TELEPHONE & DATA SYSTEMS INC /DE/ - Quarter Report: 2023 September (Form 10-Q)

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 September 30, 2023


☐			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

☒

☐

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

☒

☐

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

☐

☒

The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2023, is 106 million Common Shares, $.01 par value, and 7 million Series A Common Shares, $.01 par value.

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q

For the Period Ended September 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			23
Consolidated Balance Sheet Analysis			24
Supplemental Information Relating to Non-GAAP Financial Measures			25
Application of Critical Accounting Policies and Estimates			28

Regulatory Matters			28
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement			29

Risk Factors			31

Quantitative and Qualitative Disclosures About Market Risk			32

Financial Statements (Unaudited)			33
Consolidated Statement of Operations			33
Consolidated Statement of Comprehensive Income			34
Consolidated Statement of Cash Flows			35
Consolidated Balance Sheet			36
Consolidated Statement of Changes in Equity			38
Notes to Consolidated Financial Statements			42

Controls and Procedures			59

Legal Proceedings			59

Unregistered Sales of Equity Securities and Use of Proceeds			60

Other Information			60

Exhibits			61

Form 10-Q Cross Reference Index			62

Signatures			63

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			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 nine months ended September 30, 2023, to the three and nine months ended September 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 has been to re-invest the majority of its operating capital 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. UScellular's initial 5G deployment has predominantly used low-band spectrum to launch 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.

▪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. During the three and nine months ended September 30, 2023, TDS incurred third-party expenses of $4 million related to the strategic alternatives review. 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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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 (ACAM) – 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 (E-ACAM) – 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 nine months ended September 30, 2023, to the three and nine months ended September 30, 2022


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		2023 vs. 2022		2023		2022		2023 vs. 2022
(Dollars in millions)
Operating revenues
UScellular	$	963	$	1,083	(11)	%	$	2,906	$	3,120	(7)	%
TDS Telecom	256		256		—		767		763		—
All other1	59		53		10	%	175		173		2	%
Total operating revenues	1,278		1,392		(8)	%	3,848		4,056		(5)	%
Operating expenses
UScellular	906		1,098		(17)	%	2,789		3,024		(8)	%
TDS Telecom	256		246		4	%	752		702		7	%
All other1	68		59		15	%	197		183		9	%
Total operating expenses	1,230		1,403		(12)	%	3,738		3,909		(4)	%
Operating income (loss)
UScellular	57		(15)		N/M		117		96		22	%
TDS Telecom	—		10		(98)	%	15		61		(76)	%
All other1	(9)		(6)		(52)	%	(22)		(10)		N/M
Total operating income (loss)	48		(11)		N/M		110		147		(26)	%
Investment and other income (expense)
Equity in earnings of unconsolidated entities	40		40		(1)	%	122		123		(1)	%
Interest and dividend income	5		4		50	%	16		10		57	%

Interest expense	(62)		(46)		(35)	%	(178)		(118)		(49)	%
Other, net	—		—		23	%	1		1		25	%
Total investment and other income (expense)	(17)		(2)		N/M		(39)		16		N/M

Income (loss) before income taxes	31		(13)		N/M		71		163		(57)	%
Income tax expense (benefit)	27		(3)		N/M		55		62		(11)	%

Net income (loss)	4		(10)		N/M		16		101		(84)	%
Less: Net income (loss) attributable to noncontrolling interests, net of tax	4		(2)		N/M		10		14		(29)	%
Net income (loss) attributable to TDS shareholders	—		(8)		94	%	6		87		(93)	%
TDS Preferred Share dividends	17		17		—		52		52		—
Net income (loss) attributable to TDS common shareholders	$	(17)	$	(25)	30	%	$	(46)	$	35	N/M

Adjusted OIBDA (Non-GAAP)2	$	283	$	227	25	%	$	817	$	853	(4)	%
Adjusted EBITDA (Non-GAAP)2	$	328	$	271	21	%	$	956	$	987	(3)	%
Capital expenditures3	$	285	$	305	(7)	%	$	906	$	938	(3)	%

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 $14 million and $18 million for the three months ended September 30, 2023 and 2022, respectively and $52 million and $52 million for the nine months ended September 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 nine months ended September 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 increased for the three months ended September 30, 2023 due primarily to the increase in Income (loss) before income taxes.

Income tax expense decreased for the nine months ended September 30, 2023 due primarily to the decrease in Income (loss) 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 (loss) attributable to noncontrolling interests, net of tax


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(Dollars in millions)
UScellular noncontrolling public shareholders’	$	4	$	(2)	$	7	$	10
Noncontrolling shareholders’ or partners’	—		—		3		4
Net income (loss) attributable to noncontrolling interests, net of tax	$	4	$	(2)	$	10	$	14

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

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Earnings

(Dollars in millions)

Three Months Ended

Net income (loss) increased due primarily to lower operating expenses, partially offset by lower operating revenues and higher interest and income tax expenses. Adjusted EBITDA increased due primarily to lower operating expenses, partially offset by lower operating revenues.

Nine Months Ended

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

*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 4.6 million retail connections including approximately 4.2 million postpaid and 0.5 million prepaid connections

▪Operates in 21 states

▪Employs approximately 4,500 associates

▪Owns 4,356 towers

▪Operates 6,973 cell sites in service

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Operational Overview — UScellular





As of September 30,		2023	2022
Retail Connections – End of Period
	Postpaid	4,159,000	4,264,000
	Prepaid	462,000	493,000
	Total	4,621,000	4,757,000


	Q3 2023		Q3 2022		Q3 2023 vs. Q3 2022		YTD 2023		YTD 2022		YTD 2023 vs. YTD 2022
Postpaid Activity and Churn
Gross Additions
Handsets	84,000		107,000		(21)	%	260,000		292,000		(11)	%
Connected Devices	44,000		44,000		—		129,000		113,000		14	%
Total Gross Additions	128,000		151,000		(15)	%	389,000		405,000		(4)	%
Net Additions (Losses)
Handsets	(38,000)		(22,000)		(73)	%	(92,000)		(89,000)		(3)	%
Connected Devices	3,000		(9,000)		N/M		4,000		(26,000)		N/M
Total Net Additions (Losses)	(35,000)		(31,000)		(13)	%	(88,000)		(115,000)		23	%
Churn
Handsets	1.11	%	1.15	%			1.06	%	1.12	%
Connected Devices	2.64	%	3.40	%			2.69	%	2.94	%
Total Churn	1.30	%	1.42	%			1.26	%	1.34	%

N/M - Percentage change not meaningful

Total postpaid handset net losses increased for the three and nine months ended September 30, 2023, when compared to the same period last year due to aggressive industry-wide competition.

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

Postpaid Revenue


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		2023 vs. 2022		2023		2022		2023 vs. 2022
Average Revenue Per User (ARPU)	$	51.11	$	50.21	2	%	$	50.81	$	49.99	2	%


Average Revenue Per Account (ARPA)	$	130.91	$	130.27	—		$	130.64	$	130.20	—

Postpaid ARPU increased for the three months ended September 30, 2023, when compared to the same period last year, due to a decrease in promotional discounts, favorable plan and product offering mix, and an increase in device protection plan revenues.

Postpaid ARPU increased for the nine months ended September 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, partially offset by an increase in promotional discounts.

Postpaid ARPA was relatively flat for the three and nine months ended September 30, 2023, when compared to the same period last year, due to the impacts to Postpaid ARPU, offset by a decrease in the number of connections per account.

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Financial Overview — UScellular

The following discussion and analysis compares financial results for the three and nine months ended September 30, 2023, to the three and nine months ended September 30, 2022.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		2023 vs. 2022		2023		2022		2023 vs. 2022
(Dollars in millions)
Retail service	$	687	$	696	(1)	%	$	2,065	$	2,098	(2)	%
Inbound roaming	8		17		(53)	%	25		56		(55)	%
Other	67		68		(1)	%	199		197		1	%
Service revenues	762		781		(2)	%	2,289		2,351		(3)	%
Equipment sales	201		302		(33)	%	617		769		(20)	%
Total operating revenues	963		1,083		(11)	%	2,906		3,120		(7)	%

System operations (excluding Depreciation, amortization and accretion reported below)	185		197		(6)	%	557		574		(3)	%
Cost of equipment sold	228		354		(36)	%	708		887		(20)	%
Selling, general and administrative	333		369		(10)	%	1,020		1,032		(1)	%
Depreciation, amortization and accretion	159		177		(10)	%	490		520		(6)	%
Loss on impairment of licenses	—		—		—		—		3		N/M
(Gain) loss on asset disposals, net	1		1		(33)	%	14		9		62	%
(Gain) loss on sale of business and other exit costs, net	—		—		85	%	—		(1)		N/M

Total operating expenses	906		1,098		(17)	%	2,789		3,024		(8)	%

Operating income (loss)	$	57	$	(15)	N/M		$	117	$	96	22	%

Net income (loss)	$	23	$	(12)	N/M		$	43	$	62	(30)	%
Adjusted OIBDA (Non-GAAP)1	$	220	$	163	35	%	$	624	$	627	(1)	%
Adjusted EBITDA (Non-GAAP)1	$	263	$	205	28	%	$	753	$	754	—
Capital expenditures2	$	111	$	136	(18)	%	$	462	$	541	(15)	%

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 September 30, 2023 and 2022

(Dollars in millions)

Operating Revenues

Nine Months Ended September 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 nine months ended September 30, 2023, primarily as 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 nine months ended September 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 nine months ended September 30, 2023, due primarily to a decline in smartphone upgrades and gross additions.

Wireless service providers have been aggressive promotionally and on price to attract and retain customers. This includes both traditional carriers and cable companies operating as mobile virtual network operators (MVNOs). UScellular expects promotional aggressiveness by traditional carriers and pricing pressures from cable companies to continue into the foreseeable future. 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 nine months ended September 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 nine months ended September 30, 2023, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses. UScellular expects roaming expenses to continue to decline for the remainder of 2023 relative to prior year levels, due primarily to continued reductions in roaming rates.

Cost of equipment sold

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

Selling, general and administrative expenses

Selling, general and administrative expenses decreased for the three months ended September 30, 2023, due primarily to decreases in bad debts expense, employee-related expenses, commissions, and advertising expense.

Selling, general and administrative expenses decreased for the nine months ended September 30, 2023 due primarily to decreases in bad debts expense and commissions, partially offset by an increase in advertising expense.

Depreciation, amortization and accretion

Depreciation, amortization and accretion expenses decreased for the three and nine months ended September 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 small to mid-sized urban, suburban and rural 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 3,600 associates

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Operational Overview — TDS Telecom

Total Service Address Mix

As of September 30,

TDS Telecom increased its service addresses 11% from a year ago to 1.6 million as of September 30, 2023 through network expansion.

TDS Telecom offers 1Gig+ service to 69% of its total footprint as of September 30, 2023, compared to 64% a year ago.


As of September 30,	2023	2022	2023 vs. 2022
Residential connections
Broadband
Wireline, Incumbent	248,800	252,600	(2)	%
Wireline, Expansion	79,400	49,400	61	%
Cable	204,400	204,500	—
Total Broadband	532,600	506,500	5	%
Video	132,400	136,600	(3)	%
Voice	284,000	295,500	(4)	%
Total Residential Connections	949,000	938,600	1	%
Commercial connections	217,400	242,800	(10)	%
Total connections	1,166,400	1,181,400	(1)	%

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 58% of customers subscribe to more than one service.

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Residential Broadband Connections by Speed

As of September 30,

Residential broadband customers continue to choose higher speeds with 75% taking speeds of 100 Mbps or greater and 14% choosing 1Gig+.

Residential Revenue per Connection

Total residential revenue per connection increased 3% and 4% for the three and nine months ended September 30, 2023, respectively, 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 nine months ended September 30, 2023, to the three and nine months ended September 30, 2022


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		2023 vs. 2022		2023		2022		2023 vs. 2022
(Dollars in millions)
Residential
Wireline, Incumbent	$	89	$	89	—		$	264	$	262	1	%
Wireline, Expansion	20		13		56	%	52		35		50	%
Cable	68		68		—		204		203		1	%
Total residential	177		170		4	%	521		500		4	%
Commercial	38		43		(12)	%	118		130		(10)	%
Wholesale	42		43		(3)	%	127		132		(4)	%
Total service revenues	256		256		—		766		763		—
Equipment revenues	—		—		12	%	1		1		(9)	%
Total operating revenues	256		256		—		767		763		—

Cost of services (excluding Depreciation, amortization and accretion reported below)	107		109		(2)	%	319		308		4	%
Cost of equipment and products	—		—		(7)	%	—		1		(9)	%
Selling, general and administrative	82		81		1	%	244		231		6	%
Depreciation, amortization and accretion	61		53		16	%	180		158		14	%
(Gain) loss on asset disposals, net	6		3		87	%	8		4		100	%
Total operating expenses	256		246		4	%	752		702		7	%

Operating income	$	—	$	10	(98)	%	$	15	$	61	(76)	%

Net income	$	4	$	10	(62)	%	$	19	$	51	(63)	%
Adjusted OIBDA (Non-GAAP)1	$	67	$	66	2	%	$	203	$	224	(9)	%
Adjusted EBITDA (Non-GAAP)1	$	68	$	66	3	%	$	207	$	226	(8)	%
Capital expenditures2	$	172	$	166	3	%	$	434	$	391	11	%

Numbers may not foot due to rounding.

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 September 30, 2023 and 2022

(Dollars in millions)

Numbers may not foot due to rounding.

Operating Revenues

Nine Months Ended September 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 ACAM

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

Total operating revenues

Residential revenues increased for the three and nine months ended September 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 nine months ended September 30, 2023, due primarily to declining connections in CLEC markets.

Cost of services

Cost of services decreased for the three months ended September 30, 2023, due primarily to a decrease in cost to provide legacy service and lower plant and maintenance costs, partially offset by higher video programming costs.

Cost of services increased for the nine months ended September 30, 2023, due primarily to higher employee-related expenses, plant and maintenance costs, and information processing costs.

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Selling, general and administrative

Selling, general and administrative expenses increased for the three months ended September 30, 2023, due primarily to increases to support current and future growth, including information processing costs and operating taxes, partially offset by lower regulatory fees and employee-related expenses.

Selling, general and administrative expenses increased for the nine months ended September 30, 2023, due primarily to increases to support current and future growth, including employee-related expenses, advertising and marketing expenses, and information processing costs.

Depreciation, amortization and accretion

Depreciation, amortization and accretion increased for the three and nine months ended September 30, 2023, due primarily to increased capital expenditures on new fiber assets and customer premise 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 nine months ended September 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 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 may require substantial additional capital for, among other uses, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, 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. TDS' liquidity would be adversely affected if it is unable to obtain short or long-term financing on acceptable terms.

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 in future years. Specifically, TDS Telecom has elected to slow the pace of its fiber deployment and reduce or defer planned capital expenditures 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) from the following debt facilities at September 30, 2023. See the Financing section below for further details.


	TDS		UScellular
(Dollars in millions)
Revolving Credit Agreement	$	399	$	300


Receivables Securitization Agreement	—		445
Repurchase Agreement	—		200
Total undrawn borrowing capacity	399		945
Debt covenant restrictions	—		200
Total available undrawn borrowing capacity	$	399	$	745

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 nine months ended September 30, 2023, TDS borrowed and repaid $265 million under the agreement. As of September 30, 2023, there were no outstanding borrowings under the agreement, except for letters of credit, and the unused borrowing capacity was $399 million.

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 nine months ended September 30, 2023, TDS borrowed $100 million under the agreement. As of September 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.

Secured Term Loan

This term loan is secured by a perfected security interest in certain assets of TDS, including 26 million common shares in UScellular, TDS' equity interest in certain wholly-owned subsidiaries, and all or substantially all of TDS' personal property that does not constitute equity interests. This term loan is also secured by a perfected security interest in certain assets of certain wholly-owned subsidiaries of TDS that are also guarantors, including without limitation and subject to customary exceptions, equity interests in certain wholly-owned subsidiaries of such subsidiaries and all or substantially all of the personal property of such guarantor subsidiaries that does not consist of equity interests. This agreement includes representations and warranties, covenants, events of default and other terms and conditions that are substantially similar to TDS' existing term loan and revolving credit agreements or otherwise customary for similar secured credit facilities.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In September 2023, UScellular amended the agreement to extend the maturity date to September 2025. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. 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 1.15%. During the nine months ended September 30, 2023, UScellular borrowed $115 million and repaid $385 million under the agreement. As of September 30, 2023, the outstanding borrowings under the agreement were $5 million and the unused borrowing capacity was $445 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.

Subsequent to September 30, 2023, UScellular borrowed $150 million under the receivables securitization 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 nine months ended September 30, 2023, the repo subsidiary repaid $60 million under the agreement. As of September 30, 2023, there were no outstanding borrowings under the agreement and the unused borrowing capacity was $200 million, which is restricted from being borrowed against due to covenants within the TDS and UScellular credit agreements that limit secured borrowings on an enterprise-wide basis.

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Debt Covenants

The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, 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 September 30, 2023 with all such financial covenants.

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.

Following the announcement on August 4, 2023 related to the review of strategic alternatives for UScellular, Standard & Poor's placed the BB issuer credit rating for TDS on CreditWatch with developing implications. Per the release, this action reflects the potential for a higher or lower rating depending on the outcome of the UScellular strategic alternatives review. Further, Standard & Poor's indicated they expect to resolve the CreditWatch placement once they have sufficient information following the conclusion of the strategic review process. At the same time, Moody's issued a release indicating that TDS' Ba1 issuer credit rating is not immediately impacted given the uncertainty around potential outcomes. Fitch Ratings did not issue a public statement.

In October 2023, Moody's re-affirmed its Ba1 rating and stable outlook for the TDS and UScellular issuer credit ratings.

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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 nine months ended September 30, 2023 and 2022, were as follows:

Capital Expenditures

(Dollars in millions)

UScellular’s capital expenditures for the nine months ended September 30, 2023 and 2022, were $462 million and $541 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 nine months ended September 30, 2023 and 2022, were $434 million and $391 million, respectively.

Capital expenditures for the full year 2023 are expected to be approximately $550 million. Due to liquidity constraints, capital expenditures in future years may be substantially lower than 2023. 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 ACAM programs.

TDS is financing 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.

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.

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Common Share Repurchase Programs

During the nine months ended September 30, 2023, TDS repurchased 545,990 Common Shares for $6 million at an average cost per share of $10.09. There were no share repurchases during the three months ended September 30, 2023. As of September 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 nine months ended September 30, 2023 and 2022.

2023 Commentary

TDS’ Cash, cash equivalents and restricted cash decreased $106 million. Net cash provided by operating activities was $923 million due to net income of $16 million adjusted for non-cash items of $727 million, distributions received from unconsolidated entities of $97 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $83 million. The working capital changes were primarily driven by reduced inventory and receivable balances and a federal income tax refund of $57 million received during the second quarter of 2023, partially offset by timing of vendor payments and payment of associate bonuses.

Cash flows used for investing activities were $922 million, due primarily to payments for property, plant and equipment of $906 million.

Cash flows used for financing activities were $107 million, due primarily to $385 million in repayments on the UScellular receivables securitization agreement, $265 million in repayments on the TDS revolving credit agreement, a $60 million repayment on the UScellular EIP receivables repurchase agreement, the payment of $114 million in dividends and cash paid for software license agreements of $29 million. These were partially offset by $300 million borrowed under the TDS secured term loan agreement, $265 million borrowed under the TDS revolving credit agreement, $115 million borrowed under the UScellular receivables securitization agreement and $100 million borrowed under the TDS export credit agreement.

2022 Commentary

TDS’ Cash, cash equivalents and restricted cash increased $67 million. Net cash provided by operating activities was $901 million due to net income of $101 million adjusted for non-cash items of $768 million, distributions received from unconsolidated entities of $100 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which decreased net cash by $68 million. The working capital changes were primarily driven by an increase in inventory and receivable balances and the timing of vendor payments, partially offset by a federal income tax refund of $125 million received during the first quarter of 2022.

Cash flows used for investing activities were $1,408 million, which included payments for property, plant and equipment of $794 million and payments for wireless spectrum licenses of $575 million. Cash payments for property, plant and equipment were lower than the total capital expenditures in the nine months ended September 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 $574 million, due primarily to $800 million borrowed under the term loan facilities, $150 million borrowed under the UScellular export credit financing agreement, $110 million borrowed under the UScellular EIP receivables repurchase agreement, and $75 million borrowed under the UScellular revolving credit agreement. These were partially offset by $250 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, a $50 million repayment on the UScellular EIP receivables repurchase 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 $87 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 $56 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.

Accrued compensation

Accrued compensation decreased $34 million due primarily to associate bonus payments in March 2023.

Other current liabilities

Other current liabilities decreased $201 million due primarily to a decrease in the short-term accrual for Auction 107 relocation fees which were invoiced during the three months ended September 30, 2023 and reclassified to Accounts payable, as well as 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 (loss) 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 (loss) 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, nonrecurring expenses, 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, gains and losses, and expenses related to the strategic alternatives review of UScellular, 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 (loss) and Operating income (loss).

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	Three Months Ended September 30,				Nine Months Ended September 30,
TDS - CONSOLIDATED	2023		2022		2023		2022
(Dollars in millions)
Net income (loss) (GAAP)	$	4	$	(10)	$	16	$	101
Add back:
Income tax expense (benefit)	27		(3)		55		62
Interest expense	62		46		178		118
Depreciation, amortization and accretion	225		234		681		691
EBITDA (Non-GAAP)	318		267		930		972
Add back or deduct:
Expenses related to strategic alternatives review	4		—		4		—
Loss on impairment of licenses	—		—		—		3
(Gain) loss on asset disposals, net	6		4		22		13
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)


Adjusted EBITDA (Non-GAAP)	328		271		956		987
Deduct:
Equity in earnings of unconsolidated entities	40		40		122		123
Interest and dividend income	5		4		16		10
Other, net	—		—		1		1
Adjusted OIBDA (Non-GAAP)	283		227		817		853
Deduct:
Depreciation, amortization and accretion	225		234		681		691
Expenses related to strategic alternatives review	4		—		4		—
Loss on impairment of licenses	—		—		—		3
(Gain) loss on asset disposals, net	6		4		22		13
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Operating income (loss) (GAAP)	$	48	$	(11)	$	110	$	147


	Three Months Ended September 30,				Nine Months Ended September 30,
UScellular	2023		2022		2023		2022
(Dollars in millions)
Net income (loss) (GAAP)	$	23	$	(12)	$	43	$	62
Add back:
Income tax expense (benefit)	27		(3)		56		46
Interest expense	50		42		147		115
Depreciation, amortization and accretion	159		177		490		520
EBITDA (Non-GAAP)	259		204		736		743
Add back or deduct:
Expenses related to strategic alternatives review	3		—		3		—
Loss on impairment of licenses	—		—		—		3
(Gain) loss on asset disposals, net	1		1		14		9
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)


Adjusted EBITDA (Non-GAAP)	263		205		753		754
Deduct:
Equity in earnings of unconsolidated entities	40		40		121		122
Interest and dividend income	3		2		8		5

Adjusted OIBDA (Non-GAAP)	220		163		624		627
Deduct:
Depreciation, amortization and accretion	159		177		490		520
Expenses related to strategic alternatives review	3		—		3		—
Loss on impairment of licenses	—		—		—		3
(Gain) loss on asset disposals, net	1		1		14		9
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Operating income (loss) (GAAP)	$	57	$	(15)	$	117	$	96

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	Three Months Ended September 30,				Nine Months Ended September 30,
TDS TELECOM	2023		2022		2023		2022
(Dollars in millions)
Net income (GAAP)	$	4	$	10	$	19	$	51
Add back:
Income tax expense	—		3		6		18
Interest expense	(2)		(2)		(6)		(5)
Depreciation, amortization and accretion	61		53		180		158
EBITDA (Non-GAAP)	63		63		199		222
Add back or deduct:

(Gain) loss on asset disposals, net	6		3		8		4
Adjusted EBITDA (Non-GAAP)	68		66		207		226
Deduct:
Interest and dividend income	1		1		3		1
Other, net	—		—		1		1
Adjusted OIBDA (Non-GAAP)	67		66		203		224
Deduct:
Depreciation, amortization and accretion	61		53		180		158
(Gain) loss on asset disposals, net	6		3		8		4
Operating income (GAAP)	$	—	$	10	$	15	$	61

Numbers may not foot due to rounding.

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.


	Nine Months Ended September 30,
	2023		2022
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	923	$	901
Cash paid for additions to property, plant and equipment	(906)		(794)
Cash paid for software license agreements	(29)		(5)
Free cash flow (Non-GAAP)	$	(12)	$	102

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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 $179 million in total from 2021 through 2025 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 $17 million, $8 million and $36 million related to the additional costs for the nine months ended September 30, 2023, the year ended December 31, 2022 and the year ended December 31, 2021, respectively. In October 2023, UScellular paid invoices totaling $105 million. UScellular received full access to the spectrum in the third quarter of 2023.

5G Fund

On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America. The 5G Fund will be implemented through a two-phase competitive process, using multiround auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones. The order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment. On September 22, 2023, the FCC adopted a Further Notice of Proposed Rulemaking (FNPRM) to continue implementation of the 5G Fund. The FCC sought comment on, among other things, the definition of areas eligible for 5G Fund support, adjustment factors and metrics used to identify winning bids, and the potential inclusion of cybersecurity and supply chain management requirements for those receiving 5G Fund support.

UScellular cannot predict at this time when the 5G Fund auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the 5G Fund auction will provide opportunities to UScellular to offset any loss in existing support.

FCC Enhanced Alternative Connect America Cost Model (E-ACAM)

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

On September 28, 2023, TDS Telecom notified the FCC of its decision to accept 24 of the 25 state offers received for E-ACAM support. The enhanced program requires TDS Telecom to deploy high-speed internet to approximately 270,000 locations. Starting in 2024, TDS Telecom expects to receive support of approximately $90 million per year for 15 years in exchange for meeting the 100/20 Mbps service requirement. The support replaces the prior ACAM program support received for the 24 states where TDS Telecom has wireline operations. On October 30, 2023, the Wireline Competition Bureau issued a public notice authorizing the Universal Service Administrative Company to disburse the appropriate amounts. TDS Telecom will incur capital expenditures over the next several years to meet its obligations to serve the required locations with 100/20 Mbps service.

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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 has entered into a new Senior Secured Credit Agreement that imposes certain restrictions on its business and operations that may affect its ability to operate its business and make payments on its indebtedness.

▪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 have initiated 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 strategic alternative will result in additional value for TDS and its shareholders, or that the process will not have an adverse impact on TDS' business or financial statements.

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 factors 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 have initiated 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 strategic alternative will result in additional value for TDS and its shareholders, or that the process will not have an adverse impact on TDS' business or financial statements.

On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies 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 or financial statements.

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

TDS has entered into a new Senior Secured Credit Agreement that imposes certain restrictions on its business and operations that may affect its ability to operate its business and make payments on its indebtedness.

TDS entered into a senior secured credit agreement on September 28, 2023 (the Senior Secured Credit Agreement). The Senior Secured Credit Agreement provides TDS with a $300 million secured term loan credit facility for general corporate purposes. Pursuant to the Senior Secured Credit Agreement, TDS granted a perfected security interest in certain assets of TDS, including, without limitation, and subject to customary exceptions, (i) 26,417,915 fully paid and nonassessable Common Shares, par value $1 per share, of UScellular, (ii) equity interests in certain wholly-owned subsidiaries of TDS and (iii) all or substantially all of TDS’ personal property that does not constitute equity interests. The Senior Secured Credit Agreement is also secured by a perfected security interest in certain assets of certain wholly-owned subsidiaries of TDS that are also guarantors of the indebtedness incurred under the Senior Secured Credit Agreement, including, without limitation, and subject to customary exceptions, (i) equity interests in certain wholly-owned subsidiaries of such subsidiaries and (ii) all or substantially all of the personal property of such guarantor subsidiaries that does not consist of equity interests.

The Senior Secured Credit Agreement includes representations and warranties, covenants, events of default and other terms and conditions that are substantially similar to TDS’ existing term loan and revolving credit agreements. Under the Senior Secured Credit Agreement, TDS is required to comply with certain financial covenants. Depending on the actual financial performance of TDS, there is a risk that TDS could fail to satisfy the required financial covenants. A failure to comply with the financial covenants in the Senior Secured Credit Agreement could result in an event of default, which, if not cured or waived could have a material adverse effect on TDS' business, financial condition, and profitability. Upon the occurrence and during the continuance of an event of default under the Senior Secured Credit Agreement, the lenders and certain parties to the Senior Secured Credit Agreement may require all borrowings outstanding under the Senior Secured Credit Agreement to be due and payable. Further, upon the occurrence of and during the continuance of an event of default, such parties may exercise remedies with respect to the collateral securing the Senior Secured Credit Agreement, which remedies may include foreclosing upon, credit bidding and/or liquidating such collateral. If TDS' indebtedness were to be accelerated, there can be no assurance that the assets would be sufficient to repay such indebtedness in full.

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Quantitative and Qualitative Disclosures about Market Risk

Market Risk

As of September 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 September 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	$	5	7.3	%
2024	26		7.2	%
2025	26		7.2	%
2026	576		7.2	%
2027	319		7.0	%
Thereafter	2,982		6.5	%
Total	$	3,934	6.7	%

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 September 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 September 30, 2023.

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Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	1,043	$	1,061	$	3,128	$	3,186
Equipment and product sales	235		331		720		870
Total operating revenues	1,278		1,392		3,848		4,056

Operating expenses
Cost of services (excluding Depreciation, amortization and accretion reported below)	311		326		933		936
Cost of equipment and products	256		377		794		967
Selling, general and administrative	432		462		1,308		1,300
Depreciation, amortization and accretion	225		234		681		691
Loss on impairment of licenses	—		—		—		3

(Gain) loss on asset disposals, net	6		4		22		13
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Total operating expenses	1,230		1,403		3,738		3,909

Operating income (loss)	48		(11)		110		147

Investment and other income (expense)
Equity in earnings of unconsolidated entities	40		40		122		123
Interest and dividend income	5		4		16		10

Interest expense	(62)		(46)		(178)		(118)
Other, net	—		—		1		1
Total investment and other income (expense)	(17)		(2)		(39)		16

Income (loss) before income taxes	31		(13)		71		163
Income tax expense (benefit)	27		(3)		55		62
Net income (loss)	4		(10)		16		101
Less: Net income (loss) attributable to noncontrolling interests, net of tax	4		(2)		10		14
Net income (loss) attributable to TDS shareholders	—		(8)		6		87
TDS Preferred Share dividends	17		17		52		52
Net income (loss) attributable to TDS common shareholders	$	(17)	$	(25)	$	(46)	$	35

Basic weighted average shares outstanding	113		114		113		114
Basic earnings (loss) per share attributable to TDS common shareholders	$	(0.16)	$	(0.22)	$	(0.41)	$	0.31

Diluted weighted average shares outstanding	113		114		113		115
Diluted earnings (loss) per share attributable to TDS common shareholders	$	(0.16)	$	(0.22)	$	(0.41)	$	0.30

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(Dollars in millions)
Net income (loss)	$	4	$	(10)	$	16	$	101
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	—		1		—		2
Comprehensive income (loss)	4		(9)		16		103
Less: Net income (loss) attributable to noncontrolling interests, net of tax	4		(2)		10		14
Comprehensive income (loss) attributable to TDS shareholders	$	—	$	(7)	$	6	$	89

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)


	Nine Months Ended September 30,
	2023		2022
(Dollars in millions)
Cash flows from operating activities
Net income	$	16	$	101
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	681		691
Bad debts expense	77		98
Stock-based compensation expense	27		32
Deferred income taxes, net	38		48
Equity in earnings of unconsolidated entities	(122)		(123)
Distributions from unconsolidated entities	97		100
Loss on impairment of licenses	—		3
(Gain) loss on asset disposals, net	22		13
(Gain) loss on sale of business and other exit costs, net	—		(1)


Other operating activities	4		7
Changes in assets and liabilities from operations
Accounts receivable	11		(59)
Equipment installment plans receivable	20		(131)
Inventory	87		(74)
Accounts payable	(36)		16
Customer deposits and deferred revenues	(15)		30
Accrued taxes	72		136
Accrued interest	8		10
Other assets and liabilities	(64)		4
Net cash provided by operating activities	923		901

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(906)		(794)
Cash paid for intangible assets	(24)		(603)




Other investing activities	8		(11)
Net cash used in investing activities	(922)		(1,408)

Cash flows from financing activities
Issuance of long-term debt	781		1,027
Repayment of long-term debt	(664)		(330)
Issuance of short-term debt	—		110
Repayment of short-term debt	(60)		(50)
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)		(25)
Repurchase of UScellular Common Shares	—		(28)
Dividends paid to TDS shareholders	(114)		(114)

Distributions to noncontrolling interests	(2)		(3)
Cash paid for software license agreements	(29)		(5)
Other financing activities	(4)		1
Net cash provided by (used in) financing activities	(107)		574

Net increase (decrease) in cash, cash equivalents and restricted cash	(106)		67

Cash, cash equivalents and restricted cash
Beginning of period	399		414
End of period	$	293	$	481

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)


	September 30, 2023		December 31, 2022
(Dollars in millions)
Current assets
Cash and cash equivalents	$	256	$	360

Accounts receivable
Customers and agents, less allowances of $66 and $74, respectively	988		1,069
Other, less allowances of $3 and $3, respectively	93		112
Inventory, net	181		268
Prepaid expenses	99		102
Income taxes receivable	3		59
Other current assets	60		58
Total current assets	1,680		2,028

Assets held for sale	16		26

Licenses	4,700		4,699

Goodwill	547		547

Other intangible assets, net of accumulated amortization of $111 and $112, respectively	188		204

Investments in unconsolidated entities	520		495

Property, plant and equipment
In service and under construction	15,497		14,971
Less: Accumulated depreciation and amortization	10,499		10,211
Property, plant and equipment, net	4,998		4,760

Operating lease right-of-use assets	988		995

Other assets and deferred charges	777		796

Total assets1	$	14,414	$	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)


	September 30, 2023		December 31, 2022
(Dollars and shares in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	24	$	19
Accounts payable	550		506
Customer deposits and deferred revenues	270		285
Accrued interest	20		12
Accrued taxes	51		46
Accrued compensation	110		144
Short-term operating lease liabilities	147		146
Other current liabilities	155		356
Total current liabilities	1,327		1,514



Deferred liabilities and credits
Deferred income tax liability, net	1,003		969
Long-term operating lease liabilities	896		908
Other deferred liabilities and credits	819		813

Long-term debt, net	3,840		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	2,544		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	(465)		(481)
Accumulated other comprehensive income	5		5
Retained earnings	2,567		2,699
Total TDS shareholders' equity	5,726		5,849

Noncontrolling interests	791		754

Total equity	6,517		6,603

Total liabilities and equity1	$	14,414	$	14,550

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

1The consolidated total assets as of September 30, 2023 and December 31, 2022, include assets held by consolidated variable interest entities (VIEs) of $1,234 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 September 30, 2023 and December 31, 2022, include certain liabilities of consolidated VIEs of $21 million and $23 million, respectively, 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)
June 30, 2023	$	1	$	2,532	$	1,074	$	(466)	$	5	$	2,606	$	5,752	$	785	$	6,537


Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		6		6

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)

Dividend reinvestment plan	—		—		—		1		—		(1)		—		—		—
Incentive and compensation plans	—		6		—		—		—		—		6		—		6
Adjust investment in subsidiaries for issuances and other compensation plans	—		6		—		—		—		—		6		1		7
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(1)		(1)
September 30, 2023	$	1	$	2,544	$	1,074	$	(465)	$	5	$	2,567	$	5,726	$	791	$	6,517

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)
June 30, 2022	$	1	$	2,511	$	1,074	$	(463)	$	6	$	2,810	$	5,939	$	804	$	6,743

Net income (loss) attributable to TDS common shareholders	—		—		—		—		—		(8)		(8)		—		(8)
Net income (loss) attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		(1)		(1)
Other comprehensive income	—		—		—		—		1		—		1		—		1
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	—		—		—		(5)		—		—		(5)		—		(5)
Dividend reinvestment plan	—		1		—		—		—		(1)		—		—		—
Incentive and compensation plans	—		5		—		—		—		—		5		—		5
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		10		—		—		—		—		10		(16)		(6)
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(1)		(1)
September 30, 2022	$	1	$	2,527	$	1,074	$	(468)	$	7	$	2,763	$	5,904	$	786	$	6,690

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 (loss) attributable to TDS common shareholders	—		—		—		—		—		6		6		—		6
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		10		10

TDS Common and Series A Common share dividends ($0.555 per share)	—		—		—		—		—		(62)		(62)		—		(62)

TDS Preferred share dividends ($1,242 per Series UU share and $1,125 per Series VV share)	—		—		—		—		—		(52)		(52)		—		(52)
Repurchase of Common Shares	—		—		—		(6)		—		—		(6)		—		(6)
Dividend reinvestment plan	—		1		—		3		—		(2)		2		—		2
Incentive and compensation plans	—		13		—		19		—		(22)		10		—		10
Adjust investment in subsidiaries for issuances and other compensation plans	—		(21)		—		—		—		—		(21)		29		8
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(2)		(2)
September 30, 2023	$	1	$	2,544	$	1,074	$	(465)	$	5	$	2,567	$	5,726	$	791	$	6,517

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 (loss) attributable to TDS common shareholders	—		—		—		—		—		87		87		—		87
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		13		13
Other comprehensive income	—		—		—		—		2		—		2		—		2
TDS Common and Series A Common share dividends ($0.540 per share)	—		—		—		—		—		(62)		(62)		—		(62)

TDS Preferred share dividends ($1,242 per Series UU share and $1,125 per Series VV share)	—		—		—		—		—		(52)		(52)		—		(52)
Repurchase of Common Shares	—		—		—		(26)		—		—		(26)		—		(26)
Dividend reinvestment plan	—		1		—		2		—		(1)		2		—		2
Incentive and compensation plans	—		14		—		17		—		(21)		10		—		10
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		16		—		—		—		—		16		(31)		(15)
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(3)		(3)
September 30, 2022	$	1	$	2,527	$	1,074	$	(468)	$	7	$	2,763	$	5,904	$	786	$	6,690

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 September 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 September 30, 2023 and December 31, 2022, its results of operations, comprehensive income and changes in equity for the three and nine months ended September 30, 2023 and 2022, and its cash flows for the nine months ended September 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 $18 million and $135 million for the nine months ended September 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.


	September 30, 2023		December 31, 2022
(Dollars in millions)
Cash and cash equivalents	$	256	$	360
Restricted cash included in Other current assets	37		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. During the three and nine months ended September 30, 2023, TDS incurred third-party expenses of $4 million related to the strategic alternatives review, which are included in Selling, general and administrative expenses. 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 September 30, 2023	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	687	$	—	$	—	$	687
Inbound roaming	8		—		—		8
Residential	—		177		—		177
Commercial	—		38		—		38
Wholesale	—		41		—		41
Other service	42		—		19		61
Service revenues from contracts with customers	737		255		19		1,012
Equipment and product sales	201		—		34		235
Total revenues from contracts with customers	938		256		53		1,247
Operating lease income	25		1		5		31
Total operating revenues	$	963	$	256	$	59	$	1,278


Three Months Ended September 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	696	$	—	$	—	$	696
Inbound roaming	17		—		—		17
Residential	—		170		—		170
Commercial	—		43		—		43
Wholesale	—		42		—		42
Other service	45		—		18		63
Service revenues from contracts with customers	758		255		18		1,031
Equipment and product sales	302		—		29		331
Total revenues from contracts with customers	1,060		255		47		1,362
Operating lease income	23		1		6		30
Total operating revenues	$	1,083	$	256	$	53	$	1,392

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Nine Months Ended September 30, 2023	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	2,065	$	—	$	—	$	2,065
Inbound roaming	25		—		—		25
Residential	—		521		—		521
Commercial	—		118		—		118
Wholesale	—		125		—		125
Other service	124		—		55		179
Service revenues from contracts with customers	2,214		763		55		3,033
Equipment and product sales	617		1		102		720
Total revenues from contracts with customers	2,831		764		157		3,753
Operating lease income	75		3		17		95
Total operating revenues	$	2,906	$	767	$	175	$	3,848



Nine Months Ended September 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	2,098	$	—	$	—	$	2,098
Inbound roaming	56		—		—		56
Residential	—		500		—		500
Commercial	—		130		—		130
Wholesale	—		129		—		129
Other service	129		—		54		183
Service revenues from contracts with customers	2,283		760		54		3,096
Equipment and product sales	769		1		100		870
Total revenues from contracts with customers	3,052		761		154		3,966
Operating lease income	68		3		19		90
Total operating revenues	$	3,120	$	763	$	173	$	4,056

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.


	September 30, 2023		December 31, 2022
(Dollars in millions)
Contract assets	$	14	$	12
Contract liabilities	$	373	$	395

Revenue recognized related to contract liabilities existing at January 1, 2023 was $227 million for the nine months ended September 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 September 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	$	192
2024	221
Thereafter	190
Total	$	603

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:


	September 30, 2023		December 31, 2022
(Dollars in millions)
Costs to obtain contracts
Sales commissions	$	140	$	144
Fulfillment costs
Installation costs	6		8

Total contract cost assets	$	146	$	152

Amortization of contract cost assets was $27 million and $82 million for the three and nine months ended September 30, 2023, respectively, and $28 million and $85 million for the three and nine months ended September 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 September 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	September 30, 2023				December 31, 2022
		Book Value		Fair Value		Book Value		Fair Value
(Dollars in millions)
Long-term debt
Retail	2	$	1,500	$	1,018	$	1,500	$	899
Institutional	2	536		430		536		395
Other	2	1,864		1,864		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 and export credit financing agreements. 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 7.92% and 3.52% to 8.28% at September 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.


	September 30, 2023		December 31, 2022
(Dollars in millions)
Equipment installment plan receivables, gross	$	1,127	$	1,211


Allowance for credit losses	(85)		(96)
Equipment installment plan receivables, net	$	1,042	$	1,115

Net balance presented in the Consolidated Balance Sheet as:
Accounts receivable — Customers and agents (Current portion)	$	581	$	646
Other assets and deferred charges (Non-current portion)	461		469
Equipment installment plan receivables, net	$	1,042	$	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:


	September 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	$	952	$	88	$	18	$	6	$	1,064	$	1,016	$	98	$	22	$	5	$	1,141
Billed — current	36		4		1		1		42		41		5		2		—		48
Billed — past due	12		6		2		1		21		13		6		2		1		22
Total	$	1,000	$	98	$	21	$	8	$	1,127	$	1,070	$	109	$	26	$	6	$	1,211

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


	2020		2021		2022		2023		Total
(Dollars in millions)
Lowest Risk	$	1	$	97	$	480	$	422	$	1,000
Lower Risk	—		6		41		51		98
Slight Risk	—		1		7		13		21
Higher Risk	—		—		2		6		8
Total	$	1	$	104	$	530	$	492	$	1,127

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


	2021		2022		2023		Total
(Dollars in millions)
Write-offs, net of recoveries	$	12	$	38	$	8	$	58

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


	September 30, 2023		September 30, 2022
(Dollars in millions)
Allowance for credit losses, beginning of period	$	96	$	72
Bad debts expense	47		69
Write-offs, net of recoveries	(58)		(54)
Allowance for credit losses, end of period	$	85	$	87

Note 5 Income Taxes

The effective tax rate on Income before income taxes for the three and nine months ended September 30, 2023 was 86.0% and 77.4%, respectively. These effective tax rates were higher than normal due primarily to the nominally low amount of Income before income taxes in the current year, which increased the effective tax rate impact of recurring tax adjustments including nondeductible interest and compensation expenses, as well as discrete increases in state valuation allowances that reduce the net value of deferred tax assets.

The effective tax rate on Income (loss) before income taxes for the three and nine months ended September 30, 2022 was 24.4% and 37.7%, respectively. These effective tax rates reflect a combined rate of federal and state taxes, adjusted primarily for impacts of nondeductible compensation and interest expense. The effective tax rates also varied during interim periods due to fluctuations in Income (loss) before income taxes.

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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, as calculated using the treasury stock method.

The amounts used in computing basic and diluted earnings (loss) per share attributable to TDS common shareholders were as follows:


	Three Months Ended September 30,				Nine Months Ended September 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	$	(17)	$	(25)	$	(46)	$	35
Adjustments to compute diluted earnings:
Noncontrolling interest adjustment	(1)		—		—		—
Net income (loss) attributable to TDS common shareholders used in diluted earnings (loss) per share	$	(18)	$	(25)	$	(46)	$	35

Weighted average number of shares used in basic earnings (loss) per share:
Common Shares	106		107		106		107
Series A Common Shares	7		7		7		7
Total	113		114		113		114

Effects of dilutive securities	—		—		—		1
Weighted average number of shares used in diluted earnings (loss) per share	113		114		113		115

Basic earnings (loss) per share attributable to TDS common shareholders	$	(0.16)	$	(0.22)	$	(0.41)	$	0.31

Diluted earnings (loss) per share attributable to TDS common shareholders	$	(0.16)	$	(0.22)	$	(0.41)	$	0.30

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 6 million and 5 million for the three and nine months ended September 30, 2023, respectively, and 4 million for both the three and nine months ended September 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 $179 million in total from 2021 through 2025 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 $17 million, $8 million and $36 million related to the additional costs for the nine months ended September 30, 2023, the year ended December 31, 2022 and the year ended December 31, 2021, respectively. At September 30, 2023, invoices totaling $105 million are included in Accounts payable in the Consolidated Balance Sheet and were paid in October 2023, and the remaining estimated payments of approximately $13 million are included in Other current liabilities. At December 31, 2022, the remaining estimated payments of approximately $133 million and $8 million were included in Other current liabilities and Other deferred liabilities and credits, respectively, in the Consolidated Balance Sheet. UScellular received full access to the spectrum in the third quarter of 2023.

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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.


	September 30, 2023		December 31, 2022
(Dollars in millions)
Equity method investments	$	492	$	468
Measurement alternative method investments	19		18
Investments recorded using the net asset value practical expedient	9		9
Total investments in unconsolidated entities	$	520	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(Dollars in millions)
Revenues	$	1,812	$	1,835	$	5,390	$	5,430
Operating expenses	1,426		1,402		4,154		4,174
Operating income	386		433		1,236		1,256
Other income (expense), net	(13)		(7)		(21)		(13)
Net income	$	373	$	426	$	1,215	$	1,243

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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 nine months ended September 30, 2023, TDS borrowed and repaid $265 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 September 30, 2023, there were no outstanding borrowings under the agreement, except for letters of credit, and the unused borrowing capacity was $399 million.

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 nine months ended September 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 September 30, 2023, the outstanding borrowings were $150 million, which is the full amount available under the agreement.

Secured Term Loan

In September 2023, TDS entered into a $300 million senior secured term loan credit agreement. The maturity date of the agreement is the earlier of (i) September 2026 and (ii) the date that is 91 days prior to the scheduled maturity date of TDS' existing revolving credit agreement (which maturity date is currently July 2026). The agreement requires TDS to make prepayments of the outstanding borrowings to the extent TDS receives cash proceeds in excess of prescribed thresholds from certain transactions as more fully described in the agreement. Borrowings under the agreement bear interest at a rate of SOFR plus 2.00%, which increases at certain dates throughout the term of the agreement. During the nine months ended September 30, 2023, TDS borrowed the full amount of $300 million 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. In September 2023, UScellular amended the agreement to extend the maturity date to September 2025. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 1.15%. During the nine months ended September 30, 2023, UScellular borrowed $115 million and repaid $385 million under its receivables securitization agreement. As of September 30, 2023, the outstanding borrowings under the agreement were $5 million and the unused borrowing capacity was $445 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of September 30, 2023, the USCC Master Note Trust held $389 million of assets available to be pledged as collateral for the receivables securitization agreement.

Subsequent to September 30, 2023, UScellular borrowed $150 million under the receivables securitization 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 nine months ended September 30, 2023, the repo subsidiary repaid $60 million under the agreement. As of September 30, 2023, there were no outstanding borrowings under the agreement and the unused borrowing capacity was $200 million, which is restricted from being borrowed against due to covenants within the TDS and UScellular credit agreements that limit secured borrowings on an enterprise-wide basis. As of September 30, 2023, UScellular held $532 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.

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Debt Covenants

The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, 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 September 30, 2023 with all such financial covenants.

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.


	September 30, 2023		December 31, 2022
(Dollars in millions)
Assets
Cash and cash equivalents	$	25	$	29

Accounts receivable	634		700
Inventory, net	3		4
Other current assets	33		36

Licenses	639		638
Property, plant and equipment, net	122		115
Operating lease right-of-use assets	43		41
Other assets and deferred charges	470		478
Total assets	$	1,969	$	2,041

Liabilities
Current liabilities	$	29	$	92
Long-term operating lease liabilities	38		36
Other deferred liabilities and credits	27		28
Total liabilities1	$	94	$	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 $6 million and $4 million at September 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 $276 million and $291 million, during the nine months ended September 30, 2023 and 2022, respectively, of which $244 million in 2023 and $269 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 had two exercise periods. The general partner's put option was not exercised during the first exercise period and 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 (loss) 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:


Nine Months Ended September 30,	2023		2022
(Dollars in millions)
Net income attributable to TDS shareholders	$	6	$	87
Transfers (to) from noncontrolling interests
Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares	(33)		(19)
Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares	—		21

Net transfers (to) from noncontrolling interests	(33)		2
Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests	$	(27)	$	89

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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.

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


Three Months Ended or as of September 30, 2023	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	762	$	256	$	25	$	1,043
Equipment and product sales	201		—		34		235
Total operating revenues	963		256		59		1,278
Cost of services (excluding Depreciation, amortization and accretion reported below)	185		107		19		311
Cost of equipment and products	228		—		28		256
Selling, general and administrative	333		82		17		432
Depreciation, amortization and accretion	159		61		5		225

(Gain) loss on asset disposals, net	1		6		(1)		6


Operating income (loss)	57		—		(9)		48
Equity in earnings of unconsolidated entities	40		—		—		40
Interest and dividend income	3		1		1		5

Interest expense	(50)		2		(14)		(62)

Income (loss) before income taxes	50		4		(23)		31
Income tax expense (benefit)	27		—		—		27
Net income (loss)	23		4		(23)		4
Add back:
Depreciation, amortization and accretion	159		61		5		225
Expenses related to strategic alternatives review	3		—		1		4

(Gain) loss on asset disposals, net	1		6		(1)		6



Interest expense	50		(2)		14		62
Income tax expense (benefit)	27		—		—		27
Adjusted EBITDA1	$	263	$	68	$	(3)	$	328

Investments in unconsolidated entities	$	477	$	4	$	39	$	520
Total assets	$	10,749	$	3,315	$	350	$	14,414
Capital expenditures	$	111	$	172	$	2	$	285

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Three Months Ended or as of September 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	781	$	256	$	24	$	1,061
Equipment and product sales	302		—		29		331
Total operating revenues	1,083		256		53		1,392
Cost of services (excluding Depreciation, amortization and accretion reported below)	197		109		20		326
Cost of equipment and products	354		—		23		377
Selling, general and administrative	369		81		12		462
Depreciation, amortization and accretion	177		53		4		234

(Gain) loss on asset disposals, net	1		3		—		4


Operating income (loss)	(15)		10		(6)		(11)
Equity in earnings of unconsolidated entities	40		—		—		40
Interest and dividend income	2		1		1		4

Interest expense	(42)		2		(6)		(46)

Income (loss) before income taxes	(15)		13		(11)		(13)
Income tax expense (benefit)	(3)		3		(3)		(3)
Net income (loss)	(12)		10		(8)		(10)
Add back:
Depreciation, amortization and accretion	177		53		4		234

(Gain) loss on asset disposals, net	1		3		—		4



Interest expense	42		(2)		6		46
Income tax expense	(3)		3		(3)		(3)
Adjusted EBITDA1	$	205	$	66	$	—	$	271

Investments in unconsolidated entities	$	461	$	4	$	38	$	503
Total assets	$	11,056	$	2,949	$	474	$	14,479
Capital expenditures	$	136	$	166	$	3	$	305

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Nine Months Ended or as of September 30, 2023	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	2,289	$	766	$	73	$	3,128
Equipment and product sales	617		1		102		720
Total operating revenues	2,906		767		175		3,848
Cost of services (excluding Depreciation, amortization and accretion reported below)	557		319		57		933
Cost of equipment and products	708		—		86		794
Selling, general and administrative	1,020		244		44		1,308
Depreciation, amortization and accretion	490		180		11		681

(Gain) loss on asset disposals, net	14		8		—		22


Operating income (loss)	117		15		(22)		110
Equity in earnings of unconsolidated entities	121		—		1		122
Interest and dividend income	8		3		5		16

Interest expense	(147)		6		(37)		(178)
Other, net	—		1		—		1
Income (loss) before income taxes	99		25		(53)		71
Income tax expense (benefit)	56		6		(7)		55
Net income (loss)	43		19		(46)		16
Add back:
Depreciation, amortization and accretion	490		180		11		681
Expenses related to strategic alternatives review	3		—		1		4

(Gain) loss on asset disposals, net	14		8		—		22



Interest expense	147		(6)		37		178
Income tax expense (benefit)	56		6		(7)		55
Adjusted EBITDA1	$	753	$	207	$	(4)	$	956

Capital expenditures	$	462	$	434	$	10	$	906

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Nine Months Ended or as of September 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	2,351	$	763	$	72	$	3,186
Equipment and product sales	769		1		100		870
Total operating revenues	3,120		763		173		4,056
Cost of services (excluding Depreciation, amortization and accretion reported below)	574		308		54		936
Cost of equipment and products	887		1		79		967
Selling, general and administrative	1,032		231		37		1,300
Depreciation, amortization and accretion	520		158		13		691
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	9		4		—		13
(Gain) loss on sale of business and other exit costs, net	(1)		—		—		(1)

Operating income (loss)	96		61		(10)		147
Equity in earnings of unconsolidated entities	122		—		1		123
Interest and dividend income	5		1		4		10

Interest expense	(115)		5		(8)		(118)
Other, net	—		1		—		1
Income (loss) before income taxes	108		68		(13)		163
Income tax expense (benefit)	46		18		(2)		62
Net income (loss)	62		51		(12)		101
Add back:
Depreciation, amortization and accretion	520		158		13		691
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	9		4		—		13
(Gain) loss on sale of business and other exit costs, net	(1)		—		—		(1)


Interest expense	115		(5)		8		118
Income tax expense (benefit)	46		18		(2)		62
Adjusted EBITDA1	$	754	$	226	$	7	$	987

Capital expenditures	$	541	$	391	$	6	$	938

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 September 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 September 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 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. An Amended Complaint was filed on September 1, 2023, which names TDS, UScellular, and certain current UScellular officers and directors as defendants, and alleges that certain public statements made between May 6, 2022 and November 3, 2022 (the "potential class period") regarding, among other things, 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 third quarter of 2023.

The maximum dollar value of shares that may yet be purchased under this program was $132 million as of September 30, 2023. There were no purchases made by or on behalf of TDS, and no 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.

Other Information

During the three months ended September 30, 2023, none of TDS’ directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) has adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5–1 trading arrangement (each as defined in Item 408 of Regulation S-K under the 1934 Act).

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Exhibits


Exhibit Number			Description of Documents

Exhibit 3.1			TDS Amended and Restated Bylaws are hereby incorporated by reference to Exhibit 3.1 to TDS' Current Report on Form 8-K dated October 13, 2023.

Exhibit 4.1			Second Amendment to First Amended and Restated Credit Agreement, among TDS, Wells Fargo National Association, as administrative agent, and the other lenders thereto, dated as of September 15, 2023.

Exhibit 4.2			Second Amendment to Amended and Restated Credit Agreement, among TDS, CoBank, ACB, as administrative agent, and the other lenders thereto, dated as of September 15, 2023.

Exhibit 4.3			Second Amendment to Credit Agreement, between TDS as Borrower and Export Development Canada as Lender, dated as of September 15, 2023.

Exhibit 4.4			Senior Secured Credit Agreement among TDS, Wells Fargo National Association, as administrative agent, and the other lenders thereto, dated as of September 28, 2023, including the form of Guaranty and Security Agreement is hereby incorporated by reference to Exhibit 4.1 to TDS' Current Report on Form 8-K dated September 28, 2023.

Exhibit 4.5			Third Amendment to First Amended and Restated Credit Agreement, among UScellular, Toronto Dominion (Texas) LLC, as administrative agent, and the other lenders thereto, dated as of September 15, 2023, is hereby incorporated by reference to Exhibit 4.1 to UScellular's Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Exhibit 4.6			Third Amendment to Third Amended and Restated Credit Agreement, among UScellular, CoBank, ACB, as administrative agent, and the other lenders thereto, dated as of September 15, 2023, is hereby incorporated by reference to Exhibit 4.2 to UScellular's Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Exhibit 4.7			Second Amendment to Senior Term Loan Credit Agreement, among UScellular, Toronto Dominion (Texas) LLC, as administrative agent, and the other lenders thereto, dated as of September 15, 2023, is hereby incorporated by reference to Exhibit 4.3 to UScellular's Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Exhibit 4.8			Second Amendment to Credit Agreement, among UScellular, Citibank, N.A. as administrative agent, Global Coordinator, Mandated Lead Arranger and a Lender, Export Development Canada as Mandated Lead Arranger and a Lender, and the other lenders thereto, dated as of September 15, 2023, is hereby incorporated by reference to Exhibit 4.4 to UScellular's Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Exhibit 10.1			Omnibus Amendment No. 4 to Amended and Restated Series 2017-VFN Indenture Supplement, Amended and Restated Note Purchase Agreement and Transfer and Servicing Agreement and Supplemental Indenture No. 6 to Master Indenture dated September 27, 2023 among USCC Master Note Trust, U.S. Bank National Association, as Indenture Trustee, USCC Services, LLC, USCC Receivables Funding LLC, USCC EIP LLC, and Royal Bank of Canada, as administrative agent for owners of the notes is hereby incorporated by reference to Exhibit 10.1 to UScellular's Quarterly Report on Form 10-Q for the period ended September 30, 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)

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Part II.

Other Information

Unregistered Sales of Equity Securities and Use of Proceeds

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:

November 3, 2023

/s/ LeRoy T. Carlson, Jr.

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

Date:

November 3, 2023

/s/ Vicki L. Villacrez

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