impacted in current and prior periods, and may be negatively impacted in future periods, by competitive promotional offers to new and existing customers.

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Total operating expenses

Total operating expenses for the six months ended June 30, 2023 include $9 million of severance and related expenses associated with a reduction in workforce that was recorded in the first quarter of 2023. These severance expenses are included in System operations expenses and Selling, general and administrative expenses.

Systems operations expenses

System operations expenses decreased for the three and six months ended June 30, 2023, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses.

Cost of equipment sold

Cost of equipment sold decreased for the three and six months ended June 30, 2023, due primarily to a decline in smartphone upgrades and gross additions.

Selling, general and administrative expenses

Selling, general and administrative expenses were essentially flat for the three months ended June 30, 2023, due primarily to increases in advertising expenses offset by decreases in agent expenses.

Selling, general and administrative expenses increased for the six months ended June 30, 2023 due primarily to an increase in advertising expenses and costs related to the reduction in workforce.

Depreciation, amortization and accretion

Depreciation, amortization and accretion expenses decreased for the three and six months ended June 30, 2023 due primarily to enhancements that extended the useful life of a software platform.

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			TDS TELECOM OPERATIONS

Business Overview

TDS Telecom owns, operates and invests in high-quality networks, services and products in a mix of rural and suburban communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers, with the constant focus on delivering superior customer service.

OPERATIONS

▪Serves 1.2 million connections in 32 states

▪Employs approximately 3,500 associates

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Operational Overview — TDS Telecom

Total Service Address Mix

As of June 30,

TDS Telecom increased its service addresses 9% from a year ago to 1.6 million as of June 30, 2023 through network expansion.

TDS Telecom offers 1Gig+ service to 68% of its total footprint as of June 30, 2023, compared to 63% a year ago.

As of June 30,			2023						2022						2023 vs. 2022
Residential connections
Broadband
Wireline, Incumbent			249,200						252,700						(1)		%
Wireline, Expansion			70,200						44,100						59		%
Cable			204,200						204,000						—
Total Broadband			523,600						500,800						5		%
Video			132,300						137,400						(4)		%
Voice			288,200						298,300						(3)		%
Total Residential Connections			944,100						936,500						1		%
Commercial connections			223,300						250,700						(11)		%
Total connections			1,167,400						1,187,200						(2)		%

Numbers may not foot due to rounding.

Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) connections declines, partially offset by broadband connection growth.

A majority of TDS Telecom's residential customers take advantage of bundling options as 59% of customers subscribe to more than one service.

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Residential Broadband Connections by Speed

As of June 30,

Residential broadband customers continue to choose higher speeds with 74% taking speeds of 100 Mbps or greater and 13% choosing 1Gig+.

Residential Revenue per Connection

Total residential revenue per connection increased 4% for the three and six months ended June 30, 2023, due to price increases and product mix changes, partially offset by promotional activity.

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Financial Overview — TDS Telecom

The following discussion and analysis compares financial results for the three and six months ended June 30, 2023, to the three and six months ended June 30, 2022

			Three Months Ended June 30,																		Six Months Ended June 30,
			2023						2022						2023 vs. 2022						2023						2022						2023 vs. 2022
(Dollars in millions)
Residential
Wireline, Incumbent			$	89					$	88					1		%				$	175					$	173					1		%
Wireline, Expansion			18						12						48		%				33						22						46		%
Cable			68						68						1		%				136						135						1		%
Total residential			175						168						4		%				344						330						4		%
Commercial			39						44						(10)		%				80						87						(8)		%
Wholesale			43						45						(4)		%				86						89						(4)		%
Total service revenues			257						256						1		%				510						507						1		%
Equipment revenues			—						—						(5)		%				—						1						(17)		%
Total operating revenues			257						256						1		%				510						507						1		%
Cost of services (excluding Depreciation, amortization and accretion reported below)			108						103						5		%				212						199						7		%
Cost of equipment and products			—						—						24		%				—						—						(10)		%
Selling, general and administrative			81						77						5		%				162						150						8		%
Depreciation, amortization and accretion			60						52						15		%				119						106						12		%
(Gain) loss on asset disposals, net			2						1						N/M						3						1						N/M
Total operating expenses			251						233						8		%				496						456						9		%
Operating income			$	7					$	23					(71)		%				$	15					$	51					(72)		%
Net income			$	7					$	19					(61)		%				$	15					$	41					(63)		%
Adjusted OIBDA (Non-GAAP)1			$	68					$	76					(10)		%				$	136					$	158					(14)		%
Adjusted EBITDA (Non-GAAP)1			$	70					$	76					(9)		%				$	139					$	159					(13)		%
Capital expenditures2			$	132					$	120					10		%				$	262					$	225					17		%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful

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

2Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.

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Operating Revenues

Three Months Ended June 30, 2023 and 2022

(Dollars in millions)

Numbers may not foot due to rounding.

Operating Revenues

Six Months Ended June 30, 2023 and 2022

(Dollars in millions)

Residential revenues consist of:

•Broadband services

•Video services, including IPTV, traditional cable programming and satellite offerings

•Voice services

Commercial revenues consist of:

•High-speed and dedicated business internet services

•Video services

•Voice services

Wholesale revenues consist of:

•Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom's networks

•Federal and state regulatory support, including A-CAM

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

Total operating revenues

Residential revenues increased for the three and six months ended June 30, 2023, due primarily to price increases and growth in broadband connections, partially offset by promotional activity and a decline in video and voice connections.

Commercial revenues decreased for the three and six months ended June 30, 2023, due primarily to declining connections in CLEC markets.

Cost of services

Cost of services increased for the three and six months ended June 30, 2023, due primarily to higher employee-related expenses, plant and maintenance costs, and video programming costs.

Selling, general and administrative

Selling, general and administrative expenses increased for the three and six months ended June 30, 2023, due primarily to increases to support current and future growth, including employee-related expenses and advertising and marketing expenses.

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Depreciation, amortization and accretion

Depreciation, amortization and accretion increased for the three and six months ended June 30, 2023, due primarily to increased capital expenditures on new fiber assets and customer-related equipment.

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Liquidity and Capital Resources

Sources of Liquidity

TDS and its subsidiaries operate capital-intensive businesses. TDS incurred negative free cash flow in the six months ended June 30, 2023, has incurred negative free cash flow in prior periods, and expects to continue to incur negative free cash flow in future periods. In the past, TDS’ existing cash and investment balances, funds available under its financing agreements, preferred share offerings, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets, pay dividends and to fund acquisitions. There is no assurance that this will be the case in the future.

TDS believes that existing cash and investment balances, funds available under its financing agreements, its ability to obtain future external financing, potential asset dispositions and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its day-to-day operating needs and debt service requirements. TDS will continue to monitor the rapidly changing business and market conditions and is taking and intends to take appropriate actions, as necessary, to meet its liquidity needs, including reducing its planned capital expenditures. See Market Risk for additional information regarding maturities of long-term debt.

TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, repurchases of shares, payment of dividends, or making additional investments, including new technologies and fiber deployments. It may be necessary from time to time to increase the size of its existing credit facilities, to amend existing or put in place new credit agreements, to obtain other forms of financing, or to divest assets in order to fund potential expenditures. In addition, TDS has elected to slow the pace and reduce the size of its capital expenditures, and may continue to do so in the future, as a means to lower its funding needs.

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. TDS does not have direct access to UScellular cash.

Cash and Cash Equivalents

(Dollars in millions)

The majority of TDS’ Cash and cash equivalents are 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. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.

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In addition to Cash and cash equivalents, TDS and UScellular had available undrawn borrowing capacity (taking into account debt covenant restrictions related to compliance with the Consolidated Leverage Ratio) from the following debt facilities at June 30, 2023. See the Financing section below for further details.

			TDS						UScellular
(Dollars in millions)
Revolving Credit Agreement			$	274					$	300
Receivables Securitization Agreement			—						210
Repurchase Agreement			—						200
Total undrawn borrowing capacity			274						710
Debt covenant restrictions			—						85
Total available undrawn borrowing capacity			$	274					$	625

Financing

Revolving Credit Agreements

TDS has a revolving credit agreement with maximum borrowing capacity of $400 million. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the six months ended June 30, 2023, TDS borrowed $175 million and repaid $50 million under the agreement. As of June 30, 2023, TDS' outstanding borrowings under the agreement were $126 million, including letters of credit, and the unused borrowing capacity was $274 million.

In July 2023, TDS borrowed $30 million under the agreement.

Export Credit Financing Agreement

TDS has a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan facility agreement. During the six months ended June 30, 2023, TDS borrowed $100 million under the agreement. As of June 30, 2023, the outstanding borrowings under the agreement were $150 million, which is the full amount available under the agreement with repayment due in December 2027.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until March 2024. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in April 2024. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to Secured Overnight Financing Rate (SOFR)) plus 0.90%. During the six months ended June 30, 2023, UScellular borrowed $115 million and repaid $150 million under the agreement. As of June 30, 2023, the outstanding borrowings under the agreement were $240 million and the unused borrowing capacity was $210 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of June 30, 2023, $38 million of the outstanding borrowings were classified as Current portion of long-term debt in the Consolidated Balance Sheet, based on an estimate of required repayments within the next twelve months if the agreement is not extended. However, UScellular intends to extend the maturity date of the facility, at which time this amount would be reclassified as Long-term debt, net in the Consolidated Balance Sheet.

In July 2023, UScellular repaid $100 million under the agreement.

Repurchase Agreement

UScellular, through a subsidiary (the repo subsidiary), has a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 1.35%. During the six months ended June 30, 2023, the repo subsidiary repaid $60 million under the agreement. As of June 30, 2023, there were no outstanding borrowings under the agreement and the unused borrowing capacity was $200 million.

Debt Covenants

The TDS and UScellular revolving credit agreements, term loan agreements, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. In March 2023, the agreements were amended to require TDS and UScellular to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.25 to 1.00 from January 1, 2023 through March 31, 2024; 4.00 to 1.00 from April 1, 2024 through March 31, 2025; 3.75 to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe that they were in compliance as of June 30, 2023 with all such financial covenants.

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Other Long-Term Financing

TDS and UScellular have in place effective shelf registration statements on Form S-3 to issue senior or subordinated securities, preferred shares and depositary shares.

See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information related to the financing agreements.

Credit Ratings

In June 2023, Standard & Poor's revised the TDS issuer credit rating to a negative outlook. There was no change to the BB rating issued by Standard & Poor's in October 2022.

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the six months ended June 30, 2023 and 2022, were as follows:

Capital Expenditures

(Dollars in millions)

UScellular’s capital expenditures for the six months ended June 30, 2023 and 2022, were $351 million and $405 million, respectively.

Capital expenditures for the full year 2023 are expected to be between $600 million and $700 million. These expenditures are expected to be used principally for the following purposes:

▪Continue 5G deployment;

▪Enhance and maintain UScellular's network capacity and coverage, including deployment of mid-band spectrum to provide additional speed and capacity to accommodate increased data usage by current customers; and

▪Invest in information technology to support existing and new services and products.

TDS Telecom’s capital expenditures for the six months ended June 30, 2023 and 2022, were $262 million and $225 million, respectively.

Capital expenditures for the full year 2023 are expected to be between $475 million and $525 million. These expenditures are expected to be used principally for the following purposes:

▪Continue to expand fiber deployment in expansion and incumbent markets;

▪Support broadband growth and success-based spending; and

▪Maintain and enhance existing infrastructure including build-out requirements of state broadband and A-CAM programs.

TDS intends to finance its capital expenditures for 2023 using primarily Cash flows from operating activities, existing cash balances and additional debt financing from its existing agreements and/or other forms of available financing.

Acquisitions, Divestitures and Exchanges

TDS may be engaged in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, assets, wireless spectrum licenses (including pursuant to FCC auctions) and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement.

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Other Obligations

TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; commitments for wireless spectrum licenses acquired through FCC auctions; and other agreements to purchase goods or services. TDS has taken and expects to continue to take steps to reduce and defer capital expenditures to lower its funding needs. Refer to Liquidity and Capital Resources within this MD&A for additional information.

Variable Interest Entities

TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 10 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

Common Share Repurchase Programs

During the six months ended June 30, 2023, TDS repurchased 545,990 Common Shares for $6 million at an average cost per share of $10.09. As of June 30, 2023, the maximum dollar value of TDS Common Shares that may yet be repurchased under TDS’ program was $132 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

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Consolidated Cash Flow Analysis

TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade communications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. Revenues from certain of these investments are long-term and in some cases are uncertain. To meet its cash-flow needs, TDS may need to delay or reduce certain investments, dividend payments or sell assets. Refer to Liquidity and Capital Resources within this MD&A for additional information. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes TDS' cash flow activities for the six months ended June 30, 2023 and 2022.

2023 Commentary

TDS’ Cash, cash equivalents and restricted cash decreased $106 million. Net cash provided by operating activities was $514 million due to net income of $12 million adjusted for non-cash items of $483 million, distributions received from unconsolidated entities of $78 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which decreased net cash by $59 million. The working capital changes were primarily driven by timing of vendor payments and payment of associate bonuses, partially offset by a federal income tax refund of $57 million received during the second quarter, reduced inventory purchases and timing of collection on receivables.

Cash flows used for investing activities were $629 million, due primarily to payments for property, plant and equipment of $629 million.

Cash flows provided by financing activities were $9 million, due primarily to $115 million borrowed under the UScellular receivables securitization agreement, $175 million borrowed under the TDS revolving credit agreement, and $100 million borrowed under the TDS export credit agreement. These were mostly offset by a $150 repayment on the UScellular receivables securitization agreement, a $60 million repayment on the UScellular EIP receivables repurchase agreement, a $50 million repayment on the TDS revolving credit agreement and the payment of dividends.

2022 Commentary

TDS’ Cash, cash equivalents and restricted cash increased $91 million. Net cash provided by operating activities was $734 million due to net income of $111 million adjusted for non-cash items of $517 million, distributions received from unconsolidated entities of $80 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $26 million. The working capital changes were primarily driven by a federal income tax refund of $125 million received during the first quarter of 2022, partially offset by timing of collection on receivables, increases in inventory and the payment of annual associate bonuses.

Cash flows used for investing activities were $1,122 million, which included payments for wireless spectrum licenses of $564 million and payments for property, plant and equipment of $526 million. Cash payments for property, plant and equipment were lower than the total capital expenditures in the six months ended June 30, 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid over time.

Cash flows provided by financing activities were $479 million, due primarily to $550 million borrowed under the term loan facilities, $150 million borrowed under the UScellular export credit financing agreement, $75 million borrowed under the UScellular revolving credit agreement, and $60 million borrowed under the UScellular EIP receivables repurchase agreement. These were partially offset by $150 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, the payment of dividends and repurchase of TDS and UScellular Common Shares.

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Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 2023 were as follows:

Inventory, net

Inventory, net decreased $52 million due primarily to efforts to reduce inventory on hand which was elevated to support holiday promotions and ensure adequate device supply.

Income taxes receivable

Income taxes receivable decreased $54 million due primarily to a federal income tax refund received in the second quarter of 2023 related to the 2020 net operating loss carryback enabled by the CARES Act.

Current portion of long-term debt

Current portion of long-term debt increased $41 million due primarily to an estimate of required repayments due on the receivables securitization agreement if the agreement is not extended.

Accounts payable

Accounts payable decreased $142 million due primarily to the timing of vendor invoice payments related to inventory.

Accrued compensation

Accrued compensation decreased $40 million due primarily to associate bonus payments in March 2023.

Other current liabilities

Other current liabilities decreased $88 million due primarily to repayments on the UScellular EIP receivables repurchase agreement.

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Supplemental Information Relating to Non-GAAP Financial Measures

TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this report:

▪EBITDA

▪Adjusted EBITDA

▪Adjusted OIBDA

▪Free cash flow

These measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. Following are explanations of each of these measures.

EBITDA, Adjusted EBITDA and Adjusted OIBDA

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

Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. See Note 12 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income.

			Three Months Ended June 30,												Six Months Ended June 30,
TDS - CONSOLIDATED			2023						2022						2023						2022
(Dollars in millions)
Net income (GAAP)			$	—					$	39					$	12					$	111
Add back:
Income tax expense			15						27						28						65
Interest expense			62						40						116						72
Depreciation, amortization and accretion			225						229						456						456
EBITDA (Non-GAAP)			302						335						612						704
Add back or deduct:
Loss on impairment of licenses			—						3						—						3
(Gain) loss on asset disposals, net			5						7						16						9
Adjusted EBITDA (Non-GAAP)			307						345						628						716
Deduct:
Equity in earnings of unconsolidated entities			38						38						82						83
Interest and dividend income			6						5						11						7
Other, net			—						—						1						—
Adjusted OIBDA (Non-GAAP)			263						302						534						626
Deduct:
Depreciation, amortization and accretion			225						229						456						456
Loss on impairment of licenses			—						3						—						3
(Gain) loss on asset disposals, net			5						7						16						9
Operating income (GAAP)			$	33					$	63					$	62					$	158

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			Three Months Ended June 30,												Six Months Ended June 30,
UScellular			2023						2022						2023						2022
(Dollars in millions)
Net income (GAAP)			$	5					$	22					$	20					$	74
Add back:
Income tax expense			19						18						29						50
Interest expense			51						40						99						73
Depreciation, amortization and accretion			161						172						330						342
EBITDA (Non-GAAP)			236						252						478						539
Add back or deduct:
Loss on impairment of licenses			—						3						—						3
(Gain) loss on asset disposals, net			3						6						13						8
Adjusted EBITDA (Non-GAAP)			239						261						491						550
Deduct:
Equity in earnings of unconsolidated entities			38						37						82						82
Interest and dividend income			3						3						5						4
Adjusted OIBDA (Non-GAAP)			198						221						404						464
Deduct:
Depreciation, amortization and accretion			161						172						330						342
Loss on impairment of licenses			—						3						—						3
(Gain) loss on asset disposals, net			3						6						13						8
Operating income (GAAP)			$	34					$	40					$	61					$	111

			Three Months Ended June 30,												Six Months Ended June 30,
TDS TELECOM			2023						2022						2023						2022
(Dollars in millions)
Net income (GAAP)			$	7					$	19					$	15					$	41
Add back:
Income tax expense			3						7						5						14
Interest expense			(2)						(2)						(4)						(4)
Depreciation, amortization and accretion			60						52						119						106
EBITDA (Non-GAAP)			68						75						136						158
Add back or deduct:
(Gain) loss on asset disposals, net			2						1						3						1
Adjusted EBITDA (Non-GAAP)			70						76						139						159
Deduct:
Interest and dividend income			1						—						2						—
Other, net			—						—						1						—
Adjusted OIBDA (Non-GAAP)			68						76						136						158
Deduct:
Depreciation, amortization and accretion			60						52						119						106
(Gain) loss on asset disposals, net			2						1						3						1
Operating income (GAAP)			$	7					$	23					$	15					$	51

Numbers may not foot due to rounding.

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Free Cash Flow

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

			Six Months Ended June 30,
			2023						2022
(Dollars in millions)
Cash flows from operating activities (GAAP)			$	514					$	734
Cash paid for additions to property, plant and equipment			(629)						(526)
Cash paid for software license agreements			(20)						(3)
Free cash flow (Non-GAAP)			$	(135)					$	205

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Application of Critical Accounting Policies and Estimates

TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements included in TDS' Form 10-K for the year ended December 31, 2022. TDS’ application of critical accounting policies and estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in TDS’ Form 10-K for the year ended December 31, 2022.

Regulatory Matters

Spectrum Auctions

On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $185 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes. UScellular paid $36 million, $8 million and $3 million related to the additional costs in October 2021, September 2022 and March 2023, respectively. In June 2023, UScellular received invoices totaling $10 million, which are expected to be paid in August 2023. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

FCC Enhanced Alternative Connect America Cost Model (EA-CAM)

On July 24, 2023, the FCC released an order adopting the EA-CAM program for the purpose of supporting widespread deployment of 100/20 Mbps service in rural areas. The program is extended to carriers currently receiving A-CAM or legacy rate-of-return support.

TDS Telecom currently receives support from the A-CAM program. The voluntary path for the EA-CAM program includes support for an additional 10-year period in exchange for meeting defined build-out obligations. TDS Telecom expects to receive support and obligation detail later in 2023 and like the current program, participation elections will be approved at a state level. TDS Telecom is reviewing the order and will consider its options when the detailed support and obligation detail is received.

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Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, those set forth below, as more fully described under “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2022 and in this Form 10-Q. Each of the following risks could have a material adverse effect on TDS’ business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. You should carefully consider the Risk Factors in TDS’ Form 10-K for the year ended December 31, 2022, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to TDS’ business, financial condition or results of operations.

Operational Risk Factors

▪Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect TDS’ revenues or increase its costs to compete.

▪Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.

▪A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on TDS’ business, financial condition or results of operations.

▪An inability to attract diverse people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.

▪TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.

▪Changes in various business factors, including changes in demand, consumer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on TDS’ business, financial condition or results of operations.

▪Advances or changes in technology could render certain technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase its costs of doing business.

▪Complexities associated with deploying new technologies present substantial risk and TDS’ investments in unproven technologies may not produce the benefits that TDS expects.

▪Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of TDS’ businesses could have an adverse effect on TDS’ business, financial condition or results of operations.

▪A failure by TDS to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.

▪Difficulties involving third parties with which TDS does business, including changes in TDS’ relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.

▪A failure by TDS to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.

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Financial Risk Factors

▪Uncertainty in TDS’ future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which has required and could in the future require TDS to reduce or delay its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, divest assets or businesses, and/or reduce or cease share repurchases and/or the payment of dividends.

▪TDS has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.

▪TDS’ assets and revenue are concentrated primarily in the U.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.

▪TDS has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.

Regulatory, Legal and Governance Risk Factors

▪Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.

▪TDS receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on TDS’ business, financial condition or results of operations.

▪Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.

▪The possible development of adverse precedent in litigation or conclusions in professional or environmental studies to the effect that potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals or due to contamination from network cabling, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, or may interfere with various electronic medical devices or frequencies used by other industries, could have an adverse effect on TDS’ wireless and/or wireline business, financial condition or results of operations.

▪Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.

▪Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of TDS or have other consequences.

▪TDS and UScellular are initiating a process to explore a range of strategic alternatives for UScellular and there can be no assurance that any strategic alternative will be successfully identified or completed, that any such alternative will result in additional value for TDS and its shareholders, or that the process will not have an adverse impact on TDS' business.

General Risk Factors

▪TDS has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on TDS' business, financial condition or results of operations.

▪Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or results of operations.

▪The impact of public health emergencies on TDS' business is uncertain, but depending on duration and severity could have a material adverse effect on TDS' business, financial condition or results of operations.

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Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2022, which could materially affect TDS’ business, financial condition or future results. The risks described in this Form 10-Q and the Form 10-K for the year ended December 31, 2022, may not be the only risks that could affect TDS. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect TDS’ business, financial condition and/or operating results. The following additional risk factor should be read in conjunction with the risk factors previously disclosed in TDS’ Form 10-K for the year ended December 31, 2022.

TDS and UScellular are initiating a process to explore a range of strategic alternatives for UScellular and there can be no assurance that any strategic alternative will be successfully identified or completed, that any such alternative will result in additional value for TDS and its shareholders, or that the process will not have an adverse impact on TDS' business.

On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies have decided to initiate a process to explore a range of strategic alternatives for UScellular. This comprehensive process could result in a diversion of management's attention from TDS' existing business; a failure to achieve financial and operating objectives; the incurrence of significant expenses; the failure to retain key personnel, customers, business partners or contracts; and volatility in TDS' stock price. There can be no assurance that such comprehensive process will result in any strategic alternative of any kind being successfully identified or completed or that the process will not have an adverse impact on TDS' business.

TDS does not intend to discuss or disclose developments with respect to the process unless we determine further disclosure is appropriate or required.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

As of June 30, 2023, approximately 50% of TDS' long-term debt was in fixed-rate senior notes and approximately 50% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt.

The following table presents the scheduled principal payments on long-term debt, lease obligations, and the related weighted average interest rates by maturity dates at June 30, 2023.

			Principal Payments Due by Period
			Long-Term Debt Obligations1						Weighted-Avg. Interest Rates on Long-Term Debt Obligations2
(Dollars in millions)
Remainder of 2023			$	9					7.1		%
2024			26						7.0		%
2025			26						7.0		%
2026			401						6.7		%
2027			319						6.7		%
Thereafter			2,982						6.5		%
Total			$	3,763					6.5		%

1The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, unamortized discounts related to UScellular's 6.7% Senior Notes, and outstanding borrowings under the receivables securitization agreement, which principal repayments are not scheduled but are instead based on actual receivable collections.

2Represents the weighted average stated interest rates at June 30, 2023, for debt maturing in the respective periods.

See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of June 30, 2023.

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Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2023						2022						2023						2022
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service			$	1,041					$	1,064					$	2,084					$	2,125
Equipment and product sales			226						285						486						539
Total operating revenues			1,267						1,349						2,570						2,664
Operating expenses
Cost of services (excluding Depreciation, amortization and accretion reported below)			316						312						622						611
Cost of equipment and products			252						308						538						590
Selling, general and administrative			436						427						876						837
Depreciation, amortization and accretion			225						229						456						456
Loss on impairment of licenses			—						3						—						3
(Gain) loss on asset disposals, net			5						7						16						9
Total operating expenses			1,234						1,286						2,508						2,506
Operating income			33						63						62						158
Investment and other income (expense)
Equity in earnings of unconsolidated entities			38						38						82						83
Interest and dividend income			6						5						11						7
Interest expense			(62)						(40)						(116)						(72)
Other, net			—						—						1						—
Total investment and other income (expense)			(18)						3						(22)						18
Income before income taxes			15						66						40						176
Income tax expense			15						27						28						65
Net income			—						39						12						111
Less: Net income attributable to noncontrolling interests, net of tax			2						4						6						15
Net income (loss) attributable to TDS shareholders			(2)						35						6						96
TDS Preferred Share dividends			17						17						35						35
Net income (loss) attributable to TDS common shareholders			$	(19)					$	18					$	(29)					$	61
Basic weighted average shares outstanding			113						115						113						115
Basic earnings (loss) per share attributable to TDS common shareholders			$	(0.17)					$	0.15					$	(0.25)					$	0.53
Diluted weighted average shares outstanding			113						116						113						116
Diluted earnings (loss) per share attributable to TDS common shareholders			$	(0.17)					$	0.15					$	(0.25)					$	0.52

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2023						2022						2023						2022
(Dollars in millions)
Net income			$	—					$	39					$	12					$	111
Net change in accumulated other comprehensive income related to retirement plan
Amounts included in net periodic benefit cost for the period
Amortization of prior service cost and unrecognized net gain			—						—						—						—
Comprehensive income			—						39						12						111
Less: Net income attributable to noncontrolling interests, net of tax			2						4						6						15
Comprehensive income (loss) attributable to TDS shareholders			$	(2)					$	35					$	6					$	96

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

			Six Months Ended June 30,
			2023						2022
(Dollars in millions)
Cash flows from operating activities
Net income			$	12					$	111
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion			456						456
Bad debts expense			53						54
Stock-based compensation expense			14						23
Deferred income taxes, net			22						52
Equity in earnings of unconsolidated entities			(82)						(83)
Distributions from unconsolidated entities			78						80
Loss on impairment of licenses			—						3
(Gain) loss on asset disposals, net			16						9
Other operating activities			4						3
Changes in assets and liabilities from operations
Accounts receivable			19						(25)
Equipment installment plans receivable			7						(25)
Inventory			52						(35)
Accounts payable			(124)						(6)
Customer deposits and deferred revenues			(9)						7
Accrued taxes			56						131
Accrued interest			(1)						1
Other assets and liabilities			(59)						(22)
Net cash provided by operating activities			514						734
Cash flows from investing activities
Cash paid for additions to property, plant and equipment			(629)						(526)
Cash paid for intangible assets			(8)						(585)
Advance payments for license acquisitions			—						(1)
Other investing activities			8						(10)
Net cash used in investing activities			(629)						(1,122)
Cash flows from financing activities
Issuance of long-term debt			391						776
Repayment of long-term debt			(209)						(228)
Issuance of short-term debt			—						60
Repayment of short-term debt			(60)						—
TDS Common Shares reissued for benefit plans, net of tax payments			(3)						(4)
UScellular Common Shares reissued for benefit plans, net of tax payments			(6)						(5)
Repurchase of TDS Common Shares			(6)						(20)
Repurchase of UScellular Common Shares			—						(18)
Dividends paid to TDS shareholders			(76)						(76)
Distributions to noncontrolling interests			(2)						(2)
Cash paid for software license agreements			(20)						(3)
Other financing activities			—						(1)
Net cash provided by financing activities			9						479
Net increase (decrease) in cash, cash equivalents and restricted cash			(106)						91
Cash, cash equivalents and restricted cash
Beginning of period			399						414
End of period			$	293					$	505

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets

(Unaudited)

			June 30, 2023						December 31, 2022
(Dollars in millions)
Current assets
Cash and cash equivalents			$	251					$	360
Accounts receivable
Customers and agents, less allowances of $70 and $74, respectively			1,014						1,069
Other, less allowances of $3 and $3, respectively			93						112
Inventory, net			216						268
Prepaid expenses			104						102
Income taxes receivable			5						59
Other current assets			63						58
Total current assets			1,746						2,028
Assets held for sale			16						26
Licenses			4,704						4,699
Goodwill			547						547
Other intangible assets, net of accumulated amortization of $123 and $112, respectively			193						204
Investments in unconsolidated entities			500						495
Property, plant and equipment
In service and under construction			15,322						14,971
Less: Accumulated depreciation and amortization			10,390						10,211
Property, plant and equipment, net			4,932						4,760
Operating lease right-of-use assets			988						995
Other assets and deferred charges			780						796
Total assets1			$	14,406					$	14,550

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)

			June 30, 2023						December 31, 2022
(Dollars and shares in millions, except per share amounts)
Current liabilities
Current portion of long-term debt			$	60					$	19
Accounts payable			364						506
Customer deposits and deferred revenues			278						285
Accrued interest			12						12
Accrued taxes			45						46
Accrued compensation			104						144
Short-term operating lease liabilities			147						146
Other current liabilities			268						356
Total current liabilities			1,278						1,514
Deferred liabilities and credits
Deferred income tax liability, net			987						969
Long-term operating lease liabilities			900						908
Other deferred liabilities and credits			820						813
Long-term debt, net			3,872						3,731
Commitments and contingencies
Noncontrolling interests with redemption features			12						12
Equity
TDS shareholders’ equity
Series A Common and Common Shares
Authorized 290 shares (25 Series A Common and 265 Common Shares)
Issued 133 shares (7 Series A Common and 126 Common Shares)
Outstanding 113 shares (7 Series A Common and 106 Common Shares) and 112 shares (7 Series A Common and 105 Common Shares), respectively
Par Value ($0.01 per share)			1						1
Capital in excess of par value			2,532						2,551
Preferred Shares, 0.279 shares authorized, par value $0.01 per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV)			1,074						1,074
Treasury shares, at cost, 20 and 21 Common Shares, respectively			(466)						(481)
Accumulated other comprehensive income			5						5
Retained earnings			2,606						2,699
Total TDS shareholders' equity			5,752						5,849
Noncontrolling interests			785						754
Total equity			6,537						6,603
Total liabilities and equity1			$	14,406					$	14,550

The accompanying notes are an integral part of these consolidated financial statements.

1The consolidated total assets as of June 30, 2023 and December 31, 2022, include assets held by consolidated variable interest entities (VIEs) of $1,376 million and $1,236 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2023 and December 31, 2022, include certain liabilities of consolidated VIEs of $23 million for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 10 — Variable Interest Entities for additional information.

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

			TDS Shareholders
			Series A Common and Common shares						Capital in excess of par value						Preferred Shares						Treasury shares						Accumulated other comprehensive income						Retained earnings						Total TDS shareholders' equity						Noncontrolling interests						Total equity
(Dollars in millions, except per share amounts)
March 31, 2023			$	1					$	2,552					$	1,074					$	(474)					$	5					$	2,658					$	5,816					$	759					$	6,575
Net income (loss) attributable to TDS shareholders			—						—						—						—						—						(2)						(2)						—						(2)
Net income attributable to noncontrolling interests classified as equity			—						—						—						—						—						—						—						2						2
TDS Common and Series A Common share dividends ($0.185 per share)			—						—						—						—						—						(21)						(21)						—						(21)
TDS Preferred share dividends ($414 per Series UU share and $375 per Series VV share)			—						—						—						—						—						(17)						(17)						—						(17)
Repurchase of Common Shares			—						—						—						(3)						—						—						(3)						—						(3)
Dividend reinvestment plan			—						—						—						1						—						(1)						—						—						—
Incentive and compensation plans			—						4						—						10						—						(11)						3						—						3
Adjust investment in subsidiaries for issuances and other compensation plans			—						(24)						—						—						—						—						(24)						25						1
Distributions to noncontrolling interests			—						—						—						—						—						—						—						(1)						(1)
June 30, 2023			$	1					$	2,532					$	1,074					$	(466)					$	5					$	2,606					$	5,752					$	785					$	6,537

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

			TDS Shareholders
			Series A Common and Common shares						Capital in excess of par value						Preferred Shares						Treasury shares						Accumulated other comprehensive income						Retained earnings						Total TDS shareholders' equity						Noncontrolling interests						Total equity
(Dollars in millions, except per share amounts)
March 31, 2022			$	1					$	2,511					$	1,074					$	(456)					$	6					$	2,824					$	5,960					$	801					$	6,761
Net income attributable to TDS shareholders			—						—						—						—						—						35						35						—						35
Net income attributable to noncontrolling interests classified as equity			—						—						—						—						—						—						—						4						4
TDS Common and Series A Common share dividends ($0.180 per share)			—						—						—						—						—						(21)						(21)						—						(21)
TDS Preferred share dividends ($414 per Series UU share and $375 per Series VV share)			—						—						—						—						—						(17)						(17)						—						(17)
Repurchase of Common Shares			—						—						—						(16)						—						—						(16)						—						(16)
Dividend reinvestment plan			—						—						—						1						—						—						1						—						1
Incentive and compensation plans			—						5						—						8						—						(11)						2						—						2
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans			—						(5)						—						—						—						—						(5)						—						(5)
Distributions to noncontrolling interests			—						—						—						—						—						—						—						(1)						(1)
June 30, 2022			$	1					$	2,511					$	1,074					$	(463)					$	6					$	2,810					$	5,939					$	804					$	6,743

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

			TDS Shareholders
			Series A Common and Common shares						Capital in excess of par value						Preferred Shares						Treasury shares						Accumulated other comprehensive income						Retained earnings						Total TDS shareholders' equity						Noncontrolling interests						Total equity
(Dollars in millions, except per share amounts)
December 31, 2022			$	1					$	2,551					$	1,074					$	(481)					$	5					$	2,699					$	5,849					$	754					$	6,603
Net income attributable to TDS shareholders			—						—						—						—						—						6						6						—						6
Net income attributable to noncontrolling interests classified as equity			—						—						—						—						—						—						—						6						6
TDS Common and Series A Common share dividends ($0.370 per share)			—						—						—						—						—						(42)						(42)						—						(42)
TDS Preferred share dividends ($828 per Series UU share and $750 per Series VV share)			—						—						—						—						—						(35)						(35)						—						(35)
Repurchase of Common Shares			—						—						—						(6)						—						—						(6)						—						(6)
Dividend reinvestment plan			—						—						—						2						—						—						2						—						2
Incentive and compensation plans			—						8						—						19						—						(22)						5						—						5
Adjust investment in subsidiaries for issuances and other compensation plans			—						(27)						—						—						—						—						(27)						27						—
Distributions to noncontrolling interests			—						—						—						—						—						—						—						(2)						(2)
June 30, 2023			$	1					$	2,532					$	1,074					$	(466)					$	5					$	2,606					$	5,752					$	785					$	6,537

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

			TDS Shareholders
			Series A Common and Common shares						Capital in excess of par value						Preferred Shares						Treasury shares						Accumulated other comprehensive income						Retained earnings						Total TDS shareholders' equity						Noncontrolling interests						Total equity
(Dollars in millions, except per share amounts)
December 31, 2021			$	1					$	2,496					$	1,074					$	(461)					$	5					$	2,812					$	5,927					$	807					$	6,734
Net income attributable to TDS shareholders			—						—						—						—						—						96						96						—						96
Net income attributable to noncontrolling interests classified as equity			—						—						—						—						—						—						—						14						14
Other comprehensive income			—						—						—						—						1						—						1						—						1
TDS Common and Series A Common share dividends ($0.360 per share)			—						—						—						—						—						(41)						(41)						—						(41)
TDS Preferred share dividends ($828 per Series UU share and $750 per Series VV share)			—						—						—						—						—						(35)						(35)						—						(35)
Repurchase of Common Shares			—						—						—						(20)						—						—						(20)						—						(20)
Dividend reinvestment plan			—						1						—						1						—						(1)						1						—						1
Incentive and compensation plans			—						9						—						17						—						(21)						5						—						5
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans			—						5						—						—						—						—						5						(15)						(10)
Distributions to noncontrolling interests			—						—						—						—						—						—						—						(2)						(2)
June 30, 2022			$	1					$	2,511					$	1,074					$	(463)					$	6					$	2,810					$	5,939					$	804					$	6,743

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

Note 1 Basis of Presentation

The accounting policies of Telephone and Data Systems, Inc. (TDS) 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). Unless otherwise specified, references to accounting provisions and GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements include the accounts of TDS and subsidiaries in which it has a controlling financial interest, including TDS’ 83%-owned subsidiary, United States Cellular Corporation (UScellular) and TDS’ wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that requires consolidation into the TDS financial statements under GAAP. Intercompany accounts and transactions have been eliminated.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended June 30, 2023, are UScellular and TDS Telecom. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle-Straus). HMS’ and Suttle-Straus’ financial results were not significant to TDS’ operations. All of TDS’ segments operate only in the United States. See Note 12 — Business Segment Information for summary financial information on each business segment.

Certain numbers included herein are rounded to millions for ease of presentation; however, certain 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 TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2022.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of June 30, 2023 and December 31, 2022, its results of operations, comprehensive income and changes in equity for the three and six months ended June 30, 2023 and 2022, and its cash flows for the six months ended June 30, 2023 and 2022. These results are not necessarily indicative of the results to be expected for the full year. TDS has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2022.

Software License Agreements

Certain software licenses are recorded as acquisitions of property, plant and equipment and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition, and are treated as non-cash activity in the Consolidated Statement of Cash Flows. Such acquisitions of software licenses that are not reflected as Cash paid for additions to property, plant and equipment were $11 million and $139 million for the six months ended June 30, 2023 and 2022, respectively.

Restricted Cash

TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 9 — Debt for additional information related to the receivables securitization agreement. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.

			June 30, 2023						December 31, 2022
(Dollars in millions)
Cash and cash equivalents			$	251					$	360
Restricted cash included in Other current assets			42						39
Cash, cash equivalents and restricted cash in the statement of cash flows			$	293					$	399

Recent Development

On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies have decided to initiate a process to explore a range of strategic alternatives for UScellular. The initiation of this process does not impact the June 30, 2023 financial statements. At this time, TDS cannot predict the ultimate outcome of such process or estimate the potential impact of such process on the financial statements.

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Note 2 Revenue Recognition

Disaggregation of Revenue

In the following table, TDS' revenues are disaggregated by type of service, which represents the relevant categorization of revenues for TDS' reportable segments, and timing of recognition. Service revenues are recognized over time and Equipment and product sales are recognized at a point in time.

Three Months Ended June 30, 2023			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service			$	686					$	—					$	—					$	686
Inbound roaming			8						—						—						8
Residential			—						175						—						175
Commercial			—						39						—						39
Wholesale			—						42						—						42
Other service			41						—						18						59
Service revenues from contracts with customers			735						256						18						1,009
Equipment and product sales			197						—						29						226
Total revenues from contracts with customers			932						256						47						1,235
Operating lease income			25						1						6						32
Total operating revenues			$	957					$	257					$	53					$	1,267

Three Months Ended June 30, 2022			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service			$	700					$	—					$	—					$	700
Inbound roaming			18						—						—						18
Residential			—						168						—						168
Commercial			—						44						—						44
Wholesale			—						44						—						44
Other service			42						—						19						61
Service revenues from contracts with customers			760						255						19						1,035
Equipment and product sales			244						—						41						285
Total revenues from contracts with customers			1,004						255						60						1,320
Operating lease income			23						1						6						29
Total operating revenues			$	1,027					$	256					$	66					$	1,349

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Six Months Ended June 30, 2023			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service			$	1,378					$	—					$	—					$	1,378
Inbound roaming			17						—						—						17
Residential			—						344						—						344
Commercial			—						80						—						80
Wholesale			—						84						—						84
Other service			82						—						37						119
Service revenues from contracts with customers			1,477						508						37						2,022
Equipment and product sales			415						—						71						486
Total revenues from contracts with customers			1,892						508						108						2,508
Operating lease income			50						2						10						62
Total operating revenues			$	1,942					$	510					$	118					$	2,570

Six Months Ended June 30, 2022			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service			$	1,402					$	—					$	—					$	1,402
Inbound roaming			39						—						—						39
Residential			—						330						—						330
Commercial			—						87						—						87
Wholesale			—						87						—						87
Other service			84						—						36						120
Service revenues from contracts with customers			1,525						505						36						2,065
Equipment and product sales			467						1						71						539
Total revenues from contracts with customers			1,992						506						107						2,604
Operating lease income			45						2						13						60
Total operating revenues			$	2,037					$	507					$	120					$	2,664

Numbers may not foot due to rounding.

Contract Balances

The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.

			June 30, 2023						December 31, 2022
(Dollars in millions)
Contract assets			$	13					$	12
Contract liabilities			$	389					$	395

Revenue recognized related to contract liabilities existing at January 1, 2023 was $191 million for the six months ended June 30, 2023.

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Transaction price allocated to the remaining performance obligations

The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of June 30, 2023 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.

			Service Revenues
(Dollars in millions)
Remainder of 2023			$	273
2024			207
Thereafter			161
Total			$	641

Contract Cost Assets

TDS expects that commission fees paid as a result of obtaining contracts are recoverable and therefore TDS defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Deferred commission fees and fulfillment costs are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows:

			June 30, 2023						December 31, 2022
(Dollars in millions)
Costs to obtain contracts
Sales commissions			$	141					$	144
Fulfillment costs
Installation costs			6						8
Total contract cost assets			$	147					$	152

Amortization of contract cost assets was $27 million and $55 million for the three and six months ended June 30, 2023, respectively, and $28 million and $57 million for the three and six months ended June 30, 2022, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.

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Note 3 Fair Value Measurements

As of June 30, 2023 and December 31, 2022, TDS 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.

TDS 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, 2023												December 31, 2022
									Book Value						Fair Value						Book Value						Fair Value
(Dollars in millions)
Long-term debt
Retail			2						$	1,500					$	917					$	1,500					$	899
Institutional			2						536						381						536						395
Other			2						1,931						1,931						1,753						1,753

Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for UScellular Senior Notes, which are traded on the New York Stock Exchange. TDS’ “Institutional” debt consists of UScellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of term loan credit agreements, receivables securitization agreement, export credit financing agreements and in 2023, revolving credit agreement. TDS 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 3.52% to 8.77% and 3.52% to 8.28% at June 30, 2023 and December 31, 2022, respectively.

The fair values of Cash and cash equivalents, restricted cash and short-term debt approximate their book values due to the short-term nature of these financial instruments.

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Note 4 Equipment Installment Plans

UScellular sells devices to customers under equipment installment plans 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.

The following table summarizes equipment installment plan receivables.

			June 30, 2023						December 31, 2022
(Dollars in millions)
Equipment installment plan receivables, gross			$	1,159					$	1,211
Allowance for credit losses			(92)						(96)
Equipment installment plan receivables, net			$	1,067					$	1,115
Net balance presented in the Consolidated Balance Sheet as:
Accounts receivable — Customers and agents (Current portion)			$	604					$	646
Other assets and deferred charges (Non-current portion)			463						469
Equipment installment plan receivables, net			$	1,067					$	1,115

UScellular uses various inputs to evaluate the credit profiles of its customers, including internal data, information from credit bureaus and other sources. 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. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:

			June 30, 2023																														December 31, 2022
			Lowest Risk						Lower Risk						Slight Risk						Higher Risk						Total						Lowest Risk						Lower Risk						Slight Risk						Higher Risk						Total
(Dollars in millions)
Unbilled			$	979					$	91					$	20					$	6					$	1,096					$	1,016					$	98					$	22					$	5					$	1,141
Billed — current			39						4						1						—						44						41						5						2						—						48
Billed — past due			10						6						2						1						19						13						6						2						1						22
Total			$	1,028					$	101					$	23					$	7					$	1,159					$	1,070					$	109					$	26					$	6					$	1,211

The balance of the equipment installment plan receivables as of June 30, 2023 on a gross basis by year of origination were as follows:

			2020						2021						2022						2023						Total
(Dollars in millions)
Lowest Risk			$	3					$	160					$	559					$	306					$	1,028
Lower Risk			—						10						53						38						101
Slight Risk			—						1						10						12						23
Higher Risk			—						—						3						4						7
Total			$	3					$	171					$	625					$	360					$	1,159

The write-offs, net of recoveries for the six months ended June 30, 2023 on a gross basis by year of origination were as follows:

			2020						2021						2022						2023						Total
(Dollars in millions)
Write-offs, net of recoveries			$	1					$	9					$	28					$	1					$	39

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Activity for the six months ended June 30, 2023 and 2022, in the allowance for credit losses for equipment installment plan receivables was as follows:

			June 30, 2023						June 30, 2022
(Dollars in millions)
Allowance for credit losses, beginning of period			$	96					$	72
Bad debts expense			35						37
Write-offs, net of recoveries			(39)						(35)
Allowance for credit losses, end of period			$	92					$	74

Note 5 Income Taxes

The effective tax rate on Income before income taxes for the three and six months ended June 30, 2023 was 99.9% and 70.8%, respectively. These effective tax rates were higher than normal due primarily to the decrease in Income before income taxes which increased the effective tax rate impact of recurring tax adjustments including nondeductible interest and compensation expenses, as well as discrete increases in valuation allowances which reduced net state deferred tax assets.

The effective tax rate on Income before income taxes for the three and six months ended June 30, 2022 was 40.4% and 36.7%, respectively. These effective tax rates reflect a combined rate of federal and state taxes, adjusted for impacts of recurring tax adjustments including nondeductible interest and compensation expenses.

Note 6 Earnings Per Share

Basic earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period. Diluted earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common 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 basic and diluted earnings per share attributable to TDS common shareholders were as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2023						2022						2023						2022
(Dollars and shares in millions, except per share amounts)
Net income (loss) attributable to TDS common shareholders used in basic earnings (loss) per share			$	(19)					$	18					$	(29)					$	61
Adjustments to compute diluted earnings:
Noncontrolling interest adjustment			—						—						—						(1)
Net income (loss) attributable to TDS common shareholders used in diluted earnings (loss) per share			$	(19)					$	18					$	(29)					$	60
Weighted average number of shares used in basic earnings (loss) per share:
Common Shares			106						108						106						108
Series A Common Shares			7						7						7						7
Total			113						115						113						115
Effects of dilutive securities			—						1						—						1
Weighted average number of shares used in diluted earnings (loss) per share			113						116						113						116
Basic earnings (loss) per share attributable to TDS common shareholders			$	(0.17)					$	0.15					$	(0.25)					$	0.53
Diluted earnings (loss) per share attributable to TDS common shareholders			$	(0.17)					$	0.15					$	(0.25)					$	0.52

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Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings (loss) per share attributable to TDS common shareholders because their effects were antidilutive. The number of such Common Shares excluded was 5 million for both the three and six months ended June 30, 2023, and 4 million for both the three and six months ended June 30, 2022.

Note 7 Intangible Assets

In February 2021, the Federal Communications Commission (FCC) announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $185 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes. UScellular paid $36 million, $8 million and $3 million related to the additional costs in October 2021, September 2022 and March 2023, respectively. At June 30, 2023, invoices totaling $10 million are included in Accounts payable in the Consolidated Balance Sheet and are expected to be paid in August 2023. At June 30, 2023, the remaining estimated payments of approximately $122 million and $6 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, and at December 31, 2022, the remaining estimated payments of approximately $133 million and $8 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, in the Consolidated Balance Sheet. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

Note 8 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest. TDS’ Investments in unconsolidated entities are accounted for using the equity method, measurement alternative method or net asset value practical expedient method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.

			June 30, 2023						December 31, 2022
(Dollars in millions)
Equity method investments			$	472					$	468
Measurement alternative method investments			19						18
Investments recorded using the net asset value practical expedient			9						9
Total investments in unconsolidated entities			$	500					$	495

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2023						2022						2023						2022
(Dollars in millions)
Revenues			$	1,770					$	1,779					$	3,579					$	3,595
Operating expenses			1,363						1,395						2,729						2,772
Operating income			407						384						850						823
Other income (expense), net			8						(2)						(8)						(6)
Net income			$	415					$	382					$	842					$	817

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Note 9 Debt

Revolving Credit Agreements

TDS has a revolving credit agreement with maximum borrowing capacity of $400 million. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the six months ended June 30, 2023, TDS borrowed $175 million and repaid $50 million under its revolving credit agreement. Borrowings under the TDS revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus 1.60%. As of June 30, 2023, the outstanding borrowings under the agreement were $126 million, including letters of credit, and the unused borrowing capacity under the agreement was $274 million.

In July 2023, TDS borrowed $30 million under the agreement.

Export Credit Financing Agreement

TDS has a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan facility agreement. During the six months ended June 30, 2023, TDS borrowed $100 million under its export credit financing agreement. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable in December 2027. As of June 30, 2023, the outstanding borrowings were $150 million, which is the full amount available under the agreement.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until March 2024. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in April 2024. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 0.90%. During the six months ended June 30, 2023, UScellular borrowed $115 million and repaid $150 million under its receivables securitization agreement. As of June 30, 2023, the outstanding borrowings under the agreement were $240 million and the unused borrowing capacity was $210 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of June 30, 2023, $38 million of the outstanding borrowings were classified as Current portion of long-term debt in the Consolidated Balance Sheet, based on an estimate of required repayments within the next twelve months if the agreement is not extended. However, UScellular intends to extend the maturity date of the facility, at which time this amount would be reclassified as Long-term debt, net in the Consolidated Balance Sheet. As of June 30, 2023, the USCC Master Note Trust held $488 million of assets available to be pledged as collateral for the receivables securitization agreement.

In July 2023, UScellular repaid $100 million under the agreement.

Repurchase Agreement

UScellular, through a subsidiary (the repo subsidiary), has a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 1.35%. Outstanding borrowings are included in Other current liabilities in the Consolidated Balance Sheet. During the six months ended June 30, 2023, the repo subsidiary repaid $60 million under the agreement. As of June 30, 2023, there were no outstanding borrowings under the agreement and the unused borrowing capacity was $200 million. As of June 30, 2023, UScellular held $475 million of assets available for inclusion in the repurchase facility; these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement.

Debt Covenants

The TDS and UScellular revolving credit agreements, term loan agreements, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. In March 2023, the agreements were amended to require TDS and UScellular to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.25 to 1.00 from January 1, 2023 through March 31, 2024; 4.00 to 1.00 from April 1, 2024 through March 31, 2025; 3.75 to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe they were in compliance as of June 30, 2023 with all such financial covenants.

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Note 10 Variable Interest Entities

Consolidated VIEs

TDS consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. TDS reviews the criteria for a controlling financial interest 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 this Form 10-Q and TDS’ Form 10-K for the year ended December 31, 2022.

UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs and, therefore, consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables.

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

▪Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; 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 TDS subsidiary, to sell or lease certain wireless spectrum 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, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated into the TDS financial statements.

TDS 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, UScellular 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 also are recognized as VIEs and are consolidated into the TDS financial statements under the variable interest model.

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The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in TDS’ Consolidated Balance Sheet.

			June 30, 2023						December 31, 2022
(Dollars in millions)
Assets
Cash and cash equivalents			$	26					$	29
Accounts receivable			659						700
Inventory, net			4						4
Other current assets			38						36
Licenses			639						638
Property, plant and equipment, net			119						115
Operating lease right-of-use assets			42						41
Other assets and deferred charges			472						478
Total assets			$	1,999					$	2,041
Liabilities
Current liabilities			$	31					$	92
Long-term operating lease liabilities			37						36
Other deferred liabilities and credits			28						28
Total liabilities1			$	96					$	156

1    Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 9 – Debt for additional information.

Unconsolidated VIEs

TDS 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 into the TDS financial statements under the variable interest model.

TDS’ total investment in these unconsolidated entities was $5 million and $4 million at June 30, 2023 and December 31, 2022, respectively, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities.

Other Related Matters

TDS made contributions, loans or advances to its VIEs totaling $238 million and $101 million, during the six months ended June 30, 2023 and 2022, respectively, of which $217 million in 2023 and $80 million in 2022, are related to USCC EIP LLC as discussed above. TDS 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 their operations or the development of wireless spectrum licenses granted in various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long-term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

The limited partnership agreement of Advantage Spectrum also provides the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of UScellular, to purchase its interest in the limited partnership. In June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage Spectrum will now be exercisable in the third quarter of 2023, and if not exercised at that time, will be exercisable again in the third quarter of 2024. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to TDS, is recorded as Noncontrolling interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put option, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated Statement of Operations.

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Note 11 Noncontrolling Interests

The following schedule discloses the effects of Net income attributable to TDS shareholders and changes in TDS’ ownership interest in UScellular on TDS’ equity:

Six Months Ended June 30,			2023						2022
(Dollars in millions)
Net income attributable to TDS shareholders			$	6					$	96
Transfers (to) from noncontrolling interests
Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares			(33)						(18)
Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares			—						13
Net transfers (to) from noncontrolling interests			(33)						(5)
Net income (loss) attributable to TDS shareholders after transfers (to) from noncontrolling interests			$	(27)					$	91

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Note 12 Business Segment Information

UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, finance, and general management services. Such billings are based on expenses specifically identified to UScellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to UScellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if UScellular and TDS Telecom operated on a stand-alone basis.

Financial data for TDS’ reportable segments for the three and six month periods ended, or as of June 30, 2023 and 2022, is as follows. See Note 1 — Basis of Presentation for additional information. 

Three Months Ended or as of June 30, 2023			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Operating revenues
Service			$	760					$	257					$	24					$	1,041
Equipment and product sales			197						—						29						226
Total operating revenues			957						257						53						1,267
Cost of services (excluding Depreciation, amortization and accretion reported below)			190						108						18						316
Cost of equipment and products			228						—						24						252
Selling, general and administrative			341						81						14						436
Depreciation, amortization and accretion			161						60						4						225
(Gain) loss on asset disposals, net			3						2						—						5
Operating income (loss)			34						7						(8)						33
Equity in earnings of unconsolidated entities			38						—						—						38
Interest and dividend income			3						1						2						6
Interest expense			(51)						2						(13)						(62)
Income (loss) before income taxes			24						10						(19)						15
Income tax expense (benefit)			19						3						(7)						15
Net income (loss)			5						7						(12)						—
Add back:
Depreciation, amortization and accretion			161						60						4						225
(Gain) loss on asset disposals, net			3						2						—						5
Interest expense			51						(2)						13						62
Income tax expense (benefit)			19						3						(7)						15
Adjusted EBITDA1			$	239					$	70					$	(2)					$	307
Investments in unconsolidated entities			$	457					$	4					$	39					$	500
Total assets			$	10,889					$	3,219					$	298					$	14,406
Capital expenditures			$	143					$	132					$	3					$	278

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Three Months Ended or as of June 30, 2022			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Operating revenues
Service			$	783					$	256					$	25					$	1,064
Equipment and product sales			244						—						41						285
Total operating revenues			1,027						256						66						1,349
Cost of services (excluding Depreciation, amortization and accretion reported below)			192						103						17						312
Cost of equipment and products			275						—						33						308
Selling, general and administrative			339						77						11						427
Depreciation, amortization and accretion			172						52						5						229
Loss on impairment of licenses			3						—						—						3
(Gain) loss on asset disposals, net			6						1						—						7
Operating income			40						23						—						63
Equity in earnings of unconsolidated entities			37						—						1						38
Interest and dividend income			3						—						2						5
Interest expense			(40)						2						(2)						(40)
Income before income taxes			40						25						1						66
Income tax expense			18						7						2						27
Net income (loss)			22						19						(2)						39
Add back:
Depreciation, amortization and accretion			172						52						5						229
Loss on impairment of licenses			3						—						—						3
(Gain) loss on asset disposals, net			6						1						—						7
Interest expense			40						(2)						2						40
Income tax expense			18						7						2						27
Adjusted EBITDA1			$	261					$	76					$	8					$	345
Investments in unconsolidated entities			$	441					$	4					$	38					$	483
Total assets			$	11,003					$	2,803					$	436					$	14,242
Capital expenditures			$	268					$	120					$	3					$	391

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Six Months Ended or as of June 30, 2023			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Operating revenues
Service			$	1,527					$	510					$	47					$	2,084
Equipment and product sales			415						—						71						486
Total operating revenues			1,942						510						118						2,570
Cost of services (excluding Depreciation, amortization and accretion reported below)			372						212						38						622
Cost of equipment and products			480						—						58						538
Selling, general and administrative			686						162						28						876
Depreciation, amortization and accretion			330						119						7						456
(Gain) loss on asset disposals, net			13						3						—						16
Operating income (loss)			61						15						(14)						62
Equity in earnings of unconsolidated entities			82						—						—						82
Interest and dividend income			5						2						4						11
Interest expense			(99)						4						(21)						(116)
Other, net			—						1						—						1
Income (loss) before income taxes			49						21						(30)						40
Income tax expense (benefit)			29						5						(6)						28
Net income (loss)			20						15						(23)						12
Add back:
Depreciation, amortization and accretion			330						119						7						456
(Gain) loss on asset disposals, net			13						3						—						16
Interest expense			99						(4)						21						116
Income tax expense (benefit)			29						5						(6)						28
Adjusted EBITDA1			$	491					$	139					$	(2)					$	628
Capital expenditures			$	351					$	262					$	8					$	621

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Six Months Ended or as of June 30, 2022			UScellular						TDS Telecom						Corporate, Eliminations and Other						Total
(Dollars in millions)
Operating revenues
Service			$	1,570					$	507					$	48					$	2,125
Equipment and product sales			467						1						71						539
Total operating revenues			2,037						507						120						2,664
Cost of services (excluding Depreciation, amortization and accretion reported below)			377						199						35						611
Cost of equipment and products			533						—						57						590
Selling, general and administrative			663						150						24						837
Depreciation, amortization and accretion			342						106						8						456
Loss on impairment of licenses			3						—						—						3
(Gain) loss on asset disposals, net			8						1						—						9
Operating income (loss)			111						51						(4)						158
Equity in earnings of unconsolidated entities			82						—						1						83
Interest and dividend income			4						—						3						7
Interest expense			(73)						4						(3)						(72)
Income (loss) before income taxes			124						56						(4)						176
Income tax expense (benefit)			50						14						1						65
Net income (loss)			74						41						(4)						111
Add back:
Depreciation, amortization and accretion			342						106						8						456
Loss on impairment of licenses			3						—						—						3
(Gain) loss on asset disposals, net			8						1						—						9
Interest expense			73						(4)						3						72
Income tax expense (benefit)			50						14						1						65
Adjusted EBITDA1			$	550					$	159					$	7					$	716
Capital expenditures			$	405					$	225					$	3					$	633

Numbers may not foot due to rounding.

1Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.

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Telephone and Data Systems, Inc.

Additional Required Information

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

TDS maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to TDS’ management, including its principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by SEC Rules 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of June 30, 2023, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting that have occurred during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting.

Legal Proceedings

In April 2018, the United States Department of Justice (DOJ) notified TDS that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is or was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed TDS and UScellular that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs decided to continue the actions on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. In March 2023, the District Court for the District of Columbia granted UScellular’s motions to dismiss the two actions. The private party plaintiffs have filed notices that they are appealing the district court’s decisions to grant the motions to dismiss. The appeals are pending before the U.S. Court of Appeals for the D.C. Circuit. TDS and UScellular believe that UScellular’s arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, TDS cannot predict the outcome of any proceeding.

On May 2, 2023, a putative stockholder class action was filed against TDS and UScellular and certain current and former officers and directors in the United States District Court for the Northern District of Illinois. The Complaint alleges that certain public statements made between May 6, 2022 and November 3, 2022 (the "potential class period") regarding UScellular’s business strategies to address subscriber demand violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934. The plaintiff seeks to represent a class of stockholders who purchased TDS equity securities during the potential class period and demands unspecified monetary damages. TDS is unable at this time to determine whether the outcome of this action would have a material impact on its results of operations, financial condition, or cash flows. TDS intends to contest plaintiffs’ claims vigorously on the merits.

Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2022, for additional information. Other than as described above, there have been no material changes to such information since December 31, 2022.

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Unregistered Sales of Equity Securities and Use of Proceeds

On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the second quarter of 2023.

The following table provides certain information with respect to all purchases made by or on behalf of TDS, and any open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.

Period			Total Number of Shares Purchased			Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2023			170,090			$	10.21		170,090			$	132,817,719
May 1 - 31, 2023			85,000			$	9.22		85,000			$	132,034,150
June 1 - 30, 2023			—			$	—		—			$	132,034,150
Total for or as of the end of the quarter ended June 30, 2023			255,090			$	9.88		255,090			$	132,034,150

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Exhibits

Exhibit Number			Description of Documents
Exhibit 10.1			Form of TDS 2022 Long-Term Incentive Plan 2023 Performance Share Award Agreement.
Exhibit 10.2			Form of TDS 2022 Long-Term Incentive Plan 2023 Restricted Stock Unit Award Agreement.
Exhibit 10.3			Form of UScellular 2022 Long-Term Incentive Plan 2023 Performance Award Agreement is hereby incorporated by reference to Exhibit 10.1 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2023.
Exhibit 10.4			Form of UScellular 2022 Long-Term Incentive Plan 2023 Restricted Stock Unit Award Agreement is hereby incorporated by reference to Exhibit 10.2 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2023.
Exhibit 10.5			Addendum to Letter Agreement between UScellular and Laurent C. Therivel, is hereby incorporated by reference from Exhibit 10.1 to UScellular's Form 8-K filed on May 25, 2023.
Exhibit 31.1			Principal executive officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
Exhibit 31.2			Principal financial officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
Exhibit 32.1			Principal executive officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
Exhibit 32.2			Principal financial officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
Exhibit 101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH			Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.PRE			Inline XBRL Taxonomy Presentation Linkbase Document
Exhibit 101.CAL			Inline XBRL Taxonomy Calculation Linkbase Document
Exhibit 101.LAB			Inline XBRL Taxonomy Label Linkbase Document
Exhibit 101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104			Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the inline document.

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Form 10-Q Cross Reference Index

Item Number									Page No.
Part I.			Financial Information
			Item 1.			Financial Statements (Unaudited)			31			-			36
						Notes to Consolidated Financial Statements			40			-			52
			Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			1			-			28
			Item 3.			Quantitative and Qualitative Disclosures About Market Risk			30
			Item 4.			Controls and Procedures			56
Part II.			Other Information
			Item 1.			Legal Proceedings			56
			Item1A.			Risk Factors			30
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			57
			Item 6.			Exhibits			58
Signatures									60

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TELEPHONE AND DATA SYSTEMS, INC.

(Registrant)

Date:

August 4, 2023

/s/ LeRoy T. Carlson, Jr.

LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer)

Date:

August 4, 2023

/s/ Vicki L. Villacrez

Vicki L. Villacrez Executive Vice President and Chief Financial Officer (principal financial officer)

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