~~UNITED STATES~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~SECURITIES AND EXCHANGE COMMISSION~~

~~Washington, D.C. 20549~~

(Mark One)

~~FORM 10-Q~~

~~(Mark One)~~

~~[x]~~

☒

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

For the quarterly period ended June 30, 2019

~~For the quarterly period ended June 30, 2018~~

☐

~~[ ]~~

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

~~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, Illinois60602

(Address of principal executive offices) (Zip code)

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

~~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~~

~~Yes~~

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.

~~[x]~~

Yes

~~[ ]~~

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ 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).

~~[x]~~

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

~~[x]~~

☒

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

~~[x]~~

☐

☒

~~Indicate~~Securities registered pursuant to Section 12(b) of the ~~number of shares outstanding~~Act:

Title of each class

Trading Symbol

Name of ~~the issuer's classes of common stock, as of the latest practicable date.~~

each exchange on which registered

Common Shares, $.01 par value

TDS

New York Stock Exchange

~~Class~~

6.625% Senior Notes due 2045

TDI

~~Outstanding at June 30, 2018~~

New York Stock Exchange

~~Common Shares, $0.01 par value~~

6.875% Senior Notes due 2059

TDE

~~104,636,089 Shares~~

New York Stock Exchange

~~Series A Common Shares, $0.01 par value~~

7.000% Senior Notes due 2060

TDJ

~~7,273,678 Shares~~

New York Stock Exchange

5.875% Senior Notes due 2061

TDA

New York Stock Exchange

The number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 2019, is 107,218,500 Common Shares, $.01 par value, and 7,293,800 Series A Common Shares, $.01 par value.

~~Telephone and Data Systems, Inc.~~

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q

For the Period Ended June 30, 2019


~~Quarterly Report on Form 10-Q~~
~~For the Period Ended June 30, 2018~~ Index	Page No.

~~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	54
U.S. Cellular Operations	76
TDS Telecom Operations	1311
Wireline Operations	1513
Cable Operations	1817
Liquidity and Capital Resources	2120
Consolidated Cash FlowAnalysis	2524
Consolidated Balance Sheet Analysis	2625
Supplemental InformationRelating to Non-GAAP Financial Measures	2726
Application of Critical Accounting Policies and Estimates	3230
Recent Accounting Pronouncements	3230
Regulatory Matters	3330
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement	3431

Risk Factors	3633

Quantitative and Qualitative Disclosures About Market Risk	3633

Financial Statements (Unaudited)	3734
Consolidated Statement of Operations	3734
Consolidated Statement of Comprehensive Income	3835
Consolidated Statement of Cash Flows	3936
Consolidated Balance Sheet	4037
Consolidated Statement of Changes in Equity	4239
Notes to Consolidated Financial Statements	4443

Controls and Procedures	6461

Legal Proceedings	6461

Unregistered Sales of Equity Securities and Use of Proceeds	6461

Other Information	6562

Exhibits	6663

Form 10-Q Cross Reference Index	6764

Signatures	6865

Table of Contents



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

Executive Overview

The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and six months ended June 30, ~~2018,~~2019, to the three and six months ended June 30, ~~2017.~~2018. 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 (MD&A) of Financial Condition and Results of Operations included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, ~~2017.~~2018. 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, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” ~~“projects,”~~“projects” 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 Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.

TDS uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A. A discussion of the reason TDS determines these metrics to be useful and a reconciliation of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section within the MD&A of this Form 10-Q Report.

~~General~~

~~TDS re-evaluated internal reporting roles with regard to its hosted and managed services (HMS) business unit and, as a result, changed its reportable~~

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 82%-owned subsidiary, United States Cellular Corporation (U.S. Cellular). TDS also provides wireline and cable services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). TDS' segments operate entirely in the United States. See Note 11 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments. ~~Effective January 1, 2018, HMS was considered a non-reportable segment and is no longer being reported under TDS Telecom. Prior periods have been recast to conform to this revised presentation.~~

Table of Contents

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 and employees, 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.

TDS’ long-term strategy calls for the majority of its capital to be reinvested in its operating 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 and share repurchases.~~

dividend.

In ~~2018,~~2019, TDS is working 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:

U.S. Cellular continues to offer economical and competitively priced service plans and devices to its customers, and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as fixed wireless broadband. In addition, U.S. Cellular is focused on expanding its solutions available to business and government customers, including a growing suite of connected machine-to-machine solutions and software applications across various categories.
U.S. Cellular continues to devote efforts to enhance its network capabilities. To date, VoLTE technology has been launched successfully in California, Iowa, Oregon, Washington and Wisconsin, and deployments in several additional operating markets will occur later this year. VoLTE technology allows customers to utilize a 4G LTE network for both voice and data services, and offers enhanced services such as high definition voice and simultaneous voice and data sessions. In addition, the deployment of VoLTE technology expands U.S. Cellular’s ability to offer roaming services to other wireless carriers.
U.S. Cellular is committed to continuous technology innovation as demonstrated by its ongoing evaluation of 5G technology. U.S. Cellular has successfully tested 5G technology in both indoor and outdoor environments and is currently engaged in efforts related to the development of 5G standards and identifying potential use cases for the technology. When deployed commercially, 5G technology is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed and reliability as well as low latency.
U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions.

TDS Telecom’s Wireline business continues to focus on driving growth in its video, broadband, and managedIP services by investing in fiber inside existing markets and in new out-of-territory markets. With support from the FCC’s A-CAM program, Wireline will deploy higher speed broadband services to more rural areas.
~~TDS Telecom’s Cable business continues to make network capacity investments and offer more advanced services in its markets in line with its strategy to increase broadband penetration.~~
~~TDS Telecom’s Wireline and Cable businesses are investing in a Cloud TV platform to enhance video services.~~

▪

U.S. Cellular continues to offer economical and competitively priced service plans and devices to its customers, and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as fixed wireless broadband. In addition, U.S. Cellular is focused on expanding its solutions available to business and government customers, including a growing suite of connected machine-to-machine solutions and software applications across various categories.

▪

U.S. Cellular continues to devote efforts to enhance its network capabilities. VoLTE technology has been launched successfully in California, Iowa, Oregon, Washington and Wisconsin, and deployments in additional operating markets are expected later in 2019. VoLTE technology allows customers to utilize a 4G LTE network for both voice and data services, and offers enhanced services such as high definition voice and simultaneous voice and data sessions. In addition, the deployment of VoLTE technology expands U.S. Cellular’s ability to offer roaming services to other wireless carriers.

▪

U.S. Cellular also is committed to continuous technology innovation and has begun to deploy 5G technology, which is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed, reliability and low latency. U.S. Cellular is working with leading companies in the wireless infrastructure and handset ecosystem to provide rich 5G experiences for customers, initially focused on mobility services and using its low band spectrum. At the same time, as discussed below, U.S. Cellular has been seeking to acquire wireless spectrum licenses in the 28 GHz and 24 GHz bands to enable the delivery of additional 5G services in the future. In the markets where U.S. Cellular commercially deploys 5G technology, customers using U.S. Cellular’s 4G LTE network will experience increased network speed due to U.S. Cellular's network modernization efforts.

▪

U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, and to be able to expand its 5G service offerings, U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum licenses, including pursuant to FCC auctions. On June 3, 2019, the FCC announced by way of public notice that U.S. Cellular was the provisional winning bidder for 408 wireless spectrum licenses in its 28 GHz auction (Auction 101) and 282 wireless spectrum licenses in its 24 GHz auction (Auction 102) for an aggregate purchase price of $256 million.

▪

TDS Telecom’s Wireline business continues to focus on driving growth in its broadband and video services by investing in fiber deployment in new out-of-territory markets and inside existing markets. Construction has begun in two new out-of-territory clusters, mid-central Wisconsin and Idaho. With support from the FCC’s A-CAM program and state broadband grants, Wireline is also deploying higher speed broadband to more service addresses in rural areas.


▪	TDS Telecom’s Cable business continues to increase its broadband penetration by making network capacity investments and by offering more advanced services in its markets.


▪	TDS Telecom's Wireline and Cable businesses are investing in a next generation cloud-based video platform called TDS TV+ to enhance video services.

Table of Contents

Terms Used by TDS

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

~~4G LTE~~ ~~– fourth generation Long-Term Evolution which is a wireless broadband technology.~~
5G ~~– fifth generation wireless broadband technology.~~
~~Account~~ ~~– represents an individual or business financially responsible for one or multiple associated connections.~~ ~~An account may include a variety of types of connections such as handsets and connected devices.~~
~~Auctions 1000, 1001, and 1002~~ – Auction 1000 is an FCC auction of 600 MHz spectrum licenses that started in 2016 and concluded in 2017 involving: (1) a “reverse auction” in which broadcast television licensees submitted bids to voluntarily relinquish spectrum usage rights in exchange for payments (referred to as Auction 1001); (2) a “repacking” of the broadcast television bands in order to free up certain broadcast spectrum for other uses; and (3) a “forward auction” of licenses for spectrum cleared through this process to be used for wireless communications (referred to as Auction 1002).
~~Alternative Connect America Cost Model (A~~-~~CAM)~~– a USF support mechanism for rate-of-return carriers, which provides revenue support annually for ten years beginning in 2017. This support comes with an obligation to build defined broadband speeds to a certain number of locations.
~~ASU 2014-09~~ ~~– the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09,~~ ~~Revenue from Contracts with Customers, including any subsequent modifications to such guidance~~. ~~This ASU replaces existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.~~
~~Broadband Connections~~ – refers to the number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies or the Cable billable number of lines into a building for high-speed data services.
~~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 U.S. Cellular network. Connected devices include products such as tablets, watches, modems, and hotspots.~~
~~DOCSIS~~ – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates.
~~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.
~~Eligible Telecommunications Carrier (ETC)~~ ~~– designation by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms.~~
~~Free Cash Flow~~ ~~– non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment.~~
~~Gross Additions~~ ~~– represents the total number of new connections added during the period, without regard to connections that were terminated during that period.~~
~~IPTV Connections~~ ~~– represents the number of Wireline customers provided video services using IP networking technology.~~
~~Machine-to-Machine or M2M~~ – technology that involves the transmission of data between networked devices, as well as the performance of actions by devices without human intervention. U.S. Cellular sells and supports M2M solutions to customers, provides connectivity for M2M solutions via the U.S. Cellular network, and has agreements with device manufacturers and software developers which offer M2M solutions.
~~ManagedIP Connections~~ ~~– refers to the number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.~~
~~Net Additions~~ ~~– represents the total number of new connections added during the period, net of connections that were terminated during that period.~~
~~OIBDA~~ – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
~~Postpaid Average Billings per Account (Postpaid ABPA~~) – non-GAAP metric which is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.
~~Postpaid Average Billings per User (Postpaid ABPU)~~ – non-GAAP metric which is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.
~~Postpaid Average Revenue per Account (Postpaid ARPA)~~ ~~– metric 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.~~
~~Retail Connections –~~ ~~the sum of U.S. Cellular postpaid connections and U.S. Cellular prepaid connections.~~
~~Tax Act~~ – refers to comprehensive federal tax legislation enacted on December 22, 2017, which made broad and complex changes to the U.S. tax code. Now titled H.R.1, the Tax Act was originally identified as the Tax Cuts and Jobs Act of 2017.
~~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.~~
~~U.S. Cellular Connections~~ ~~- individual lines of service associated with each device activated by a customer. Connections include all types of devices that connect directly to the U.S. Cellular network.~~


▪	4G LTE – fourth generation Long-Term Evolution, which is a wireless technology that enables more network capacity for more data per user as well as faster access to data compared to third generation (3G) technology.


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


▪	Account – represents an individual or business financially responsible for one or multiple associated connections. An account may include a variety of types of connections such as handsets and connected devices.


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


▪	Broadband Connections – refers to the number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies or the Cable billable number of lines into a building for high-speed data services.


▪	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 U.S. Cellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.


▪	DOCSIS – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates.


▪	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.


▪	Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. 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.


▪	IPTV Connections – represents the number of Wireline customers provided video services using IP networking technology.

▪

Machine-to-Machine (M2M) – technology that involves the transmission of data between networked devices, as well as the performance of actions by devices without human intervention. U.S. Cellular sells and supports M2M solutions to customers, provides connectivity for M2M solutions via the U.S. Cellular network, and has agreements with device manufacturers and software developers which offer M2M solutions.


▪	ManagedIP Connections – refers to the number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.


▪	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.


▪	Partial Economic Areas – service areas of certain FCC licenses based on geography.


▪	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.


▪	Retail Connections – the sum of U.S. Cellular postpaid connections and U.S. Cellular prepaid connections.


▪	Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.


▪	U.S. Cellular Connections – individual lines of service associated with each device activated by a customer. Connections include all types of devices that connect directly to the U.S. Cellular network.


▪	Video Connections – generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or a hotel, connections are counted based on the number of units/rooms within the building receiving service.


▪	Voice Connections – refers to the individual circuits connecting a customer to Wireline’s central office facilities or the Cable billable number of lines into a building for voice services.


▪	VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.


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

Table of Contents

~~Video Connections~~ – generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or a hotel, connections are counted based on the number of units/rooms within the building receiving service.
~~Voice Connections~~ ~~– refers to the individual circuits connecting a customer to Wireline’s central office facilities or the Cable billable number of lines into a building for voice services.~~
~~VoLTE~~ ~~– Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.~~
~~Wireline Residential Revenue per Connection~~ ~~– is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period.~~

~~Table of Contents~~

Results of Operations — TDS Consolidated

Three Months Ended

Six Months Ended

June 30,

June 30,

2018¹

2017

2018 vs. 2017

2018¹

2017

2018 vs. 2017
(Dollars in millions)

Operating revenues

U.S. Cellular

$
974

$
963

1%

$
1,915

$
1,899

1%

TDS Telecom

230

231

–

461

459

–

All other2

51

53

(4)%

104

127

(18)%

Total operating revenues

1,255

1,247

1%

2,480

2,485

–
Operating expenses

U.S. Cellular

918

958

(4)%

1,794

1,840

(2)%

TDS Telecom

212

200

6%

417

398

5%

All other2

64

62

4%

128

138

(8)%

Total operating expenses

1,194

1,220

(2)%

2,339

2,376

(2)%
Operating income (loss)

U.S. Cellular

56

5

>100%

121

59

>100%

TDS Telecom

18

31

(41)%

43

61

(29)%

All other2

(13)

(9)

(53)%

(23)

(11)

>(100)%

Total operating income

61

27

>100%

141

109

29%
Investment and other income (expense)

Equity in earnings of unconsolidated entities

40

33

23%

78

65

20%

Interest and dividend income

6

4

65%

11

8

48%

Interest expense

(43)

(43)

(1)%

(86)

(85)

(1)%

Other, net

1

1

(33)%

2

2

(39)%

Total investment and other income (expense)

4

(5)

>100%

5

(10)

>100%

Income before income taxes

65

22

>100%

146

99

47%

Income tax expense

21

10

>100%

45

44

1%

Net income

44

12

>100%

101

55

84%

Less: Net income attributable to noncontrolling interests, net of tax

11

2

>100%

29

8

>100%
Net income attributable to TDS shareholders

$
33

$
10

>100%

$
72

$
47

52%

Adjusted OIBDA (Non-GAAP)3

$
272

$
242

12%

$
568

$
522

9%
Adjusted EBITDA (Non-GAAP)3

$
319

$
280

14%

$
659

$
597

10%
Capital expenditures

$
138

$
134

3%

$
253

$
230

10%

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

2
Consists of corporate and other operations and intercompany eliminations.

3
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.



	Three Months Ended June 30,								Six Months Ended June 30,
	2019			2018			2019 vs. 2018		2019			2018			2019 vs. 2018
(Dollars in millions)
Operating revenues
U.S. Cellular	$	973		$	974		–		$	1,939		$	1,915		1	%
TDS Telecom	233			230			1	%	464			461			1	%
All other¹	55			51			6	%	115			104			11	%
Total operating revenues	1,261			1,255			–		2,518			2,480			2	%
Operating expenses
U.S. Cellular	943			918			3	%	1,844			1,794			3	%
TDS Telecom	204			212			(4	)%	398			417			(5	)%
All other¹	66			64			2	%	134			128			5	%
Total operating expenses	1,213			1,194			2	%	2,376			2,339			2	%
Operating income (loss)
U.S. Cellular	30			56			(45	)%	95			121			(21	)%
TDS Telecom	29			18			60	%	66			43			52	%
All other¹	(11		)	(13		)	14	%	(19		)	(23		)	20	%
Total operating income	48			61			(21	)%	142			141			1	%
Investment and other income (expense)
Equity in earnings of unconsolidated entities	41			40			2	%	85			78			9	%
Interest and dividend income	9			6			43	%	17			11			51	%
Interest expense	(43		)	(43		)	1	%	(86		)	(86		)	1	%
Other, net	—			1			N/M		1			2			N/M
Total investment and other income	7			4			54	%	17			5			N/M

Income before income taxes	55			65			(16	)%	159			146			9	%
Income tax expense	16			21			(23	)%	50			45			12	%

Net income	39			44			(12	)%	109			101			8	%
Less: Net income attributable to noncontrolling interests, net of tax	6			11			(44	)%	17			29			(41	)%
Net income attributable to TDS shareholders	$	33		$	33		(2	)%	$	92		$	72		28	%

Adjusted OIBDA (Non-GAAP)²	$	287		$	272		5	%	$	598		$	568		5	%
Adjusted EBITDA (Non-GAAP)²	$	337		$	319		5	%	$	701		$	659		6	%
Capital expenditures	$	264		$	138		91	%	$	411		$	253		62	%

N/M - Percentage change not meaningful


¹	Consists of corporate and other operations and intercompany eliminations.


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

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

Table of Contents

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 by the equity method. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed ~~$20~~$19 million and ~~$17~~$20 million for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$38~~$40 million and ~~$33~~$38 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, to Equity in earnings of unconsolidated entities. See Note 87 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Income tax expense

~~TDS’~~

The effective tax rate on Income before income taxes for the three ~~and six~~ months ended June 30, 2019 and 2018, was ~~31.5%~~28.8% and ~~30.5%~~31.5%, respectively. The effective tax rate for the three and six months ended June 30, 2017, was 45.0% and 44.4%, respectively. The lower rate in 2018 as compared to 2017 is due primarily to the reduction of the U.S. federal corporate tax rate from 35% to 21% as a result of the Tax Act enacted in December 2017. Due to difficulty in reliably projecting an annual tax rate, TDS calculatedon Income before income taxes for the six months ended June 30, ~~2017, based on an estimated year-to-date~~2019 and 2018, was 31.3% and 30.5%, respectively. The effective tax ~~rate.~~

~~The bonus depreciation provision~~rates for the three and six month periods primarily reflect a normalized combined rate of ~~the Tax Act is expected to substantially reduce TDS’ current~~ federal ~~income tax liability in 2018. See Note~~ ~~5 — Income Taxes~~ ~~in the Notes to Consolidated Financial Statements~~and state taxes, adjusted for ~~additional information related to income taxes.~~

impacts of nondeductible expenses.

Net income attributable to noncontrolling interests, net of tax

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017
(Dollars in millions)

U.S. Cellular noncontrolling public shareholders’
$
8

$
2

$
16

$
6
Noncontrolling shareholders’ or partners’

3

–

13

2
Net income attributable to noncontrolling interests, net of tax
$
11

$
2

$
29

$
8



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
(Dollars in millions)
U.S. Cellular noncontrolling public shareholders’	$	6	$	8	$	16	$	16
Noncontrolling shareholders’ or partners’	—		3		1		13
Net income attributable to noncontrolling interests, net of tax	$	6	$	11	$	17	$	29

Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public shareholders’ share of U.S. Cellular’s net income and the noncontrolling shareholders’ or partners’ share of certain U.S. Cellular subsidiaries’ net income.

Net income attributable to noncontrolling interests, net of tax ~~increased~~decreased during the six months ended June 30, ~~2018,~~2019, due primarily to an out-of-period adjustment recorded in the first quarter of ~~2018~~.2018. TDS determined that this adjustment was not material to any of the periods impacted. See Note 109 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information.

~~Three and Six Months Ended~~

~~Net income and Adjusted EBITDA increased due primarily to improved Operating income levels at U.S. Cellular as a result of cost savings initiatives and a decrease in Cost of equipment sold.~~

*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.

Earnings

(Dollars in millions)

Three Months Ended

Net income decreased due primarily to higher depreciation in 2019 and gains on license exchanges recorded in 2018, partially offset by higher revenues and lower cost of equipment sold. Adjusted EBITDA increased due primarily to higher revenues combined with lower cost of equipment sold.

Six Months Ended

Net income increased due primarily to higher revenues, partially offset by higher depreciation in 2019 and gains on license exchanges recorded in 2018. Adjusted EBITDA increased due primarily to higher revenues.

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

Table of Contents

U.S. CELLULAR OPERATIONS

Business Overview

U.S. Cellular owns, operates, and invests in wireless markets throughout the United States. U.S. Cellular is an ~~83%~~82%-owned subsidiary of TDS. U.S. Cellular’s strategy is to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, all provided with a local focus.

~~OPERATIONS~~

OPERATIONS


▪	Serves customers with ~~approximately 5.1~~5.0 million connections including ~~4.5~~4.4 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections


▪	Operates in 2221 states


▪	Employs approximately ~~5,700~~5,600 associates ~~6,478~~


▪	6,535 cell sites including ~~4,105~~4,116 owned towers in service

Operational Overview

As of June 30,

2018

2017

Retail Connections – End of Period

Postpaid

4,468,000

4,478,000

Prepaid

527,000

484,000

Total

4,995,000

4,962,000

Q2 2018

Q2 2017

YTD 2018

YTD 2017

Postpaid Activity:

Gross Additions
146,000

174,000

275,000

320,000

Net Additions (Losses)
(13,000)

23,000

(50,000)

(4,000)

Churn
1.19%

1.13%

1.21%

1.21%

~~The decrease in~~





As of June 30,		2019	2018
Retail Connections – End of Period
	Postpaid	4,414,000	4,468,000
	Prepaid	500,000	527,000
	Total	4,914,000	4,995,000



	Q2 2019		Q2 2018		Q2 2019 vs. Q2 2018		YTD 2019		YTD 2018		YTD 2019 vs. YTD 2018
Postpaid Activity and Churn
Gross Additions
Handsets	102,000		111,000		(8	)%	203,000		207,000		(2	)%
Connected Devices	35,000		35,000		–		70,000		68,000		3	%
Total Gross Additions	137,000		146,000		(6	)%	273,000		275,000		(1	)%
Net Additions (Losses)
Handsets	(11,000	)	5,000		N/M		(25,000	)	(11,000	)	N/M
Connected Devices	(15,000	)	(18,000	)	17	%	(33,000	)	(39,000	)	15	%
Total Net (Losses)	(26,000	)	(13,000	)	(100	)%	(58,000	)	(50,000	)	(16	)%
Churn
Handsets	0.97	%	0.92	%			0.98	%	0.94	%
Connected Devices	3.01	%	2.85	%			3.05	%	2.82	%
Total Churn	1.23	%	1.19	%			1.24	%	1.21	%

N/M - Percentage change not meaningful

Total postpaid ~~net~~gross additions decreased for the three ~~months ended June 30, 2018, when compared to the same period last year, was driven mainly by both lower handset~~ and ~~tablet gross additions as well as an increase in tablet churn.~~ ~~The decline in tablet gross additions reflects U.S. Cellular‘s decision to curtail promotions of heavily discounted tablets.~~

~~The increase in postpaid net losses for the~~ six months ended June 30, ~~2018, when compared to the same period last year, was driven mainly by lower tablet gross additions and higher tablet churn.~~

~~Postpaid Revenue~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017
Average Revenue Per User (ARPU)
$
44.74

$
44.60

$
44.54

$
45.00
Average Billings Per User (ABPU)1
$
57.75

$
55.19

$
57.42

$
55.49

Average Revenue Per Account (ARPA)
$
118.57

$
119.73

$
118.38

$
120.46
Average Billings Per Account (ABPA)1
$
153.03

$
148.15

$
152.63

$
148.54

1
Postpaid ABPU and Postpaid ABPA are non-GAAP financial measures. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of these measures.

On January 1, 2018, U.S. Cellular adopted the provisions of ASU 2014-09, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to retained earnings at January 1, 2018. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details.

Postpaid ARPU increased for the three months ended June 30, 2018, when compared to the same period last year, driven by increases in device protection plan and regulatory recovery revenues. Such factors were partially offset by the impact of adopting the provisions of ASU 2014-09. Postpaid ARPA decreased for the three months ended June 30, 2018,2019, when compared to the same period last year, due ~~primarily~~ to ~~a decrease in~~aggressive industry-wide promotional activity on handsets.

Total postpaid connections per account driven by higher tablet churn. Application of the new accounting standard had the impact of reducing ARPU and ARPA for the three months ended June 30, 2018, by $0.41 and $1.07, respectively.

Postpaid ARPU and Postpaid ARPA decreased for the six months ended June 30, 2018, when compared to the same periods last year, due primarily to the impact of adopting the provisions of ASU 2014-09, as well as the impact of overall price reductions on plan offerings. Such factors were partially offset by the increases in device protection plan and regulatory recovery revenues. Application of the new accounting standard had the impact of reducing ARPU and ARPA for the six months ended June 30, 2018, by $0.47 and $1.24, respectively.

Under equipment installment plans, customers pay for their wireless devices in installments over a period of time. In order to show the trend in estimated cash collections from postpaid customer billings for both service and equipment, U.S. Cellular has presented Postpaid ABPU and Postpaid ABPA, which are calculated as Postpaid ARPU and Postpaid ARPA plus average monthly equipment installment plan billings per connection and account, respectively.

~~Postpaid ABPU and ABPA~~churn increased for the three and six months ended June 30, ~~2018,~~2019, due primarily to aggressive industry-wide handset promotional activity and an increase in ~~equipment installment~~defections of connected wearables, which were launched late in the second quarter of 2018.

Postpaid Revenue



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Average Revenue Per User (ARPU)	$	45.90	$	44.74	$	45.66	$	44.54
Average Revenue Per Account (ARPA)	$	119.46	$	118.57	$	119.15	$	118.38

Postpaid ARPU and Postpaid ARPA increased for the three and six months ended June 30, 2019, when compared to the same period last year, due to several factors including: a shift in mix to higher-priced service plans; having proportionately more handset connections, which on a per-unit basis contribute more revenue than connected device connections; and an increase in device protection plan ~~billings driven primarily by increased penetration of equipment installment plans.~~ revenues.

Table of Contents

Financial Overview —- U.S. Cellular

Three Months Ended

Six Months Ended

June 30,

June 30,

2018 vs.

2018 vs.

2018¹

2017

2017

2018¹

2017

2017
(Dollars in millions)














Retail service

$
652

$
647

1%

$
1,301

$
1,304

–
Inbound roaming

39

31

26%

66

58

15%
Other

50

62

(20)%

98

124

(22)%

Service revenues

741

740

–

1,465

1,486

(1)%
Equipment sales

233

223

5%

450

413

9%

Total operating revenues

974

963

1%

1,915

1,899

1%



System operations (excluding Depreciation, amortization and accretion reported below)


187


189

(1)%


365


364

–
Cost of equipment sold

240

260

(8)%

459

488

(6)%
Selling, general and administrative

342

351

(2)%

668

691

(3)%
Depreciation, amortization and accretion

159

155

3%

317

307

3%
(Gain) loss on asset disposals, net

1

5

(84)%

2

9

(75)%
(Gain) loss on license sales and exchanges, net

(11)

(2)

>(100)%

(17)

(19)

8%

Total operating expenses

918

958

(4)%

1,794

1,840

(2)%

Operating income

$
56

$
5

>100%

$
121

$
59

>100%

Net income

$
52

$
12

>100%

$
107

$
40

>100%
Adjusted OIBDA (Non-GAAP)2

$
205

$
163

26%

$
423

$
356

19%
Adjusted EBITDA (Non-GAAP)2

$
248

$
198

25%

$
507

$
426

19%
Capital expenditures

$
86

$
84

2%

$
155

$
145

7%

1
As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

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



	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018			2019 vs. 2018		2019			2018			2019 vs. 2018
(Dollars in millions)
Retail service	$	662	$	652		2	%	$	1,322		$	1,301		2	%
Inbound roaming	44		39			13	%	78			66			17	%
Other	51		50			2	%	98			98			2	%
Service revenues	757		741			2	%	1,498			1,465			2	%
Equipment sales	216		233			(7	)%	441			450			(2	)%
Total operating revenues	973		974			–		1,939			1,915			1	%

System operations (excluding Depreciation, amortization and accretion reported below)	193		187			3	%	369			365			1	%
Cost of equipment sold	224		240			(6	)%	458			459			–
Selling, general and administrative	344		342			1	%	669			668			–
Depreciation, amortization and accretion	177		159			11	%	345			317			8	%
(Gain) loss on asset disposals, net	5		1			N/M		7			2			N/M
(Gain) loss on sale of business and other exit costs, net	—		—			N/M		(2		)	—			N/M
(Gain) loss on license sales and exchanges, net	—		(11		)	N/M		(2		)	(17		)	88	%
Total operating expenses	943		918			3	%	1,844			1,794			3	%

Operating income	$	30	$	56		(45	)%	$	95		$	121		(21	)%

Net income	$	32	$	52		(38	)%	$	90		$	107		(15	)%
Adjusted OIBDA (Non-GAAP)¹	$	212	$	205		4	%	$	443		$	423		5	%
Adjusted EBITDA (Non-GAAP)¹	$	257	$	248		3	%	$	537		$	507		6	%
Capital expenditures	$	195	$	86		N/M		$	297		$	155		91	%

N/M - Percentage change not meaningful


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

Table of Contents

Operating Revenues

Three Months Ended June 30, 2019 and 2018

(Dollars in millions)

Operating Revenues

Six Months Ended June 30, 2019 and 2018

(Dollars in millions)

Service revenues consist of:

~~Service revenues consist of:~~

Retail Service –- Charges for access, airtime, recovery of regulatory costs and value added services, including data services and products

▪

Inbound Roaming –- Charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming

▪

Other Service –- Amounts received from the Federal USF, ~~and~~ tower rental ~~revenues. Imputed interest on equipment installment plan contracts is included in 2017; however, it is not included in 2018 due to the impact of adopting the provisions of ASU 2014-09~~

~~Equipment~~ revenues, ~~consist of:~~

and miscellaneous other service revenues

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 increased for the three ~~months ended June 30, 2018,~~ and ~~decreased for the~~ six months ended June 30, ~~2018,~~2019, primarily as a result of the ~~changes~~increase in Postpaid ARPU, aswhich was previously discussed in the Operational Overview section.

Inbound roaming revenues increased for the three and six months ended June 30, ~~2018,~~2019, primarily driven by higher data ~~roaming usage.~~

~~Other service~~usage, partially offset by lower rates.

Equipment sales revenues decreased for the three and six months ended June 30, ~~2018, reflecting the exclusion of imputed interest income in 2018~~2019, due to a decrease in the ~~impact~~number of ~~adopting~~devices sold, partially offset by an increase in the provisions of ASU 2014-09. Federal USF revenues remained flat at $23 million and $46 million for the three and six months ended June 30, 2018. See the Regulatory Matters section in this MD&A for a description of the FCC Mobility Fund II Order (MF2 Order) and its expected impacts on U.S. Cellular’s current Federal USF support.

~~Equipment sales revenues~~average revenue per device sold.

System operations expenses

System operations expenses increased for the three and six months ended June 30, ~~2018,~~2019, due to ~~the impact of adopting the provisions of ASU 2014-09,~~(i) higher maintenance and cell site rent expenses as U.S. Cellular continues to add capacity and enhance quality and (ii) an increase in the average revenue per device sold, a mix shift from feature phones and connected devices to higher end smartphone devices, and an increase in accessories revenue. Such factors were partially offset by a decrease in the number of devices sold and a reduction in guarantee liability amortization for equipment installment contractsroaming expense as a result of ~~changes in plan offerings.~~

~~See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details on the financial statement impact~~higher data roaming usage, partially offset by lower rates. Such factors were offset by lower customer usage expenses driven primarily by decreased circuit costs.

Table of ~~ASU 2014-09.~~

Contents

Cost of equipment sold

Cost of equipment sold decreased for the three and six months ended June 30, ~~2018,~~2019, due ~~primarily~~ to a decrease in the number of devices sold, ~~as well as the impact of adopting the provisions of ASU 2014-09. Such factors were~~ partially offset by ~~increases due to~~ a higher average cost per device ~~sold, an increase in accessories cost, and a mix shift from feature phones and connected devices to higher cost smartphones.~~

sold.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses decreased by $9 million and $23 million for the three and six months ended June 30, 2018, respectively, due to lower commissions, advertising and bad debts expenses.

Depreciation, amortization and accretion

Depreciation, amortization, and accretion increased for the three and six months ended June 30, ~~2018,~~2019, due ~~primarily~~ to ~~an increase in amortization expense related to billing system upgrades.~~

~~(Gain) loss on asset disposals, net~~

~~Loss on asset disposals, net decreased primarily as a result of fewer disposals~~(i) additional network assets being placed into service and (ii) accelerated depreciation of certain ~~network assets.~~

~~(Gain) loss on license sales and exchanges, net~~

~~Net gains in 2018 and 2017 were~~assets due to ~~gains recognized on license sale~~changes in network technology, which will continue throughout the remainder of 2019 and ~~exchange transactions with various third parties.~~

beyond.

Table of Contents



	TDS TELECOM OPERATIONS

Business Overview

TDS Telecom operates in two ~~reportable~~ segments: Wireline and Cable. TDS Telecom’s business objective is to provide a wide range of ~~communication~~communications services to both residential and commercial ~~customers, focused on high-quality broadband and video products.~~

customers.

~~OPERATIONS~~

~~TDS Telecom provides~~

OPERATIONS


▪	Provides broadband, video and voice services to ~~approximately~~ 1.2 million connections in 31 states.


▪	Employs approximately 2,800 employees.


▪	Wireline operates incumbent local exchange carriers (ILEC) and competitive local exchange carriers (CLEC) in 27 states.


▪	Cable operates primarily in Colorado, New Mexico, Texas, Utah, and Oregon.

Table of Contents

Financial Overview — TDS Telecom

~~Components of Operating Income~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2018 vs.

2018 vs.

2018¹

2017

2017

2018¹

2017

2017
(Dollars in millions)

Operating revenues

Wireline

$
174

$
181

(4)%

$
349

$
360

(3)%

Cable

57

51

12%

112

100

12%

TDS Telecom operating revenues

230

231

–

461

459

–

Operating expenses

Wireline

153

153

–

302

304

(1)%

Cable

59

48

24%

116

95

22%

TDS Telecom operating expenses

212

200

6%

417

398

5%

TDS Telecom operating income

$
18

$
31

(41)%

$
43

$
61

(29)%

Net income

$
16

$
20

(22)%

$
37

$
40

(7)%
Adjusted OIBDA (Non-GAAP)2

$
73

$
80

(9)%

$
152

$
160

(5)%
Adjusted EBITDA (Non-GAAP)2

$
75

$
82

(8)%

$
156

$
164

(4)%
Capital expenditures

$
46

$
45

4%

$
87

$
71

22%

Numbers may not foot due to rounding.

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
2
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019 vs. 2018		2019		2018		2019 vs. 2018
(Dollars in millions)
Operating revenues
Wireline	$	172	$	174	(1	)%	$	343	$	349	(2	)%
Cable	62		57		9	%	121		112		8	%
TDS Telecom operating revenues¹	233		230		1	%	464		461		1	%
Operating expenses
Wireline	145		153		(5	)%	282		302		(7	)%
Cable	59		59		–		117		116		1	%
TDS Telecom operating expenses¹	204		212		(4	)%	398		417		(5	)%

TDS Telecom operating income	$	29	$	18	60	%	$	66	$	43	52	%

Net income	$	25	$	16	60	%	$	56	$	37	52	%
Adjusted OIBDA (Non-GAAP)²	$	78	$	73	8	%	$	159	$	152	4	%
Adjusted EBITDA (Non-GAAP)²	$	82	$	75	9	%	$	165	$	156	6	%
Capital expenditures	$	70	$	46	51	%	$	112	$	87	30	%

Numbers may not foot due to rounding.

~~Three and Six Months Ended~~

~~Operating revenues were flat for~~

Includes eliminations between the ~~three and six months ended June 30, 2018.~~ ~~Lower~~ Wireline ~~wholesale special access revenue and legacy voice and commercial products decreased revenues offset by Cable broadband~~ and Cable ~~and Wireline video connection growth and price increases.~~

segments.

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

Operating Revenues

(Dollars in millions)

Total operating ~~expenses~~

revenues

Operating ~~expenses~~revenues increased for the three and six months ended June 30, ~~2018, due primarily to~~2019. Price increases, Cable and Wireline broadband and Wireline video connection growth, and higher Wireline support revenue provided through the A-CAM program increased revenues. Wireline residential and ~~Cable video programming costs, Wireline network maintenance~~commercial voice and ~~Cable IT-related expenses. In addition,~~other commercial product revenues continued to decline.

Total operating expenses ~~increased due to the impacts of adopting the provisions of ASU 2014-09. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.~~

~~Capital expenditures~~

~~Capital spending increased~~

Operating expenses decreased for the three and six months ended June 30, ~~2018,~~2019, due primarily to ~~support strategic build-outs including market expansions, A-CAM~~decreased employee-related expenses and ~~Cloud TV.~~a gain on the sale of assets that was recorded in the first quarter.

Table of Contents



	WIRELINE OPERATIONS

Business Overview

TDS Telecom’s Wireline business provides broadband, video and voice services. These services are provided to residential, commercial, and wholesale customers in a mix of rural, small town and suburban markets, with the largest concentration of its customers in the Upper Midwest and the Southeast. TDS Telecom’s strategy is to offer its residential customers broadband, video, and voice services through value-added bundling. In its commercial business, TDS Telecom’s focus is on small- to medium-sized businesses and its sales efforts emphasize advanced IP-based ~~data and voice~~ services.

Operational Overview


~~Residential broadband customers are increasingly choosing higher speeds in ILEC markets with 60% choosing speeds of 10 Mbps or greater and 28% choosing speeds of 50 Mbps or greater.~~		~~Increases in broadband speeds and video connection growth drove increases in average residential revenue per connection.~~

~~Total residential connections decreased by 2% as declines in voice connections outpaced the growth in video and broadband connections.~~

~~Total commercial connections decreased by 7% due primarily to a 9% decrease in voice connections, mostly in CLEC markets.~~

ILEC Residential Broadband

Connections by Speeds

As of June 30,

Residential broadband customers are increasingly choosing higher speeds in ILEC markets with 65% choosing speeds of 10 Mbps or greater and 36% choosing speeds of 50 Mbps or greater.

Wireline Residential Revenue per

Connection

Increases in broadband connections and speeds, and video connection growth drove increases in average residential revenue per connection.

Table of Contents

Residential Connections

As of June 30,

Total residential connections were relatively flat as declines in voice connections offset the growth in broadband and video connections.

Commercial Connections

As of June 30,

Total commercial connections decreased by 9% due primarily to declines in connections in CLEC markets.

Table of Contents

Financial Overview — Wireline

~~Components~~



	Three Months Ended June 30,							Six Months Ended June 30,
	2019			2018		2019 vs. 2018		2019			2018		2019 vs. 2018
(Dollars in millions)
Residential	$	81		$	80	1	%	$	162		$	160	1	%
Commercial	42			46		(8	)%	86			94		(9	)%
Wholesale	49			46		5	%	94			94		1	%
Service revenues	172			173		(1	)%	342			348		(2	)%
Equipment and product sales	—			—		(36	)%	1			1		(28	)%
Total operating revenues	172			174		(1	)%	343			349		(2	)%

Cost of services (excluding Depreciation, amortization and accretion reported below)	64			67		(3	)%	127			131		(3	)%
Cost of equipment and products	—			—		(44	)%	1			1		(33	)%
Selling, general and administrative	49			50		(1	)%	96			97		(1	)%
Depreciation, amortization and accretion	33			36		(8	)%	66			72		(9	)%
(Gain) loss on asset disposals, net	(1		)	1		N/M		(8		)	1		N/M
Total operating expenses	145			153		(5	)%	282			302		(7	)%

Operating income	$	27		$	21	29	%	$	61		$	47	30	%

Income before income taxes	$	30		$	24	29	%	$	68		$	52	31	%
Adjusted OIBDA (Non-GAAP)¹	$	59		$	57	3	%	$	119		$	120	(1	)%
Adjusted EBITDA (Non-GAAP)¹	$	62		$	59	4	%	$	125		$	124	–
Capital expenditures	$	55		$	33	64	%	$	84		$	62	35	%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful


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

Table of ~~operating Income~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2018¹

2017

2018 vs. 2017

2018¹

2017

2018 vs. 2017
(Dollars in millions)

Residential

$
80

$
81

(1)%

$
160

$
160

–
Commercial

46

50

(8)%

94

101

(7)%
Wholesale

46

49

(5)%

94

98

(5)%

Service revenues

173

180

(4)%

348

359

(3)%
Equipment and product sales

–

–

53%

1

1

39%

Total operating revenues

174

181

(4)%

349

360

(3)%

Cost of services (excluding Depreciation, amortization and accretion reported below)

67

65

2%

131

129

2%
Cost of equipment and products

–

1

(41)%

1

1

(32)%
Selling, general and administrative

50

49

1%

97

97

(1)%
Depreciation, amortization and accretion

36

37

(4)%

72

76

(5)%
(Gain) loss on asset disposals, net

1

–

94%

1

1

17%

Total operating expenses

153

153

–

302

304

(1)%

Operating income

$
21

$
28

(25)%

$
47

$
56

(16)%

Income before income taxes

$
24

$
30

(21)%

$
52

$
60

(13)%
Adjusted OIBDA (Non-GAAP)2

$
57

$
65

(13)%

$
120

$
133

(9)%
Adjusted EBITDA (Non-GAAP)2

$
59

$
67

(12)%

$
124

$
137

(9)%
Capital expenditures

$
33

$
33

2%

$
62

$
50

24%

Numbers may not foot due to rounding.

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
2
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

Contents

Operating Revenues

(Dollars in millions)

Residential revenues consist of:

~~Residential revenues consist of:~~

▪

Broadband services, including fiber-based and other digital, premium and enhanced data services


▪	Video services, including IPTV and satellite offerings

▪

Voice services

~~Commercial revenues consist of:~~

~~TDS managedIP voice and data services~~

Commercial revenues consist of:


▪	High-speed and dedicated business internet services

▪

Voice services

~~Wholesale revenues consist of:~~

Wholesale revenues consist of:


▪	Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s network ~~and special access services to carriers and others~~


▪	Federal and ~~State~~state USF support, including A-CAM support

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

Total operating revenues

Residential revenues ~~decreased~~increased for the three and six months ended June 30, ~~2018, as~~2019, due primarily to growth in video and broadband connections and price increases, partially offset by declines in voice ~~connections exceeded growth in~~connections. Average video connections ~~and rate increases. Broadband revenues increased due to increases in pricing as customers select faster speeds. Average~~grew 9% while average voice connections declined ~~7% while average video connections grew 11%~~5%.

Commercial revenues decreased for the three and six months ended June 30, ~~2018,~~2019, due to declining connections ~~and services~~ mostly in CLEC markets.

Wholesale revenues increased for the three and six ended June 30, 2019, due to increased A-CAM support payments including $2 million of additional support received in the second quarter of which $1 million was retroactive funding from January 1, 2019 to March 31, 2019. The additional funding increased Wireline's broadband speed deployment obligations under the existing FCC A-CAM program.

Cost of services

Cost of services decreased for the three and six months ended June 30, ~~2018, due primarily to decreases in network access and special access services.~~

~~Cost of services~~

~~Cost of services increased for the three and six months ended June 30, 2018,~~2019, due to ~~higher programming charges related to growth in video, partially offset by a decrease~~lower employee expenses and decreases in the costs of purchasing unbundled network elements and provisioning circuits, ~~and providing long-distance services.~~

partially offset by increases in programming charges.

Depreciation, amortization and accretion

Depreciation, amortization and accretion decreased as certain assets became fully ~~depreciated, partially offset by an increase~~depreciated.

(Gain) loss on asset disposals, net

(Gain) loss on asset disposals, net increased for the six months ended June 30, 2019, due to a ~~reduction~~gain related to the sale of fiber assets in ~~depreciable lives of customer premise equipment.~~ certain CLEC markets during the first quarter.

Table of Contents



	CABLE OPERATIONS

Business Overview

TDS Telecom’s Cable strategy is to expand its broadband services and leverage that growth by bundling with video and voice services. TDS Telecom seeks to be the leading provider of broadband services in its targeted markets by leveraging its core competencies in network management and customer focus.

Operational Overview

~~Cable connections, including two small tuck-in acquisitions made in Q4 2017, grew 9% due primarily to a 14% increase in broadband connections.~~

Cable Connections

As of June 30,

Cable connections grew 5% due primarily to an 8% increase in broadband connections.

Table of Contents

Financial Overview — Cable

~~Components~~



	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018			2019 vs. 2018		2019		2018			2019 vs. 2018
(Dollars in millions)
Residential	$	51	$	47		8	%	$	100	$	92		8	%
Commercial	11		10			9	%	21		20			8	%
Total operating revenues	62		57			9	%	121		112			8	%

Cost of services (excluding Depreciation, amortization and accretion reported below)	27		27			–		52		52			–
Selling, general and administrative	15		15			5	%	30		28			6	%
Depreciation, amortization and accretion	17		18			(4	)%	34		35			(3	)%
(Gain) loss on asset disposals, net	—		—			(54	)%	1		1			(4	)%
Total operating expenses	59		59			–		117		116			1	%

Operating income (loss)	$	2	$	(3	)	N/M		$	5	$	(4	)	N/M

Income (loss) before income taxes	$	3	$	(2	)	N/M		$	6	$	(4	)	N/M
Adjusted OIBDA (Non-GAAP)¹	$	20	$	16		27	%	$	39	$	32		24	%
Adjusted EBITDA (Non-GAAP)¹	$	20	$	16		29	%	$	40	$	32		26	%
Capital expenditures	$	15	$	13		17	%	$	28	$	24		16	%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful


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

Table of ~~Operating Income~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2018¹

2017

2018 vs. 2017

2018¹

2017

2018 vs. 2017
(Dollars in millions)

Residential

$
47

$
41

12%

$
92

$
82

12%
Commercial

10

9

7%

20

18

10%

Total operating revenues

57

51

12%

112

100

12%

Cost of services (excluding Depreciation, amortization and accretion reported below)

27

24

11%

52

48

9%
Selling, general and administrative

15

13

14%

28

25

10%
Depreciation, amortization and accretion

18

11

63%

35

21

67%
(Gain) loss on asset disposals, net

–

–

(12)%

1

1

(27)%

Total operating expenses

59

48

24%

116

95

22%

Operating income (loss)

$
(3)

$
3

>(100)%

$
(4)

$
5

>(100)%

Income (loss) before income taxes

$
(2)

$
3

>(100)%

$
(4)

$
5

>(100)%
Adjusted OIBDA (Non-GAAP)2

$
16

$
14

10%

$
32

$
27

18%
Adjusted EBITDA (Non-GAAP)2

$
16

$
14

10%

$
32

$
27

19%
Capital expenditures

$
13

$
12

9%

$
24

$
21

15%

Numbers may not foot due to rounding.

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.
2
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

Contents

Operating Revenues

(Dollars in millions)

Residential and Commercial revenues consist of:

~~Residential and Commercial revenues consist of:~~

▪

Broadband services, including high-speed internet, security and support services


▪	Video services, including premium programming in HD, multi-room and TV Everywhere offerings


▪	Voice services

~~Table of Contents~~

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

~~Commentary~~

Total operating revenues

Residential and commercial revenues increased for the three and six months ended June 30, ~~2018,~~2019, due to ~~tuck-in acquisitions,~~ growth in connections and price increases.

~~Commercial revenues increased for the three and six months ended June 30, 2018, due primarily to video price increases and increased ad sales.~~

~~Cost of services~~

~~Cost of services increased for the three and six months ended June 30, 2018, due primarily to increases in video programming fees and circuits expense.~~

Selling, general and administrative

Selling, general and administrative expenses increased for the three and six months ended June 30, ~~2018, due to increased IT-related expenses due to a billing conversion and higher property and other taxes.~~

~~Depreciation, amortization and accretion~~

Depreciation, amortization and accretion increased in 2018 due to the amortization of franchise rights and a reduction in depreciable lives of customer premise equipment. Cable changed its estimated useful life for video franchise rights from indefinite-lived to 15 years2019, due primarily to ~~the effects of increasing competition and advancements in technology for delivering and consuming video programming. See Note 1~~ — ~~Basis of Presentation in the Notes to Consolidated Financial Statements for additional information on franchise rights.~~increased employee-related expenses.

Table of Contents

Liquidity and Capital Resources

Sources of Liquidity

TDS and its subsidiaries operate capital-intensive businesses. Historically, TDS has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes. In the past, TDS’ existing cash and investment balances, funds available under its revolving credit and receivables securitization agreements, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions. There is no assurance that this will be the case in the future. See Market Risk for additional information regarding maturities of long-term debt.

Although TDS currently has a significant cash balance, TDS has incurred negative free cash flow at times in the past and this could occur in the future. However, TDS believes that existing cash and investment balances, funds available under its revolving credit ~~agreements,~~and receivables securitization ~~agreement~~agreements, and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its normal day-to-day operating needs and debt service requirements for the coming year.

TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of cable, wireless or wireline telecommunications services, IT services or other businesses, wireless spectrum license or system acquisitions, ~~system development and network capacity expansion,~~capital expenditures, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments. TDS, through U.S. Cellular, made payments related to wireless spectrum license auctions during 2019 (see Regulatory Matters - Millimeter Wave Spectrum Auctions), and expects capital expenditures in 2019 to be higher than in 2018, due primarily to investments at U.S. Cellular to enhance network speed and capacity and to deploy 5G technology, as well as increased levels of fiber investments at TDS Telecom. It may be necessary from time to time to increase the size of the existing revolving credit agreements, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures. TDS’ liquidity would be adversely affected if, among other things, TDS is unable to obtain ~~short~~short- or long-term financing on acceptable terms, TDS makes significant wireless spectrum license purchases, TDS makes significant business acquisitions, the LA Partnership discontinues or significantly reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline. ~~In addition, although sales of assets or businesses by TDS have been an important source of liquidity in prior periods, TDS does not expect a similar level of such sales in the future.~~

TDS’ credit rating currently is sub-investment grade. There can be no assurance that sufficient funds will continue to be available to TDS or its subsidiaries on terms or at prices acceptable to TDS. Insufficient cash flows from operating activities, changes in ~~its~~TDS' credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of TDS or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of wireless spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends. Any of the foregoing developments would have an adverse impact on TDS' businesses, financial condition or results of operations. TDS cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur. ~~Any~~

Table of ~~the foregoing would have an adverse impact on TDS’ businesses, financial condition or results of operations.~~

Contents

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. Cash held by U.S. Cellular is for its operational needs and acquisition, capital expenditure and business development programs. TDS does not have direct access to U.S. Cellular cash unless U.S. Cellular pays a dividend on its common stock. U.S. Cellular has no current intention to pay a dividend to its shareholders.

~~At June 30, 2018, TDS’ consolidated Cash and cash equivalents totaled $873 million compared to $619 million at December 31, 2017.~~

The majority of TDS’ Cash and cash equivalents was held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies across a range of eligible money market investments that may include, but are not limited to, government agency repurchase agreements, government agency debt, U.S. Treasury repurchase agreements, U.S. Treasury debt, and other securities collateralized by U.S. government obligations. TDS monitors the financial viability of the money market funds and direct investments in which it invests and believes that the credit risk associated with these investments is low.

Cash and Cash Equivalents

(Dollars in millions)

At June 30, 2019, TDS' consolidated Cash and cash equivalents totaled $834 million compared to $921 million at December 31, 2018.

The majority of TDS’ Cash and cash equivalents is held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies across a range of eligible money market investments that may include, but are not limited to, government agency repurchase agreements, government agency debt, U.S. Treasury repurchase agreements, U.S. Treasury debt, and other securities collateralized by U.S. government obligations. TDS monitors the financial viability of the money market funds and the financial institutions with which TDS has deposits and believes that the credit risk associated with these is low.

~~Table of Contents~~

Financing

~~In May 2018,~~

TDS ~~entered into a new $400 million revolving credit agreement with certain lenders and other parties~~ and U.S. Cellular ~~entered into a new $300 million~~have unsecured revolving credit ~~agreement with certain lenders and other parties. Amounts under both of the new revolving credit~~ agreements ~~are~~ available for general corporate purposes including acquisitions, wireless spectrum license purchases and capital ~~expenditures, and may be borrowed, repaid and reborrowed from time to time until maturity~~expenditures. These credit agreements mature in May 2023. As ~~a result of the new agreements, TDS’ and U.S. Cellular’s previous revolving credit agreements due to expire in June 2021 were terminated. As~~ of June 30, ~~2018,~~2019, there were no outstanding borrowings under the revolving credit agreements, except for letters of credit, and TDS’ and U.S. Cellular’s unused ~~borrowing~~ capacity under their revolving credit agreements was ~~$399~~$400 million and $298 million, respectively. ~~See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information.~~

In ~~May 2018,~~March 2019, U.S. Cellular ~~also~~ amended its senior term loan credit agreement in order to ~~align with~~reduce the ~~new revolving credit agreement.~~interest rate. There were no ~~significant~~ changes to the maturity date orand no significant changes to other key terms of the agreement.

TDS and U.S. Cellular believe they were in compliance with all of the financial covenants and requirements set forth in their revolving credit agreements and the senior term loan credit agreement as of June 30, ~~2018.~~

2019.

U.S. Cellular, through its subsidiaries, also has a receivables securitization agreement to permit securitized borrowings for general corporate purposes using its equipment installment plan ~~receivables for general corporate purposes.~~receivables. The unused capacity under this agreement was $200 million as of June 30, ~~2018,~~2019, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. ~~As of June 30, 2018, the USCC Master Note Trust (Trust) held $27 million of assets available to be pledged as collateral for the receivables securitization agreement.~~ U.S. Cellular believes that it was in compliance with all of the financial covenants and requirements set forth in its receivables securitization agreement as of that date.

TDS and U.S. Cellular have in place effective shelf registration statements on Form S-3 to issue senior or subordinated debt securities.

Long-term debt payments due for the remainder of ~~2018~~2019 and the next four years are ~~$219~~$199 million, which represent 9%8% of the total gross long-term debt obligation at June 30, ~~2018.~~

2019.

Table of Contents

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures), which include the effects of accruals and capitalized interest, for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, were as follows:

Capital Expenditures

(Dollars in millions)

U.S. Cellular’s capital expenditures for the six months ended June 30, 2019 and 2018, were $297 million and $155 million, respectively.

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

▪

Enhance and maintain U.S. ~~Cellular’s capital expenditures for the six months ended June 30, 2018 and 2017, were $155 million and $145 million, respectively.~~

~~Capital expenditures for the full year 2018 are expected to be between $500 million and $550 million. These expenditures are expected to be used principally for the following purposes:~~

~~Enhance~~Cellular's network coverage, byincluding continuing to deploy VoLTE technology in certain markets and providing additional speed and capacity to accommodate increased ~~network usage, principally~~ data usage by current customers;


▪	Begin deploying 5G technology; and


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

TDS Telecom’s capital expenditures for the six months ended June 30, 2019 and 2018, were $112 million and $87 million, respectively.

Capital expenditures for the full year 2019 are expected to be between $300 million and $350 million. These expenditures are expected to be used principally for the following purposes:

▪

Expand fiber deployment inside and outside of ~~life platforms.~~

~~TDS Telecom’s capital expenditures for the six months ended June 30, 2018 and 2017, were $87 million and $71 million, respectively.~~

~~Capital expenditures for the full year 2018 are expected to be approximately $270 million. These expenditures are expected to be used principally for the following purposes:~~

current footprint;


▪	Maintain and enhance existing infrastructure including build-out requirements to meet state broadband and ~~Federal~~ A-CAM programs;


▪	Upgrade broadband capacity and speeds;


▪	Support success-based spending to sustain IPTV, broadband, and Cable growth; ~~Build Cloud TV platform;~~ and ~~Expand fiber deployment, within and outside of current markets.~~

▪ Build TDS TV+, a cloud-based video platform

TDS ~~plans~~intends to finance its capital expenditures ~~program~~ for ~~2018~~2019 using primarily Cash flows from operating activities, existing cash balances and, if required, its receivables securitization and/or revolving credit agreements.

Acquisitions, Divestitures and Exchanges

TDS may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, wireless spectrum licenses and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement. TDS assesses its business 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, TDS ~~actively seeks~~reviews attractive opportunities to acquire additional wireless operating markets and wireless spectrum ~~as well as~~licenses, including pursuant to FCC auctions; and telecommunications, or cable ~~markets,~~ or other possible businesses. TDS also may seek to divest outright or include in exchanges for other interests those interests that are not strategic to its long-term success.

In June 2019, the FCC announced by way of public notice that U.S. Cellular was the provisional winning bidder for 408 wireless spectrum licenses in its 28 GHz auction (Auction 101) and 282 wireless spectrum licenses in its 24 GHz auction (Auction 102) for an aggregate purchase price of $256 million. U.S. Cellular paid substantially all of the $256 million in the first half of 2019. The wireless spectrum licenses are expected to be granted by the FCC during 2019.

Table of Contents

Variable Interest Entities

TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 109 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

Common Share Repurchase Programs

TDS and U.S. Cellular have repurchased their Common Shares and ~~expect~~U.S. Cellular expects to continue to repurchase ~~their~~its Common Shares, ~~in each case~~ subject to any available repurchase program. However, there were no share repurchases made under these programs in the six months ended June 30, ~~2018,~~2019, or in the year ended December 31, ~~2017.~~

2018.

As of June 30, ~~2018,~~2019, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS’ program was $199 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

U.S. Cellular also has a share repurchase authorization. As of June 30, ~~2018,~~2019, the total cumulative amount of U.S. Cellular Common Shares authorized to be purchased is ~~5,900,849.~~

5,901,000.

Contractual and Other Obligations

There were no material changes outside the ordinary course of business between December 31, ~~2017~~2018 and June 30, ~~2018,~~2019, to the Contractual and Other Obligations disclosed 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, ~~2017.~~

2018.

Off-Balance Sheet Arrangements

TDS had no transactions, agreements or other contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that had or are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.

Table of Contents

Consolidated Cash Flow Analysis

TDS operates a capital- and marketing-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-reducing~~cost-saving upgrades to TDS’ networks. TDS utilizes cash on hand, cash from operating activities, cash proceeds from divestitures and dispositions of investments, and short-term and long-term debt financing to fund its acquisitions (including wireless spectrum licenses), construction costs, operating expenses and share repurchases. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors. The following discussion summarizes TDS' cash flow activities for the six months ended June 30, ~~2018~~2019 and ~~2017.~~

2018.

2019 Commentary

TDS’ Cash, cash equivalents and restricted cash decreased $86 million. Net cash provided by operating activities was $592 million due to net income of $109 million plus non-cash items of $497 million and distributions received from unconsolidated entities of $76 million, including $33 million in distributions from the LA Partnership. This was offset by changes in working capital items which decreased net cash by $90 million. The primary working capital changes were a reduction in accrued compensation reflecting annual employee bonus payments and a decline in the amounts due to agents driven by lower sales volume.

Cash flows used for investing activities were $616 million. Cash paid for additions to property, plant and equipment totaled $393 million. Cash payments for wireless spectrum license acquisitions were $255 million. These were partially offset by Cash received from divestitures and exchanges of $32 million.

Cash flows used for financing activities were $62 million, reflecting ordinary activity such as the payment of dividends and the scheduled repayments of debt.

2018 Commentary

TDS’ Cash, cash equivalents and restricted cash increased $255 ~~million in 2018.~~million. Net cash provided by operating activities was $463 million ~~in 2018~~ due primarily to net income of $101 million plus non-cash items of $442 million and distributions received from unconsolidated entities of $70 million, including $33 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $150 million. The working capital changes were primarily influenced by an increase in equipment installment plan receivables and the timing of annual employee bonus, ~~payments and~~ vendor and tax payments, partially offset by collections of customer and agent receivables. ~~The adoption of ASU 2014-09 caused fluctuations in working capital items in the Consolidated Balance Sheet; however, it did not have an impact on total Net cash provided by operating activities.~~

Cash flows used for investing activities were $161 million. Cash paid ~~in 2018~~ for additions to property, plant and equipment totaled $275 million. Cash paid for acquisitions and licenses was $10 million. This was partially offset by cash received from the redemption of short-term Treasury bills of $100 million and Cash received from divestitures and exchanges of $21 million.

Cash flows used for financing activities were $47 million, reflecting ordinary activity such as the payment of dividends and the scheduled repayments of debt.

~~2017 Commentary~~

TDS’ Cash, cash equivalents and restricted cash decreased $109 million in 2017. Net cash provided by operating activities was $358 million in 2017, due to net income of $55 million plus non-cash items of $398 million and distributions received from unconsolidated entities of $65 million, including $30 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased cash by $160 million. The working capital changes were due to a $107 million increase in equipment installment plan receivables and a $59 million decrease in accounts payable.

The net cash provided by operating activities was offset by Cash flows used for investing activities of $424 million. Cash paid for additions to property, plant and equipment in 2017 totaled $242 million. Cash paid for acquisitions and licenses was $200 million which included the remaining $186 million due to the FCC for licenses U.S. Cellular won in Auction 1002. This was partially offset by Cash received from divestitures and exchanges of $17 million.

~~Cash flows used for financing activities were $43 million in 2017, reflecting ordinary activity such as the payment of dividends and the scheduled repayments of debt.~~

Table of Contents

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. Changes in financial condition during ~~2018~~2019 were as follows:

~~Cash~~

Assets held for sale

Assets held for sale decreased $54 million. Certain sale and ~~cash equivalents~~

~~See~~exchange agreements that U.S. Cellular entered into in 2018 closed in the ~~Consolidated Cash Flow Analysis above for a discussion~~first quarter of ~~cash and cash equivalents.~~

~~Short-term investments~~

~~Short-term investments decreased $100 million due to the maturity of U.S. Treasury Bills with original maturities of six months.~~

~~Other assets and deferred charges~~

~~Other assets and deferred charges~~2019.

Licenses

Licenses increased ~~$164~~$283 million due primarily to ~~the creation of contract assets and contract cost assets as a result of the adoption of ASU 2014-09.~~wireless spectrum license rights acquired through FCC auctions. See Note 26 — ~~Revenue Recognition~~Intangible Assets in the Notes to Consolidated Financial Statements for additional information.

~~Accounts payable~~

~~Accounts payable decreased $72~~

Operating lease right-of-use assets

Operating lease right-of-use assets increased $963 million due ~~primarily to reduction of expenses as well as payment timing differences.~~

~~Customer deposits and deferred revenues~~

~~Customer deposits and deferred revenues decreased $58 million due primarily~~ to the ~~reclassification~~adoption of certain deferred revenues to Other current assets to reflect the net contract position for each customer contract on the Consolidated Balance Sheet as required by ASU 2014-09, which was adopted on January 1, 2018.Accounting Standards Codification (ASC) 842. See Note 28 — ~~Revenue Recognition~~Leases in the Notes to Consolidated Financial Statements for additional information.

Accrued compensation

Accrued compensation decreased ~~$42~~$50 million due primarily to employee bonus payments in March ~~2018.~~

~~Deferred income tax liability, net~~

~~Deferred income tax liability, net,~~2019.

Short-term operating lease liabilities

Short-term operating lease liabilities increased ~~$84~~$112 million due to the adoption of ASC 842. See Note 8 — Leases in the Notes to Consolidated Financial Statements for additional information.

Other current liabilities

Other current liabilities decreased by $29 million due primarily to a decline in the amounts due to agents driven by lower sales volume.

Long-term operating lease liabilities

Long-term operating lease liabilities increased $927 million due to the adoption of ASC 842. See Note 8 — Leases in the Notes to Consolidated Financial Statements for additional information.

Other deferred liabilities and credits

Other deferred liabilities and credits decreased $91 million due primarily to the adoption of ~~ASU 2014-09 increasing~~ASC 842. See Note 8 — Leases in the ~~net basis of assets on a U.S. GAAP basis without a corresponding increase in tax basis, as well as the impact of full expensing of qualified property additions following the enactment of the Tax Act.~~Notes to Consolidated Financial Statements for additional information.

Table of Contents

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 U.S. GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this Form 10-Q Report:


▪	EBITDA


▪	Adjusted EBITDA


▪	Adjusted OIBDA


▪	Free cash flow

Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. ~~Specifically, TDS has referred to the following measures in this Form 10-Q Report:~~

~~EBITDA~~
~~Adjusted EBITDA~~
~~Adjusted OIBDA~~
~~Free cash flow~~
~~Postpaid ABPU~~

~~Postpaid ABPA~~

Following are explanations of each of these measures.

EBITDA, Adjusted EBITDA and Adjusted OIBDA

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

Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. See Note 1211 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability and, therefore, reconciliations to applicable GAAP income measures are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following ~~table reconciles~~tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP ~~measure,~~measures, Net income or Income (loss) before income ~~taxes.~~taxes and Operating income (loss). Income tax expense is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense (benefit) for TDS Telecom in total.



	Three Months Ended June 30,					Six Months Ended June 30,
TDS - CONSOLIDATED	2019		2018			2019			2018
(Dollars in millions)
Net income (GAAP)	$	39	$	44		$	109		$	101
Add back:
Income tax expense	16		21			50			45
Interest expense	43		43			86			86
Depreciation, amortization and accretion	234		220			460			441
EBITDA (Non-GAAP)	332		328			705			673
Add back or deduct:
(Gain) loss on asset disposals, net	5		2			—			3
(Gain) loss on sale of business and other exit costs, net	—		—			(2		)	—
(Gain) loss on license sales and exchanges, net	—		(11		)	(2		)	(17		)
Adjusted EBITDA (Non-GAAP)	337		319			701			659
Deduct:
Equity in earnings of unconsolidated entities	41		40			85			78
Interest and dividend income	9		6			17			11
Other, net	—		1			1			2
Adjusted OIBDA (Non-GAAP)	287		272			598			568
Deduct:
Depreciation, amortization and accretion	234		220			460			441
(Gain) loss on asset disposals, net	5		2			—			3
(Gain) loss on sale of business and other exit costs, net	—		—			(2		)	—
(Gain) loss on license sales and exchanges, net	—		(11		)	(2		)	(17		)
Operating income (GAAP)	$	48	$	61		$	142		$	141

Table of Contents

Three Months Ended

Six Months Ended

June 30,

June 30,
TDS ̶ CONSOLIDATED
2018¹

2017

2018¹

2017
(Dollars in millions)

Net income (GAAP)
$
44

$
12

$
101

$
55
Add back:

Income tax expense

21

10

45

44

Interest expense

43

43

86

85

Depreciation, amortization and accretion

220

211

441

422
EBITDA (Non-GAAP)

328

276

673

606
Add back or deduct:

(Gain) loss on asset disposals, net

2

6

3

10

(Gain) loss on license sales and exchanges, net

(11)

(2)

(17)

(19)
Adjusted EBITDA (Non-GAAP)

319

280

659

597
Deduct:

Equity in earnings of unconsolidated entities

40

33

78

65

Interest and dividend income

6

4

11

8

Other, net

1

1

2

2
Adjusted OIBDA (Non-GAAP)

272

242

568

522
Deduct:

Depreciation, amortization and accretion

220

211

441

422

(Gain) loss on asset disposals, net

2

6

3

10

(Gain) loss on license sales and exchanges, net

(11)

(2)

(17)

(19)
Operating income (GAAP)
$
61

$
27

$
141

$
109

Three Months Ended

Six Months Ended

June 30,

June 30,
U.S. CELLULAR
2018¹

2017

2018¹

2017
(Dollars in millions)

Net income (GAAP)
$
52

$
12

$
107

$
40
Add back:

Income tax expense

18

–

40

33

Interest expense

29

28

58

56

Depreciation, amortization and accretion

159

155

317

307
EBITDA (Non-GAAP)

258

195

522

436
Add back or deduct:

(Gain) loss on asset disposals, net

1

5

2

9

(Gain) loss on license sales and exchanges, net

(11)

(2)

(17)

(19)
Adjusted EBITDA (Non-GAAP)

248

198

507

426
Deduct:

Equity in earnings of unconsolidated entities

40

33

78

66

Interest and dividend income

3

2

7

5

Other, net

–

–

(1)

(1)
Adjusted OIBDA (Non-GAAP)

205

163

423

356
Deduct:

Depreciation, amortization and accretion

159

155

317

307

(Gain) loss on asset disposals, net

1

5

2

9

(Gain) loss on license sales and exchanges, net

(11)

(2)

(17)

(19)
Operating income (GAAP)
$
56

$
5

$
121

$
59



	Three Months Ended June 30,					Six Months Ended June 30,
U.S. CELLULAR	2019		2018			2019			2018
(Dollars in millions)
Net income (GAAP)	$	32	$	52		$	90		$	107
Add back:
Income tax expense	14		18			41			40
Interest expense	29		29			58			58
Depreciation, amortization and accretion	177		159			345			317
EBITDA (Non-GAAP)	252		258			534			522
Add back or deduct:
(Gain) loss on asset disposals, net	5		1			7			2
(Gain) loss on sale of business and other exit costs, net	—		—			(2		)	—
(Gain) loss on license sales and exchanges, net	—		(11		)	(2		)	(17		)
Adjusted EBITDA (Non-GAAP)	257		248			537			507
Deduct:
Equity in earnings of unconsolidated entities	40		40			84			78
Interest and dividend income	5		3			11			7
Other, net	—		—			(1		)	(1		)
Adjusted OIBDA (Non-GAAP)	212		205			443			423
Deduct:
Depreciation, amortization and accretion	177		159			345			317
(Gain) loss on asset disposals, net	5		1			7			2
(Gain) loss on sale of business and other exit costs, net	—		—			(2		)	—
(Gain) loss on license sales and exchanges, net	—		(11		)	(2		)	(17		)
Operating income (GAAP)	$	30	$	56		$	95		$	121



	Three Months Ended June 30,					Six Months Ended June 30,
TDS TELECOM	2019			2018		2019			2018
(Dollars in millions)
Net income (GAAP)	$	25		$	16	$	56		$	37
Add back:
Income tax expense	8			5		18			12
Interest expense	(1		)	—		(1		)	(1		)
Depreciation, amortization and accretion	50			53		100			107
EBITDA (Non-GAAP)	82			74		173			155
Add back or deduct:
(Gain) loss on asset disposals, net	(1		)	1		(8		)	1
Adjusted EBITDA (Non-GAAP)	82			75		165			156
Deduct:
Interest and dividend income	3			2		6			3
Other, net	—			1		—			1
Adjusted OIBDA (Non-GAAP)	78			73		159			152
Deduct:
Depreciation, amortization and accretion	50			53		100			107
(Gain) loss on asset disposals, net	(1		)	1		(8		)	1
Operating income (GAAP)	$	29		$	18	$	66		$	43

Numbers may not foot due to rounding.

Table of Contents

Three Months Ended

Six Months Ended

June 30,

June 30,
TDS TELECOM
2018¹

2017

2018¹

2017
(Dollars in millions)

Net income (GAAP)
$
16

$
20

$
37

$
40
Add back or deduct:

Income tax expense

5

13

12

25

Interest expense

–

–

(1)

–

Depreciation, amortization and accretion

53

48

107

97
EBITDA (Non-GAAP)

74

81

155

162
Add back or deduct:

(Gain) loss on asset disposals, net

1

1

1

1
Adjusted EBITDA (Non-GAAP)

75

82

156

164
Deduct:

Interest and dividend income

2

1

3

2

Other, net

1

1

1

2
Adjusted OIBDA (Non-GAAP)

73

80

152

160
Deduct:

Depreciation, amortization and accretion

53

48

107

97

(Gain) loss on asset disposals, net

1

1

1

1
Operating income (GAAP)
$
18

$
31

$
43

$
61

Three Months Ended

Six Months Ended

June 30,

June 30,
WIRELINE
2018¹

2017

2018¹

2017
(Dollars in millions)

Income before income taxes (GAAP)
$
24

$
30

$
52

$
60
Add back or deduct:

Interest expense

–

–

(1)

–

Depreciation, amortization and accretion

36

37

72

76
EBITDA (Non-GAAP)

59

67

124

136
Add back or deduct:

(Gain) loss on asset disposals, net

1

–

1

1
Adjusted EBITDA (Non-GAAP)

59

67

124

137
Deduct:

Interest and dividend income

2

1

3

2

Other, net

1

1

1

2
Adjusted OIBDA (Non-GAAP)

57

65

120

133
Deduct:

Depreciation, amortization and accretion

36

37

72

76

(Gain) loss on asset disposals, net

1

–

1

1
Operating income (GAAP)
$
21

$
28

$
47

$
56



	Three Months Ended June 30,					Six Months Ended June 30,
WIRELINE	2019			2018		2019			2018
(Dollars in millions)
Income before income taxes (GAAP)	$	30		$	24	$	68		$	52
Add back:
Interest expense	(1		)	—		(1		)	(1		)
Depreciation, amortization and accretion	33			36		66			72
EBITDA (Non-GAAP)	62			59		133			124
Add back or deduct:
(Gain) loss on asset disposals, net	(1		)	1		(8		)	1
Adjusted EBITDA (Non-GAAP)	62			59		125			124
Deduct:
Interest and dividend income	3			2		5			3
Other, net	—			1		—			1
Adjusted OIBDA (Non-GAAP)	59			57		119			120
Deduct:
Depreciation, amortization and accretion	33			36		66			72
(Gain) loss on asset disposals, net	(1		)	1		(8		)	1
Operating income (GAAP)	$	27		$	21	$	61		$	47

Numbers may not foot due to rounding.



	Three Months Ended June 30,					Six Months Ended June 30,
CABLE	2019		2018			2019		2018
(Dollars in millions)
Income (loss) before income taxes (GAAP)	$	3	$	(2	)	$	6	$	(4	)
Add back:
Depreciation, amortization and accretion	17		18			34		35
EBITDA (Non-GAAP)	20		15			40		32
Add back or deduct:
(Gain) loss on asset disposals, net	—		—			1		1
Adjusted EBITDA (Non-GAAP)	20		16			40		32
Deduct:
Interest and dividend income	—		—			1		—
Adjusted OIBDA (Non-GAAP)	20		16			39		32
Deduct:
Depreciation, amortization and accretion	17		18			34		35
(Gain) loss on asset disposals, net	—		—			1		1
Operating income (loss) (GAAP)	$	2	$	(3	)	$	5	$	(4	)

Numbers may not foot due to rounding.

Table of Contents

Three Months Ended

Six Months Ended

June 30,

June 30,
CABLE
2018¹

2017

2018¹

2017
(Dollars in millions)

Income (loss) before income taxes (GAAP)
$
(2)

$
3

$
(4)

$
5
Add back:

Depreciation, amortization and accretion

18

11

35

21
EBITDA (Non-GAAP)

15

14

32

26
Add back or deduct:

(Gain) loss on asset disposals, net

–

–

1

1
Adjusted EBITDA (Non-GAAP)

16

14

32

27
Deduct:

Interest and dividend income

–

–

–

–
Adjusted OIBDA (Non-GAAP)

16

14

32

27
Deduct:

Depreciation, amortization and accretion

18

11

35

21

(Gain) loss on asset disposals, net

–

–

1

1
Operating income (loss) (GAAP)
$
(3)

$
3

$
(4)

$
5

Numbers may not foot due to rounding.

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Free Cash Flow

The following table presents Free cash ~~flow. Management uses Free cash~~ flow, ~~as a liquidity measure and it~~which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. 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.

Six Months Ended June 30,

2018

2017
(Dollars in millions)

Cash flows from operating activities (GAAP)
$
463

$
358
Less: Cash paid for additions to property, plant and equipment

275

242

Free cash flow (Non-GAAP)
$
188

$
116



	Six Months Ended June 30,
	2019		2018
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	592	$	463
Less: Cash paid for additions to property, plant and equipment	393		275
Free cash flow (Non-GAAP)	$	199	$	188

Table of Contents

~~Postpaid ABPU and Postpaid ABPA~~

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect estimated cash collections from postpaid customer billings for both service and equipment resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment and product sales revenues received from customers.

Three Months Ended June 30,

Six Months Ended June 30,

2018¹

2017

2018¹

2017
(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues
$
600

$
597

$
1,198

$
1,205
Average number of postpaid connections

4.47

4.47

4.49

4.46
Number of months in period

3

3

6

6

Postpaid ARPU (GAAP metric)
$
44.74

$
44.60

$
44.54

$
45.00

Calculation of Postpaid ABPU

Postpaid service revenues
$
600

$
597

$
1,198

$
1,205
Equipment installment plan billings

174

142

347

281

Total billings to postpaid connections
$
774

$
739

$
1,545

$
1,486
Average number of postpaid connections

4.47

4.47

4.49

4.46
Number of months in period

3

3

6

6

Postpaid ABPU (Non-GAAP metric)
$
57.75

$
55.19

$
57.42

$
55.49

Calculation of Postpaid ARPA

Postpaid service revenues
$
600

$
597

$
1,198

$
1,205
Average number of postpaid accounts

1.69

1.66

1.69

1.67
Number of months in period

3

3

6

6

Postpaid ARPA (GAAP metric)
$
118.57

$
119.73

$
118.38

$
120.46

Calculation of Postpaid ABPA

Postpaid service revenues
$
600

$
597

$
1,198

$
1,205
Equipment installment plan billings

174

142

347

281

Total billings to postpaid accounts
$
774

$
739

$
1,545

$
1,486
Average number of postpaid accounts

1.69

1.66

1.69

1.67
Number of months in period

3

3

6

6

Postpaid ABPA (Non-GAAP metric)
$
153.03

$
148.15

$
152.63

$
148.54

1
As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

~~Table of Contents~~

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 and Recent Accounting Pronouncements and Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements and 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, both of which are included in TDS’ Form 10-K for the year ended December 31, ~~2017.~~

~~Franchise Rights~~

Recent Accounting Pronouncements

See Note 1 — Basis of Presentation ~~in the Notes to Consolidated Financial Statements for additional information regarding the impact of this change in estimate.~~

~~Recent Accounting Pronouncements~~

~~See~~and Note 18 — ~~Basis of Presentation~~Leases in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.

Regulatory Matters

~~FCC Mobility Fund Phase II Order~~

~~In October 2011,~~

USTelecom Forbearance Petition

On July 12, 2019, in response to the FCC adopted its USF/Intercarrier Compensation Transformation Order (USF Order). Pursuant to this order, U.S. Cellular’s then current Federal USF support was to be phased down at the rate of 20% per year beginning July 1, 2012. The USF Order contemplated the establishment of a new mobile USF program and provided for a pause in the phase down if that program was not timely implemented by July 2014. The Phase II Connect America Mobility Fund (MF2) was not operational as of July 2014 and, therefore, as provided by the USF Order, the phase down was suspended at 60% of the baseline amount until such time as the FCC had taken steps to establish the MF2. In February 2017, the FCC adopted the MF2 Order addressing the framework for MF2 and the resumption of the phase down. The MF2 Order establishes a support fund of $453 million annually for ten years to be distributed through a market-based, multi-round reverse auction. For areas that receive support under MF2, legacy support to MF2 Auction winners will terminate and be replaced with MF2 support effective the first day of the month following release of the public notice closing the auction. Legacy support in areas where the legacy support recipient is not an MF2 winner will be subject to phase down over two years unless there is no winner in a particular census block, in which case it will be continued for one legacy support recipient only. The MF2 Order further states that the phase down of legacy support for areas that were not eligible for support under MF2 will commence on the first day of the month following the completion of the auction and will conclude two years later.

In August 2017, the FCC adopted the MF2 Challenge Process Order, which laid out procedures for establishing areas that would be eligible for support under the MF2 program. This will include a collection process to be followed by a challenge window, a challenge response window, and finally adjudication of any coverage disputes. In September 2017,USTelecom Forbearance Petition, the FCC issued an Order granting partial forbearance relief from rules adopted pursuant to the Telecommunications Act of 1996. These rules require ILECs to provide dedicated transport facilities between wire centers to their competitors on an unbundled basis at regulated rates. It is expected that the FCC will address the remainder of the Forbearance Petition seeking the unbundling of local loops by August 2, 2019. As a ~~public notice initiating~~result of these petitions, CLECs could potentially see increased prices for the ~~collection~~use of ~~4G LTE coverage data. Responses submitting~~facilities currently purchased from other ILECs. TDS Telecom is exploring the ~~collected data were due on January 4, 2018.~~

~~On February 27,~~options available to it should the petition be granted.

FCC Connect America Fund

In December 2018, the FCC issued public notices providing detailed challenge procedures and a schedule for the challenge process. Pursuant to these notices, the challenge window began on March 29, 2018, and would close on August 27, 2018. However, in a May 30, 2018 letter to Senator Roger Wicker, FCC Chairman Ajit Pai indicated his intent to extend the challenge window by ninety days, which would close it on November 25, 2018. No earlier than thirty days after the FCC processes the challenges, it will open a thirty-day challenge response window. Following the challenge response window, the FCC will adjudicate any disputes. This entire process must be completed before an auction can be commenced.

U.S. Cellular cannot predict at this time when the MF2 auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the MF2 auction will provide opportunities to U.S. Cellular to offset any loss in existing support. U.S. Cellular currently expects that its legacy support will continue at the 2017 level through 2018.

~~FCC Connect America Fund~~

~~In March 2018, the FCC approved an order authorizing~~authorized additional funding for companies that elected Alternative Connect America Model ~~(A-CAM)~~(A–CAM) support. On ~~May 7, 2018,~~February 25, 2019, as directed within the order, the Wireline Competition Bureau (the Bureau) released a public notice offering TDS Telecom an additional $3$198 million ~~per year for 10 years~~ in ~~support amounts~~funding along with ~~corresponding~~additional buildout obligations and extended the term of the revised offer by two years until December 31, 2028, which TDS Telecom accepted. On ~~July 20, 2018~~April 29, 2019, the Bureau authorized and directed the Universal Service Administrative Company (USAC) to obligate and disburse ~~the~~this revised support to those carriers that accept this revised offer. The offer provides A-CAM support up to $200 per location which increases annual support ~~amounts over a 10-year term for each carrier that accepted~~under the ~~revised offer of A-CAM support. The additional funding is~~program to $82 million excluding transitional amounts, retroactive to January 1, ~~2017, the original effective date of the program.~~

2019, and extending through 2028.

Millimeter Wave Spectrum Auctions

At its open meeting on August 2, 2018, the FCC adopted a public notice establishing procedures for two auctions of wireless spectrum licenses in the 28 GHz and 24 GHz bands. The ~~28GHz~~28 GHz auction (Auction 101) ~~will commence~~commenced on November 14, 2018 and ~~will offer~~closed on January 24, 2019. Auction 101 offered two 425 MHz licenses in the 28 GHz band over portions of the United States that do not have incumbent licensees. ~~Following the completion of Auction 101, the FCC will commence the~~The 24 GHz auction (Auction 102)~~, which will offer~~ commenced on March 14, 2019 and closed on May 28, 2019. Auction 102 offered up to seven 100 MHz licenses in the 24 GHz band in Partial Economic Areas covering most of the United States. ~~Applications~~On June 3, 2019, the FCC announced by way of public notice that U.S. Cellular was the provisional winning bidder for ~~both auctions are due on September 18, 2018. Upfront payments for~~408 wireless spectrum licenses in Auction 101 ~~are due on October 23, 2018. The upfront payment deadline for~~and 282 wireless spectrum licenses in Auction 102 ~~will~~for an aggregate purchase price of $256 million. The licenses are expected to be ~~announced at a later date, but will follow~~granted by the ~~completion of Auction 101.~~

FCC during 2019.

At the ~~same~~open meeting on August 2, 2018, the FCC also adopted a Further Notice of Proposed Rulemaking in preparation for an additional Millimeter Wave auction offering wireless spectrum licenses in the 37, 39 and 47 GHz ~~bands. FCC statements indicate plans to hold this auction in the second half of 2019.~~

~~The Connect America Fund Phase II Auction~~

bands (Auction 103). On July ~~24, 2018, bidding began in~~11, 2019, the FCC released a Public Notice establishing procedures for Auction 903, a reverse auction to award universal service support under the Connect America Fund Phase II program. This auction will award support in markets where support was previously declined by the price-cap incumbent local exchange carriers. On March 30, 2018, U.S. Cellular filed an application103. Applications to participate in Auction ~~903,~~103 are due on September 9, 2019, upfront payments are due on October 22, 2019, and bidding will commence on ~~June 25, 2018, the FCC announced U.S. Cellular is a qualified bidder.~~December 10, 2019.

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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, ~~2017.~~2018. 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, ~~2017,~~2018, 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.

~~Intense competition in the markets in which TDS operates could adversely affect TDS’ revenues or increase its costs to compete.~~
A failure by TDS to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, divestitures and exchanges) or allocate resources or capital could have an adverse effect on TDS’ business, financial condition or results of operations.
Uncertainty in TDS’ future cash flow and liquidity or in the ability to access capital, deterioration in the capital markets, 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 could require TDS to reduce its construction, development or acquisition programs, reduce the acquisition of spectrum licenses, 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.
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.
To the extent conducted by the FCC, TDS may participate in FCC auctions for additional spectrum or for funding in certain Universal Service programs in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on TDS.
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.
An inability to attract people of outstanding potential, 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’ 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’ 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, customer 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.


▪	Intense competition in the markets in which TDS operates could adversely affect TDS’ revenues or increase its costs to compete.


▪	A failure by TDS to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, fiber builds, divestitures and exchanges) or allocate resources or capital effectively could have an adverse effect on TDS’ business, financial condition or results of operations.

▪

Uncertainty in TDS’ future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, 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 could require TDS to reduce its construction, development or acquisition programs, reduce the amount of spectrum licenses acquired, 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.


▪	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.


▪	To the extent conducted by the FCC, TDS may participate in FCC auctions for additional spectrum or for funding in certain Universal Service programs in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on TDS.


▪	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.


▪	An inability to attract 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’ 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’ 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, customer 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.

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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.~~
TDS receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on TDS’ business, financial condition or results of operations.
~~Performance under device purchase agreements could have a material adverse impact on TDS' business, financial condition or results of operations.~~
Changes in TDS’ enterprise value, changes in the market supply or demand for wireless licenses, wireline or cable markets or IT service providers, adverse developments in the businesses or the industries in which TDS is involved and/or other factors could require TDS to recognize impairments in the carrying value of its licenses, goodwill, franchise rights and/or physical assets or require re-evaluation of the indefinite-lived nature of such assets.
Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or 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 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.
~~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.~~
A failure by TDS to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
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.
~~The market price of TDS’ Common Shares is subject to fluctuations due to a variety of factors.~~
Changes in facts or circumstances, including new or additional information, could require TDS to record charges relating to adjustments of amounts reflected in the financial statements, 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.
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 studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on TDS’ wireless 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.~~

Any of the foregoing events or other events could cause revenues, earnings, capital expenditures and/or any other financial or statistical information to vary from TDS’ forward-looking estimates by a material amount.


▪	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.


▪	TDS receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on TDS’ business, financial condition or results of operations.


▪	Performance under device purchase agreements could have a material adverse impact on TDS' business, financial condition or results of operations.

▪

Changes in TDS’ enterprise value, changes in the market supply or demand for wireless licenses, wireline or cable markets or IT service providers, adverse developments in the businesses or the industries in which TDS is involved and/or other factors could require TDS to recognize impairments in the carrying value of its licenses, goodwill, franchise rights and/or physical assets or require re-evaluation of the indefinite-lived nature of such assets.


▪	Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or 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 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.


▪	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.


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


▪	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.


▪	Changes in facts or circumstances, including new or additional information, could require TDS to record adjustments to amounts reflected in the financial statements, 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.


▪	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 studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on TDS’ wireless 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.


▪	The market price of TDS’ Common Shares is subject to fluctuations due to a variety of factors.


▪	Any of the foregoing events or other events could cause revenues, earnings, capital expenditures and/or any other financial or statistical information to vary from TDS’ forward-looking estimates by a material amount.

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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’ Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, 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, ~~2017,~~2018, 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. Subject to the foregoing, TDS has not identified for disclosure any material changes to the risk factors as previously disclosed in TDS’ Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Refer to the disclosure under Market Risk in TDS’ Form 10-K for the year ended December 31, ~~2017,~~2018, for additional information, including information regarding required principal payments and the weighted average interest rates related to TDS’ Long-term debt. There have been no material changes to such information since December 31, ~~2017.~~

2018.

See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of June 30, ~~2018.~~

2019.

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Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017
(Dollars and shares in millions, except per share amounts)

Operating revenues

Service
$
993

$
992

$
1,970

$
1,989

Equipment and product sales

262

255

510

496

Total operating revenues

1,255

1,247

2,480

2,485

Operating expenses

Cost of services (excluding Depreciation,
amortization and accretion reported below)

300

298

587

580

Cost of equipment and products

266

287

512

557

Selling, general and administrative

417

420

813

826

Depreciation, amortization and accretion

220

211

441

422

(Gain) loss on asset disposals, net

2

6

3

10

(Gain) loss on license sales and exchanges, net

(11)

(2)

(17)

(19)

Total operating expenses

1,194

1,220

2,339

2,376

Operating income

61

27

141

109

Investment and other income (expense)

Equity in earnings of unconsolidated entities

40

33

78

65

Interest and dividend income

6

4

11

8

Interest expense

(43)

(43)

(86)

(85)

Other, net

1

1

2

2

Total investment and other income (expense)

4

(5)

5

(10)

Income before income taxes

65

22

146

99

Income tax expense

21

10

45

44
Net income

44

12

101

55
Less: Net income attributable to noncontrolling

interests, net of tax

11

2

29

8
Net income attributable to TDS shareholders

33

10

72

47
TDS Preferred dividend requirement

–

–

–

–
Net income available to TDS common shareholders
$
33

$
10

$
72

$
47

Basic weighted average shares outstanding

112

111

112

110
Basic earnings per share available to TDS common
shareholders
$
0.30

$
0.09

$
0.65

$
0.43

Diluted weighted average shares outstanding

113

112

113

112
Diluted earnings per share available to TDS common
shareholders
$
0.29

$
0.09

$
0.63

$
0.42

Dividends per share to TDS shareholders
$
0.160

$
0.155

$
0.320

$
0.310

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	1,013		$	993		$	2,008		$	1,970
Equipment and product sales	248			262			510			510
Total operating revenues	1,261			1,255			2,518			2,480

Operating expenses
Cost of services (excluding Depreciation, amortization and accretion reported below)	304			300			588			587
Cost of equipment and products	249			266			513			512
Selling, general and administrative	421			417			819			813
Depreciation, amortization and accretion	234			220			460			441
(Gain) loss on asset disposals, net	5			2			—			3
(Gain) loss on sale of business and other exit costs, net	—			—			(2		)	—
(Gain) loss on license sales and exchanges, net	—			(11		)	(2		)	(17		)
Total operating expenses	1,213			1,194			2,376			2,339

Operating income	48			61			142			141

Investment and other income (expense)
Equity in earnings of unconsolidated entities	41			40			85			78
Interest and dividend income	9			6			17			11
Interest expense	(43		)	(43		)	(86		)	(86		)
Other, net	—			1			1			2
Total investment and other income	7			4			17			5

Income before income taxes	55			65			159			146
Income tax expense	16			21			50			45
Net income	39			44			109			101
Less: Net income attributable to noncontrolling interests, net of tax	6			11			17			29
Net income attributable to TDS shareholders	$	33		$	33		$	92		$	72

Basic weighted average shares outstanding	114			112			114			112
Basic earnings per share attributable to TDS shareholders	$	0.29		$	0.30		$	0.81		$	0.65

Diluted weighted average shares outstanding	116			113			116			113
Diluted earnings per share attributable to TDS shareholders	$	0.28		$	0.29		$	0.78		$	0.63

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

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017
(Dollars in millions)

Net income
$
44

$
12

$
101

$
55

Net change in accumulated other comprehensive income

Change related to retirement plan

Amounts included in net periodic benefit cost for the
period

Amortization of prior service cost

–

–

(1)

(1)
Comprehensive income

44

12

100

54

Less: Net income attributable to noncontrolling interests,
net of tax

11

2

29

8
Comprehensive income attributable to TDS shareholders
$
33

$
10

$
71

$
46

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
(Dollars in millions)
Net income	$	39	$	44	$	109	$	101
Net change in accumulated other comprehensive income
Change related to retirement plan
Amounts included in net periodic benefit cost for the period
Amortization of prior service cost	—		—		—		(1		)
Comprehensive income	39		44		109		100
Less: Net income attributable to noncontrolling interests, net of tax	6		11		17		29
Comprehensive income attributable to TDS shareholders	$	33	$	33	$	92	$	71

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended

June 30,

2018

2017
(Dollars in millions)

Cash flows from operating activities

Net income
$
101

$
55

Add (deduct) adjustments to reconcile net income to net cash flows

from operating activities

Depreciation, amortization and accretion

441

422

Bad debts expense

43

49

Stock-based compensation expense

23

22

Deferred income taxes, net

25

(22)

Equity in earnings of unconsolidated entities

(78)

(65)

Distributions from unconsolidated entities

70

65

(Gain) loss on asset disposals, net

3

10

(Gain) loss on license sales and exchanges, net

(17)

(19)

Noncash interest

2

1

Changes in assets and liabilities from operations

Accounts receivable

51

5

Equipment installment plans receivable

(47)

(107)

Inventory

(8)

2

Accounts payable

(50)

(59)

Customer deposits and deferred revenues

(25)

(10)

Accrued taxes

(5)

53

Other assets and liabilities

(66)

(44)

Net cash provided by operating activities

463

358

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(275)

(242)

Cash paid for acquisitions and licenses

(10)

(200)

Cash received for investments

100

–

Cash received from divestitures and exchanges

21

17

Other investing activities

3

1

Net cash used in investing activities

(161)

(424)

Cash flows from financing activities

Repayment of long-term debt

(10)

(6)

TDS Common Shares reissued for benefit plans, net of tax payments

7

(1)

Repurchase of TDS Preferred Shares

–

(1)

Dividends paid to TDS shareholders

(36)

(34)

Payment of debt issuance costs

(1)

–

Distributions to noncontrolling interests

(4)

(2)

Other financing activities

(3)

1

Net cash used in financing activities

(47)

(43)

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

255

(109)

Cash, cash equivalents and restricted cash

Beginning of period

622

904

End of period
$
877

$
795

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



	Six Months Ended June 30,
	2019			2018
(Dollars in millions)
Cash flows from operating activities
Net income	$	109		$	101
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	460			441
Bad debts expense	50			43
Stock-based compensation expense	33			23
Deferred income taxes, net	40			25
Equity in earnings of unconsolidated entities	(85		)	(78		)
Distributions from unconsolidated entities	76			70
(Gain) loss on asset disposals, net	—			3
(Gain) loss on sale of business and other exit costs, net	(2		)	—
(Gain) loss on license sales and exchanges, net	(2		)	(17		)
Other operating activities	3			2
Changes in assets and liabilities from operations
Accounts receivable	(2		)	51
Equipment installment plans receivable	(11		)	(47		)
Inventory	(4		)	(8		)
Accounts payable	(9		)	(50		)
Customer deposits and deferred revenues	8			(25		)
Accrued taxes	2			(5		)
Other assets and liabilities	(74		)	(66		)
Net cash provided by operating activities	592			463

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(393		)	(275		)
Cash paid for acquisitions and licenses	(255		)	(10		)
Cash received from investments	11			100
Cash paid for investments	(11		)	—
Cash received from divestitures and exchanges	32			21
Other investing activities	—			3
Net cash used in investing activities	(616		)	(161		)

Cash flows from financing activities
Repayment of long-term debt	(11		)	(10		)
TDS Common Shares reissued for benefit plans, net of tax payments	(6		)	7
U.S. Cellular Common Shares reissued for benefit plans, net of tax payments	(8		)	—
Dividends paid to TDS shareholders	(38		)	(36		)
Distributions to noncontrolling interests	(2		)	(4		)
Other financing activities	3			(4		)
Net cash used in financing activities	(62		)	(47		)

Net increase (decrease) in cash, cash equivalents and restricted cash	(86		)	255

Cash, cash equivalents and restricted cash
Beginning of period	927			622
End of period	$	841		$	877

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets

(Unaudited)

June 30,

December 31,

2018

2017
(Dollars in millions)

Current assets

Cash and cash equivalents
$
873

$
619

Short-term investments

–

100

Accounts receivable

Customers and agents, less allowances of $65 and $61, respectively

886

861

Other, less allowances of $2 and $2, respectively

101

100

Inventory, net

153

145

Prepaid expenses

103

112

Income taxes receivable

1

2

Other current assets

43

27

Total current assets

2,160

1,966

Assets held for sale

1

10

Licenses

2,240

2,232
Goodwill

509

509
Other intangible assets, net of accumulated amortization of $155 and $142, respectively

266

279
Investments in unconsolidated entities

477

453

Property, plant and equipment

In service and under construction

11,754

11,742

Less: Accumulated depreciation and amortization

8,495

8,318

Property, plant and equipment, net

3,259

3,424

Other assets and deferred charges

586

422

Total assets1
$
9,498

$
9,295

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



	June 30, 2019		December 31, 2018
(Dollars in millions)
Current assets
Cash and cash equivalents	$	834	$	921
Short-term investments	18		17
Accounts receivable
Customers and agents, less allowances of $70 and $71, respectively	969		992
Other, less allowances of $2 and $2, respectively	113		107
Inventory, net	154		150
Prepaid expenses	95		103
Income taxes receivable	17		12
Other current assets	28		28
Total current assets	2,228		2,330

Assets held for sale	—		54

Licenses	2,478		2,195

Goodwill	509		509

Other intangible assets, net of accumulated amortization of $180 and $168, respectively	241		253

Investments in unconsolidated entities	490		480

Property, plant and equipment
In service and under construction	12,348		12,074
Less: Accumulated depreciation and amortization	9,030		8,728
Property, plant and equipment, net	3,318		3,346

Operating lease right-of-use assets	963		—

Other assets and deferred charges	568		616

Total assets¹	$	10,795	$	9,783

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)

June 30,

December 31,

2018

2017
(Dollars and shares in millions, except per share amounts)

Current liabilities

Current portion of long-term debt
$
20

$
20

Accounts payable

296

368

Customer deposits and deferred revenues

165

223

Accrued interest

12

11

Accrued taxes

54

64

Accrued compensation

84

126

Other current liabilities

98

106

Total current liabilities

729

918

Deferred liabilities and credits

Deferred income tax liability, net

636

552

Other deferred liabilities and credits

523

495

Long-term debt, net

2,427

2,437

Commitments and contingencies

Noncontrolling interests with redemption features

11

1

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 112 shares (7 Series A Common and 105 Common Shares) and 111 shares (7 Series A Common and 104 Common Shares), respectively

Par Value ($.01 per share)

1

1

Capital in excess of par value

2,418

2,413

Treasury shares, at cost, 21 and 22 Common Shares, respectively

(624)

(669)

Accumulated other comprehensive loss

(3)

(1)

Retained earnings

2,692

2,525

Total TDS shareholders' equity

4,484

4,269

Noncontrolling interests

688

623

Total equity

5,172

4,892

Total liabilities and equity1
$
9,498

$
9,295

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

1
The consolidated total assets as of June 30, 2018 and December 31, 2017, include assets held by consolidated variable interest entities (VIEs) of $793 million and $765 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2018 and December 31, 2017, include certain liabilities of consolidated VIEs of $17 million and $21 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.



	June 30, 2019			December 31, 2018
(Dollars and shares in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	21		$	21
Accounts payable	367			365
Customer deposits and deferred revenues	205			197
Accrued interest	13			11
Accrued taxes	45			44
Accrued compensation	77			127
Short-term operating lease liabilities	112			—
Other current liabilities	85			114
Total current liabilities	925			879

Liabilities held for sale	—			1

Deferred liabilities and credits
Deferred income tax liability, net	681			640
Long-term operating lease liabilities	927			—
Other deferred liabilities and credits	450			541

Long-term debt, net	2,409			2,418

Commitments and contingencies

Noncontrolling interests with redemption features	10			11

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 114 shares (7 Series A Common and 107 Common Shares)
Par Value ($.01 per share)	1			1
Capital in excess of par value	2,438			2,432
Treasury shares, at cost, 18 and 19 Common Shares, respectively	(488		)	(519		)
Accumulated other comprehensive loss	(10		)	(10		)
Retained earnings	2,684			2,656
Total TDS shareholders' equity	4,625			4,560

Noncontrolling interests	768			733

Total equity	5,393			5,293

Total liabilities and equity¹	$	10,795		$	9,783

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

The consolidated total assets as of June 30, 2019 and December 31, 2018, include assets held by consolidated variable interest entities (VIEs) of $903 million and $848 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2019 and December 31, 2018, include certain liabilities of consolidated VIEs of $17 million and $21 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 9 — Variable Interest Entities for additional information.

Table of Contents

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

Treasury
shares

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Total TDS
shareholders'
equity

Noncontrolling
interests

Total equity
(Dollars in millions)

December 31, 2017
$
1

$
2,413

$
(669)

$
(1)

$
2,525

$
4,269

$
623

$
4,892
Cumulative effect of
accounting changes

–

–

–

(1)

163

162

31

193
Net income attributable to
TDS shareholders

–

–

–

–

72

72

–

72
Net income attributable
to noncontrolling interests
classified as equity

–

–

–

–

–

–

16

16
Other comprehensive loss

–

–

–

(1)

–

(1)

–

(1)
TDS Common and Series A
Common share dividends

–

–

–

–

(36)

(36)

–

(36)
Dividend reinvestment plan

–

–

13

–

(7)

6

–

6
Incentive and compensation
plans

–

–

32

–

(25)

7

–

7
Adjust investment in
subsidiaries for repurchases,
issuances and other
compensation plans

–

(1)

–

–

–

(1)

19

18
Stock-based compensation
awards

–

6

–

–

–

6

–

6
Distributions to
noncontrolling interests

–

–

–

–

–

–

(1)

(1)
June 30, 2018
$
1

$
2,418

$
(624)

$
(3)

$
2,692

$
4,484

$
688

$
5,172

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



	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value			Treasury shares			Accumulated other comprehensive income (loss)			Retained earnings			Total TDS shareholders' equity			Noncontrolling interests			Total equity
(Dollars in millions)
March 31, 2019	$	1	$	2,442		$	(505	)	$	(10	)	$	2,683		$	4,611		$	746		$	5,357
Cumulative effect of accounting change	—		—			—			—			2			2			—			2
Net income attributable to TDS shareholders	—		—			—			—			33			33			—			33
Net income attributable to noncontrolling interests classified as equity	—		—			—			—			—			—			6			6
TDS Common and Series A Common share dividends ($0.165 per share)	—		—			—			—			(19		)	(19		)	—			(19		)
Dividend reinvestment plan	—					6			—			(1		)	5			—			5
Incentive and compensation plans	—		—			11			—			(14		)	(3		)	—			(3		)
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(8		)	—			—			—			(8		)	17			9
Stock-based compensation awards	—		4			—			—			—			4			—			4
Distributions to noncontrolling interests	—		—			—			—			—			—			(1		)	(1		)
June 30, 2019	$	1	$	2,438		$	(488	)	$	(10	)	$	2,684		$	4,625		$	768		$	5,393

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

Table of Contents

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

Treasury
shares

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Total TDS
shareholders'
equity

Preferred
shares

Noncontrolling
interests

Total equity
(Dollars in millions)

December 31, 2016
$
1

$
2,386

$
(698)

$
1

$
2,454

$
4,144

$
1

$
605

$
4,750
Net income attributable to
TDS shareholders

–

–

–

–

47

47

–

–

47
Net income attributable
to noncontrolling interests
classified as equity

–

–

–

–

–

–

–

8

8
Other comprehensive loss

–

–

–

(1)

–

(1)

–

–

(1)
TDS Common and Series A
Common share dividends

–

–

–

–

(34)

(34)

–

–

(34)
Redemption of Preferred
shares

–

–

–

–

–

(1)

–

(1)
Dividend reinvestment plan

–

–

5

–

–

5

–

–

5
Incentive and compensation
plans

–

–

9

–

(10)

(1)

–

–

(1)
Adjust investment in
subsidiaries for repurchases,
issuances and other
compensation plans

–

–

–

–

–

–

–

14

14
Stock-based compensation
awards

–

7

–

–

–

7

–

–

7
Distributions to
noncontrolling interests

–

–

–

–

–

–

–

(2)

(2)
June 30, 2017
$
1

$
2,393

$
(684)

$
–

$
2,457

$
4,167

$
–

$
625

$
4,792

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



	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value			Treasury shares			Accumulated other comprehensive income (loss)			Retained earnings			Total TDS shareholders' equity			Noncontrolling interests			Total equity
(Dollars in millions)
March 31, 2018	$	1	$	2,421		$	(643	)	$	(3	)	$	2,696		$	4,472		$	667		$	5,139
Cumulative effect of accounting changes	—		—			—			—			(1		)	(1		)	—			(1		)
Net income attributable to TDS shareholders	—		—			—			—			33			33			—			33
Net income attributable to noncontrolling interests classified as equity	—		—			—			—			—			—			10			10
TDS Common and Series A Common share dividends ($0.160 per share)	—		—			—			—			(18		)	(18		)	—			(18		)
Dividend reinvestment plan	—		—			6			—			(4		)	2			—			2
Incentive and compensation plans	—		—			13			—			(14		)	(1		)	—			(1		)
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(6		)	—			—			—			(6		)	12			6
Stock-based compensation awards	—		3			—			—			—			3			—			3
Distributions to noncontrolling interests	—		—			—			—			—			—			(1		)	(1		)
June 30, 2018	$	1	$	2,418		$	(624	)	$	(3	)	$	2,692		$	4,484		$	688		$	5,172

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

Table of Contents

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			Treasury shares			Accumulated other comprehensive income (loss)			Retained earnings			Total TDS shareholders' equity			Noncontrolling interests			Total equity
(Dollars in millions)
December 31, 2018	$	1	$	2,432		$	(519	)	$	(10	)	$	2,656		$	4,560		$	733		$	5,293
Cumulative effect of accounting changes	—		—			—			—			2			2			—			2
Net income attributable to TDS shareholders	—		—			—			—			92			92			—			92
Net income attributable to noncontrolling interests classified as equity	—		—			—			—			—			—			17			17
TDS Common and Series A Common share dividends ($0.330 per share)	—		—			—			—			(38		)	(38		)	—			(38		)
Dividend reinvestment plan	—		—			11			—			(2		)	9			—			9
Incentive and compensation plans	—		—			20			—			(26		)	(6		)	—			(6		)
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(2		)	—			—			—			(2		)	20			18
Stock-based compensation awards	—		8			—			—			—			8			—			8
Distributions to noncontrolling interests	—		—			—			—			—			—			(2		)	(2		)
June 30, 2019	$	1	$	2,438		$	(488	)	$	(10	)	$	2,684		$	4,625		$	768		$	5,393

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

Table of Contents

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			Treasury shares			Accumulated other comprehensive income (loss)			Retained earnings			Total TDS shareholders' equity			Noncontrolling interests			Total equity
(Dollars in millions)
December 31, 2017	$	1	$	2,413		$	(669	)	$	(1	)	$	2,525		$	4,269		$	623		$	4,892
Cumulative effect of accounting changes	—		—			—			(1		)	163			162			31			193
Net income attributable to TDS shareholders	—		—			—			—			72			72			—			72
Net income attributable to noncontrolling interests classified as equity	—		—			—			—			—			—			16			16
Other comprehensive loss	—		—			—			(1		)	—			(1		)	—			(1		)
TDS Common and Series A Common share dividends ($0.320 per share)	—		—			—			—			(36		)	(36		)	—			(36		)
Dividend reinvestment plan	—		—			13			—			(7		)	6			—			6
Incentive and compensation plans	—		—			32			—			(25		)	7			—			7
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(1		)	—			—			—			(1		)	19			18
Stock-based compensation awards	—		6			—			—			—			6			—			6
Distributions to noncontrolling interests	—		—			—			—			—			—			(1		)	(1		)
June 30, 2018	$	1	$	2,418		$	(624	)	$	(3	)	$	2,692		$	4,484		$	688		$	5,172

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

Table of Contents

Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

Note 1Basis 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%~~82%-owned subsidiary, United States Cellular Corporation (U.S. Cellular) 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 require consolidation under GAAP. All material intercompany accounts and transactions have been eliminated.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended June 30, ~~2018,~~2019, are U.S. Cellular, Wireline, and Cable. 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, except for HMS, which includes an insignificant foreign operation.~~States. See Note 1211 — Business Segment Information for summary financial information on each business segment.

The unaudited consolidated financial statements included herein have been prepared by TDS pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. 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, ~~2017.~~

2018.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, its results of operations, ~~and~~ comprehensive income and changes in equity for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, and its cash flows ~~and changes in equity~~ for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. 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, ~~2017,~~2018, except ~~as described below and~~ as disclosed in Note ~~2 — Revenue Recognition and Note~~ 8 — ~~Investments in Unconsolidated Entities.~~

~~Change in Reportable Segments~~

TDS re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, changed its reportable segments. Effective January 1, 2018, HMS was considered a non-reportable segment and is no longer being reported under TDS Telecom. This change enables TDS Telecom to continue to successfully execute on the Wireline and Cable segments’ shared strategy to be the preferred service provider in its markets. Additionally, this change allows HMS to leverage TDS’ corporate IT resources, to improve operations and customer service, and better position itself for growth. Prior periods have been recast to conform to this revised presentation. See Note 12 — Business Segment Information for additional information on TDS’ reportable segments.

Leases.

Restricted Cash

TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. 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 as of June 30, ~~2018~~2019 and December 31, ~~2017.~~

June 30,

December 31,

2018

2017
(Dollars in millions)

Cash and cash equivalents

$
873

$
619
Restricted cash included in Other current assets

4

3
Cash, cash equivalents and restricted cash in the statement of cash flows

$
877

$
622

~~Franchise Rights~~

Effective January 1, 2018, TDS prospectively changed its estimated useful life for cable video franchise rights from indefinite-lived to 15 years due primarily to the effects of increasing competition and advancements in technology for delivering and consuming video programming. Commensurate with this change, TDS reviewed its cable video franchise rights for impairment, and noted that no impairment existed as of January 1, 2018. As a result, Depreciation, amortization and accretion increased $4 million, calculated on a straight-line basis, and Net income decreased $3 million or $0.03 per share (Basic and Diluted) for the three months ended June 30, 2018. For the six months ended June 30, 2018, Depreciation, amortization and accretion increased $9 million, calculated on a straight-line basis, and Net income decreased $7 million or $0.06 per share (Basic and Diluted).

~~Table of Contents~~



	June 30, 2019		December 31, 2018
(Dollars in millions)
Cash and cash equivalents	$	834	$	921
Restricted cash included in Other current assets	7		6
Cash, cash equivalents and restricted cash in the statement of cash flows	$	841	$	927

~~Recently Adopted Accounting Pronouncements~~

~~In March 2017, the FASB issued Accounting Standards Update 2017-07,~~ ~~Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ (ASU 2017-07). ASU 2017-07 requires TDS to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost must be presented separately from the service cost component and outside of Operating income in the Consolidated Statement of Operations. The new accounting standard also specifies that only the service cost component of net benefit cost is eligible for capitalization. TDS adopted ASU 2017-07 retrospectively on January 1, 2018, and prior periods have been recast to reflect ASU 2017-07. As a result of the adoption of ASU 2017-07, Selling, general and administrative expenses for the three and six months ended June 30, 2017, increased by $1 million from previously reported amounts, with a corresponding increase in Other, net income. This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three and six months ended June 30, 2017, nor did it have a cumulative impact to Retained earnings as of the date presented.

Recently Issued Accounting Pronouncements Not Yet Adopted

~~In February 2016, the FASB issued Accounting Standards Update 2016-02,~~ ~~Leases~~ (ASU 2016-02). ASU 2016-02 requires lessees to record a right-of-use asset and lease liability for almost all leases. This ASU does not substantially impact the lessor accounting model. However, some changes to the lessor accounting guidance were made to align with lessee accounting changes within Accounting Standards Codification (ASC) 842, ~~Leases~~ ~~and certain key aspects of ASC 606,~~ ~~Revenue from Contracts with Customers~~. Early adoption is permitted; however, TDS plans to adopt ASU 2016-02 on a modified retrospective basis when required on January 1, 2019. In January 2018, the FASB issued Accounting Standards Update 2018-01, Leases (ASU 2018-01), which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entities adoption of ASU 2016-02. TDS plans to adopt ASU 2018-01 in conjunction with its adoption of ASU 2016-02. TDS is evaluating the full effect that adoption of ASU 2016-02 and ASU 2018-01 will have on its financial condition, results of operations and disclosures. Upon adoption, TDS expects a substantial increase to assets and liabilities on its balance sheet and is in the process of implementing a new lease management and accounting system to assist in the application of the new standard.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments –- Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. TDS is required to adopt ASU 2016-13 on January 1, 2020, using the modified retrospective approach. Early adoption is ~~permitted as of January 1, 2019.~~permitted; however, TDS does not intend to adopt early. TDS is evaluating the effects that adoption of ASU 2016-13 will have on its financial position, results of operations and disclosures.

~~In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation—Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting~~ ~~(ASU 2018-07). ASU 2018-07 expands the scope of Accounting Standards Codification (ASC) 718,~~ ~~Compensation—Stock Compensation~~, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. TDS is required to adopt ASU 2018-07 on January 1, 2019, using the modified retrospective approach. Early adoption is permitted. The adoption of ASU 2018-07 is not expected to have a significant impact on TDS’ financial position or results of operations.

~~Amounts Collected from Customers and Remitted to Governmental Authorities~~

TDS records amounts collected from customers and remitted to governmental authorities on a net basis within a tax liability account if the tax is assessed upon the customer and TDS merely acts as an agent in collecting the tax on behalf of the imposing governmental authority. If the tax is assessed upon TDS, then amounts collected from customers as recovery of the tax are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $22 million and $45 million for the three and six months ended June 30, 2018, respectively, and $20 million and $38 million for the three and six months ended June 30, 2017, respectively.

Table of Contents

Note 2 Revenue Recognition

~~Change in Accounting Policy~~

~~In May 2014, the FASB issued Accounting Standards Update 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~and has since amended the standard with Accounting Standards Update 2015-14,~~ ~~Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08,~~ ~~Revenue from Contracts with Customers: Principal versus Agent Considerations~~ ~~(Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10,~~ ~~Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12,~~ ~~Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients,~~ ~~and Accounting Standards Update 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,~~ collectively referred to hereinafter as ASU 2014-09. These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. In February 2017, the FASB issued Accounting Standards Update 2017-05, ~~Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~ (ASU 2017-05). ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets. TDS adopted the provisions of ASU 2014-09 and ASU 2017-05 and applied them to all contracts as of January 1, 2018, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard. The cumulative effect of applying the provisions of ASU 2014-09 resulted in an increase of $163 million in retained earnings as of January 1, 2018. ASU 2017-05 had no impact to retained earnings as of January 1, 2018.

As a practical expedient, TDS groups similar contracts or similar performance obligations together into portfolios of contracts or performance obligations if doing so does not result in a significant difference from applying the new accounting standard to the individual contracts. TDS applies this grouping method for the following types of transactions: device activation fees, contract acquisition costs, contract fulfillment costs, and certain customer promotions. Contract portfolios will be recognized over the respective expected customer lives or terms of the contracts.

~~The line items impacted by the adoption of ASU 2014-09 and ASU 2017-05 in the Consolidated Statement of Operations and the Consolidated Balance Sheet are presented below.~~

~~Consolidated Statement of Operations~~

Results under prior accounting standards

Three Months Ended June 30, 2018

Adjustment

As reported
(Dollars and shares in millions, except per share amounts)

Operating revenues

Service
$
1,022

$
(29)

$
993
Equipment and product sales

241

21

262
Total operating revenues

1,263

(8)

1,255
Cost of equipment and products

268

(2)

266
Selling, general and administrative

413

4

417
(Gain) loss on license sales and exchanges, net

(11)

–

(11)
Total operating expenses

1,192

2

1,194
Operating income (loss)

71

(10)

61
Income (loss) before income taxes

75

(10)

65
Income tax expense (benefit)

23

(2)

21
Net income (loss)

52

(8)

44
Less: Net income attributable to noncontrolling interests, net of tax

12

(1)

11
Net income (loss) attributable to TDS shareholders

39

(6)

33
Net income (loss) available to TDS common shareholders

39

(6)

33
Basic earnings (loss) per share available to TDS common shareholders

0.35

(0.05)

0.30
Diluted earnings (loss) per share available to TDS common shareholders

0.35

(0.06)

0.29

Numbers may not foot due to rounding.

Results under prior accounting standards

Adjustment

As reported
Six Months Ended June 30, 2018

(Dollars and shares in millions, except per share amounts)

Operating revenues

Service
$
2,029

$
(59)

$
1,970
Equipment and product sales

468

42

510
Total operating revenues

2,497

(17)

2,480
Cost of equipment and products

517

(5)

512
Selling, general and administrative

809

4

813
(Gain) loss on license sales and exchanges, net

(16)

(1)

(17)
Total operating expenses

2,341

(2)

2,339
Operating income (loss)

157

(16)

141
Income (loss) before income taxes

162

(16)

146
Income tax expense (benefit)

49

(4)

45
Net income (loss)

112

(11)

101
Less: Net income attributable to noncontrolling interests, net of tax

31

(2)

29
Net income (loss) attributable to TDS shareholders

81

(9)

72
Net income (loss) available to TDS common shareholders

81

(9)

72
Basic earnings (loss) per share available to TDS common shareholders

0.73

(0.08)

0.65
Diluted earnings (loss) per share available to TDS common shareholders
$
0.72

$
(0.09)

$
0.63

Numbers may not foot due to rounding.

The decrease in Service revenues and the increase in Equipment and product sales revenues are driven primarily by differences in the timing and classification of revenue recognized for certain arrangements with multiple performance obligations and ceasing to record deferred imputed interest and the resulting interest income on equipment installment contracts. Under prior accounting standards, revenues were allocated to deliverables using the relative selling price method, where consideration was allocated to each element on the basis of its relative selling price. Revenue recognized for the delivered items was limited to the amount due from the customer that was not contingent upon the delivery of additional products or services. Under ASU 2014-09, the revenue allocation of the transaction price is based on the relative standalone selling prices of the individual performance obligations in the customer’s contract, and the resulting revenue attributable to each is recognized as control over the performance obligation is transferred to the customer. This has resulted in increased Equipment and product sales revenues as more revenue is allocated to discounted equipment than under prior accounting standards. Under prior accounting standards, TDS deferred imputed interest related to equipment installment plan receivable contracts that exceeded twelve months, and recognized the corresponding interest income over the contract period in Service revenues. Under the provisions of ASU 2014-09, TDS has determined that equipment installment plan contracts do not contain a significant financing component, and accordingly, TDS ceased recording deferred imputed interest and the resulting interest income on equipment installment contracts upon the adoption of ASU 2014-09.

Cost of equipment and products decreased due to a change in timing of recognition of cost of goods sold in the agent channel. Under prior accounting standards, Equipment and product sales to agents and the related Cost of equipment and products was recognized when equipment was sold through from the agent to end user customers. In accordance with the provisions of ASU 2014-09, such amounts are recognized when TDS delivers the equipment to the agent. Selling, general and administrative expenses include the amortization of contract acquisition and contract fulfillment costs that are capitalized under ASU 2014-09.

Under ASU 2017-05, (Gain) loss on license sales and exchanges, net is calculated by subtracting the carrying amount of the distinct asset being disposed from the consideration measured and allocated to that distinct asset. The consideration, or transaction price, is the fair value of the licenses received. Under prior accounting standards, the transaction price was typically the fair value of the licenses surrendered.

~~Consolidated Balance Sheet~~

Results under prior accounting standards

Adjustment

As reported
As of June 30, 2018

(Dollars in millions)

Accounts receivable

Customers and agents, less allowances
$
830

$
56

$
886
Other, less allowances

113

(12)

101
Prepaid expenses

122

(19)

103
Other current assets

26

17

43
Total current assets

2,119

41

2,160
Licenses

2,239

1

2,240
Investments in unconsolidated entities

462

15

477
Other assets and deferred charges

414

172

586
Total assets

9,268

230

9,498
Customer deposits and deferred revenues

183

(18)

165
Accrued taxes

55

(1)

54
Other current liabilities

94

4

98
Total current liabilities

745

(16)

729
Deferred income tax liability, net

580

56

636
Other deferred liabilities and credits

515

8

523
Retained earnings

2,539

153

2,692
Total TDS shareholders' equity

4,331

153

4,484
Noncontrolling interests

659

29

688
Total equity

4,991

181

5,172
Total liabilities and equity

9,268

230

9,498

Numbers may not foot due to rounding.

As a result of adoption of ASU 2014-09, TDS recorded short-term and long-term contract assets and contract liabilities in its Consolidated Balance Sheet as of June 30, 2018. Under ASU 2014-09, the timing of recognition of revenue for each performance obligation may differ from the timing of the customer billing, creating a contract asset or contract liability. See Contract Balances below for additional information. Contract assets are included in Other current assets if short-term in nature or Other assets and deferred charges if long-term in nature. Short-term contract liabilities are classified as Customer deposits and deferred revenues and long-term contract liabilities are included in Other deferred liabilities and credits. Accounts receivable increased as a result of TDS ceasing to record deferred imputed interest. Certain prepaid expenses have been reclassified as contract cost assets, which are a component of Other assets and deferred charges. Investments in unconsolidated entities increased due to the cumulative effect of applying the provisions of ASU 2014-09 to certain of TDS’ equity method investments as of January 1, 2018. Deferred income tax liabilities, net, increased due to the provisions of ASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis, without a corresponding increase in tax basis. Contract cost assets have also been created as a result of ASU 2014-09 due to capitalization of fulfillment costs and costs to obtain a new contract. See Contract Cost Assets below for additional information.

~~Nature of goods and services~~

~~The following is a description of principal activities from which TDS generates its revenues.~~

~~Services and Products~~		~~Nature, timing of satisfaction of performance obligations, and significant payment terms~~

~~Wireless services~~		Wireless service includes voice, messaging and data services. Revenue is recognized in Service revenues as wireless service is provided to the customer. Wireless services generally are billed and paid in advance on a monthly basis.
~~Wireless devices and accessories~~		U.S. Cellular offers a comprehensive range of wireless devices such as handsets, modems, mobile hotspots, home phones and tablets for use by its customers, as well as accessories. U.S. Cellular also sells wireless devices to agents and other third-party distributors for resale. U.S. Cellular frequently discounts wireless devices sold to new and current customers. U.S. Cellular also offers customers the option to purchase certain devices under installment contracts over a specified time period. For certain equipment installment plans, after a specified period of time, the customer may have the right to upgrade to a new device. Such upgrades require the customer to enter into an equipment installment contract for the new device, and transfer the existing device to U.S. Cellular. U.S. Cellular recognizes revenue in Equipment and product sales revenues when control of the device or accessory is transferred to the customer, which is generally upon delivery.
~~Wireless roaming~~		U.S. Cellular receives roaming revenues when other wireless carriers’ customers use U.S. Cellular’s wireless systems. U.S. Cellular recognizes revenue in Service revenues when the roaming service is provided to the other carrier’s customer.
~~Wireless Eligible Telecommunications Carrier (ETC) Revenues~~		Telecommunications companies may be designated by states, or in some cases by the FCC, as an ETC to receive support payments from the Universal Service Fund if they provide specified services in “high cost” areas. ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an ETC in various states.
~~Wireless tower rents~~		U.S. Cellular receives tower rental revenues when another carrier leases tower space on a U.S. Cellular owned tower. U.S. Cellular recognizes revenue in Service revenues in the period during which the services are provided.
~~Activation fees~~		TDS charges its end customers activation fees in connection with the sale of certain services and equipment. Activation fees charged by TDS Telecom in conjunction with a service offering are deferred and recognized over the average customer’s service period. These fees charged at U.S. Cellular are deferred and recognized over the period benefitted.
~~Wireline services~~		Wireline services include broadband, video and voice services. Revenue is recognized in Service revenues as service is provided to the customer. Wireline services are generally billed and paid in advance on a monthly basis.
~~Wireline wholesale revenues~~		Wholesale revenues include network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s network, special access services and state and federal support payments, including A-CAM. Wholesale revenues are recorded as the related service is provided.
~~Cable services~~		Cable services include broadband, video and voice services. Revenue is recognized in Service revenues as service is provided to the customer. Cable services are generally billed and paid in advance on a monthly basis.
~~IT hardware sales~~		~~TDS recognizes equipment revenue when it no longer has any requirements to perform, when title has passed and when the products are accepted by the customer.~~
~~Hosted and managed services~~		HMS Service revenues consist of cloud and hosting solutions, managed services, Enterprise Resource Planning (ERP) application management, colocation services, and IT hardware related maintenance and professional services. Revenues related to these services are recognized as services are provided.

~~Significant Judgments~~

U.S. Cellular and TDS Telecom sell bundled service and equipment offerings. In these instances, TDS recognizes its revenue based on the relative standalone selling prices for each distinct service or equipment performance obligation, or bundles thereof. TDS estimates the standalone selling price of the device or accessory to be its retail price excluding discounts. TDS estimates the standalone selling price of wireless service to be the price offered to customers on month-to-month contracts.

Revenues from sales of equipment and products are recognized when control has transferred to the customer. Service revenues are recognized as the related service is provided. Services are deemed to be highly interrelated when the method and timing of transfer and performance risk are the same. Highly interrelated services that are determined to not be distinct have been grouped into a single performance obligation. Each month of services promised is a performance obligation. The series of monthly service performance obligations promised over the course of the contract are combined into a single performance obligation for purposes of the allocation.

TDS has made judgments regarding transaction price, including but not limited to issues relating to variable consideration, time value of money and returns. When determined to be significant in the context of the contract, these items are considered in the valuation of transaction price at contract inception or modification, as appropriate.

Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and timing of revenue recognition. Service revenues are recognized over time and Equipment sales are point in time.

TDS Telecom

Three Months Ended June 30, 2018

U.S. Cellular

Wireline

Cable

TDS Telecom Total

Corporate, Eliminations and Other

Total
(Dollars in millions)

Revenues from contracts with customers:

Type of service:

Retail service

$
652

$
–

$
–

$
–

$
–

$
652

Inbound roaming

39

–

–

–

–

39

Residential

–

80

47

127

–

127

Commercial

–

46

10

57

–

57

Wholesale

–

46

–

46

–

46

Other service

33

–

–

–

18

51

Service revenues from contracts with customers

724

173

57

229

18

971

Equipment and product sales

233

–

–

1

28

262

Total revenues from contracts with customers 1

$
957

$
173

$
57

$
230

$
46

$
1,233

Numbers may not foot due to rounding.

1
These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations.



			TDS Telecom
Three Months Ended June 30, 2019	U.S. Cellular		Wireline		Cable		TDS Telecom Total¹		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	662	$	—	$	—	$	—	$	—	$	662
Inbound roaming	44		—		—		—		—		44
Residential	—		81		51		131		—		131
Commercial	—		42		11		54		—		54
Wholesale	—		48		—		48		—		48
Other service	35		—		—		—		16		51
Service revenues from contracts with customers	741		172		62		233		16		990
Equipment and product sales	216		—		—		—		32		248
Total revenues from contracts with customers²	$	957	$	172	$	62	$	233	$	48	$	1,238



			TDS Telecom
Three Months Ended June 30, 2018	U.S. Cellular		Wireline		Cable		TDS Telecom Total¹		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	652	$	—	$	—	$	—	$	—	$	652
Inbound roaming	39		—		—		—		—		39
Residential	—		80		47		127		—		127
Commercial	—		46		10		57		—		57
Wholesale	—		46		—		46		—		46
Other service	33		—		—		—		18		51
Service revenues from contracts with customers	724		173		57		229		18		971
Equipment and product sales	233		—		—		1		28		262
Total revenues from contracts with customers²	$	957	$	173	$	57	$	230	$	46	$	1,233

Table of Contents

TDS Telecom

Six Months Ended June 30, 2018

U.S. Cellular

Wireline

Cable

TDS Telecom Total

Corporate, Eliminations and Other

Total
(Dollars in millions)

Revenue from contracts with customers:

Type of service:

Retail service

$
1,301

$
–

$
–

$
–

$
–

$
1,301

Inbound roaming

66

–

–

–

–

66

Residential

–

160

92

253

–

253

Commercial

–

94

20

114

–

114

Wholesale

–

93

–

93

–

93

Other service

65

–

–

(1)

34

98

Service revenues from contracts with customers

1,432

348

112

459

34

1,925

Equipment and product sales

450

1

–

1

59

510

Total revenues from contracts with customers 1

$
1,882

$
349

$
112

$
460

$
93

$
2,435

Numbers may not foot due to rounding.

1
These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations.



			TDS Telecom
Six Months Ended June 30, 2019	U.S. Cellular		Wireline		Cable		TDS Telecom Total¹			Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	1,322	$	—	$	—	$	—		$	—	$	1,322
Inbound roaming	78		—		—		—			—		78
Residential	—		162		100		262			—		262
Commercial	—		86		21		107			—		107
Wholesale	—		94		—		94			—		94
Other service	66		—		—		(1		)	35		100
Service revenues from contracts with customers	1,466		342		121		462			35		1,963
Equipment and product sales	441		1		—		1			68		510
Total revenues from contracts with customers²	$	1,907	$	342	$	121	$	463		$	103	$	2,473



			TDS Telecom
Six Months Ended June 30, 2018	U.S. Cellular		Wireline		Cable		TDS Telecom Total¹			Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	1,301	$	—	$	—	$	—		$	—	$	1,301
Inbound roaming	66		—		—		—			—		66
Residential	—		160		92		253			—		253
Commercial	—		94		20		114			—		114
Wholesale	—		93		—		93			—		93
Other service	65		—		—		(1		)	34		98
Service revenues from contracts with customers	1,432		348		112		459			34		1,925
Equipment and product sales	450		1		—		1			59		510
Total revenues from contracts with customers²	$	1,882	$	349	$	112	$	460		$	93	$	2,435

Numbers may not foot due to rounding.


¹	TDS Telecom Total includes eliminations between the Wireline and Cable segments.


²	Revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations as the amounts in this table only include revenue resulting from contracts with customers.

Contract Balances

For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price. When payment is collected in advance of delivery of goods or services, a contract liability is recorded. A contract asset is recorded when revenue is recognized in advance of TDS’ right to receive consideration. Once there is an unconditional right to receive the consideration, TDS bills the customer under the terms of the respective contract and the amounts are recorded as receivables.

TDS recognizes Equipment and product sales revenue when the equipment is delivered to the customer and a corresponding contract asset or liability is recorded for the difference between the amount of revenue recognized and the amount billed to the customer in cases where discounts are offered. The contract asset or liability is reduced over the contract term as service is provided and billed to the customer.

The accounts receivable balance related to amounts billed and not paid on contracts with customers, net of allowances, is shown in the table below. ~~Bad debts expense recognized for the three and six months ended June 30, 2018, related to receivables was $23 million and $43 million, respectively.~~



	June 30, 2019		December 31, 2018
(Dollars in millions)
Accounts receivable
Customer and agents	$	965	$	987
Other	91		73
Total¹	$	1,056	$	1,060


¹		~~June 30, 2018~~
~~(Dollars in millions)~~
Accounts ~~receivable~~
~~Customer and agents~~			$	~~882~~
~~Other~~				78
~~Total~~ 1			$	~~960~~

1	~~These amounts do not include accounts receivable related to revenues outside the scope of ASU 2014-09; therefore, accounts~~ receivable line items presented in this table will not agree to amounts presented in the Consolidated Balance ~~Sheet.~~ Sheet as the amounts in this table only include receivables resulting from contracts with customers.

Table of Contents

The following table provides a rollforward of contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet.

	~~Contract Assets~~
~~(Dollars in millions)~~
~~Balance at December 31, 2017~~	$	–
~~Change in accounting policy~~		28
~~Contract additions~~		14
~~Terminated contracts~~		~~(1)~~
~~Revenue recognized~~		~~(14)~~
~~Balance at June 30, 2018~~	$	27



	Contract Assets
(Dollars in millions)
Balance at December 31, 2018	$	11
Contract additions	7
Reclassified to receivables	(9		)
Balance at June 30, 2019	$	9

The following table provides a rollforward of 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.

		~~Contract Liabilities~~
~~(Dollars in millions)~~
~~Balance at December 31, 2017~~		$	–
~~Change in accounting policy - Deferred revenues reclassification~~ 1			~~209~~
~~Change in accounting policy - Retained earnings impact~~			~~(22)~~
~~Contract additions~~			85
~~Revenue recognized~~			~~(107)~~
~~Balance at June 30, 2018~~		$	~~165~~

1	~~This amount represents TDS' obligation to transfer goods or services to customers for which it had received payment and classified as deferred revenue at December 31, 2017.~~



	Contract Liabilities
(Dollars in millions)
Balance at December 31, 2018	$	203
Contract additions	118
Terminated contracts	(3		)
Revenue recognized	(108		)
Balance at June 30, 2019	$	210

Transaction price allocated to the remaining performance obligations

The following table includes estimated service revenue expected to be recognized ~~in the future~~ related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. ~~The~~These estimates represent service revenue to be recognized when services are delivered to customers pursuant to service plan ~~contracts.~~contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of June 30, ~~2018,~~2019, and may vary from actual results due to future contract modifications. As a practical expedient, revenue related to contracts of less than one year, generally ~~contracts with~~ month-to-month ~~customers,~~contracts, are excluded from these estimates.

Service Revenue
(Dollars in millions)

Remainder of 2018
$
285
2019

200
Thereafter

93

Total
$
578



	Service Revenue
(Dollars in millions)
Remainder of 2019	$	277
2020	207
Thereafter	306
Total	$	790

TDS has certain contracts at U.S. Cellular and TDS Telecom in which it bills an amount equal to a fixed per-unit price multiplied by a variable quantity (e.g., certain roaming agreements with other carriers). Because TDS invoices for such items in an amount that corresponds directly with the value of the performance completed to date, TDS may recognize revenue in that amount. As a practical expedient, these contracts are excluded from the estimate of future revenues expected to be recognized related to performance obligations that are unsatisfied as of the end of a reporting period.

Contract Cost Assets

TDS expects that incremental commission fees paid as a result of obtaining contracts are recoverable and therefore TDS capitalizes these costs. As a practical expedient, costs with an amortization period of one year or less are not capitalized. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Capitalized 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 which ranges from ~~thirteen~~fifteen months to ~~five years.~~thirty-nine months. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows:



	June 30, 2019		December 31, 2018
(Dollars in millions)
Costs to obtain contracts
Sales commissions	$	145	$	154
Fulfillment costs
Installation costs	11		10
Total contract cost assets	$	156	$	164

Table of Contents

June 30, 2018
(Dollars in millions)

Costs to obtain contracts

Sales commissions
$
149
Fulfillment costs

Installation costs

10
Total contract cost assets
$
159

Amortization of contract cost assets was $32 million and $64 million for the three and six months ended June 30, 2019, respectively, and $30 million and $62 million for the three and six months ended June 30, 2018, respectively, and was included in Selling, general and administrative expense. ~~There was no impairment loss recognized for the three and six months ended June 30, 2018, related to contract cost assets.~~

Note 3 Fair Value Measurements

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, TDS did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.

TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

Level within the Fair Value Hierarchy

June 30, 2018

December 31, 2017

Book Value

Fair Value

Book Value

Fair Value
(Dollars in millions)

Cash and cash equivalents
1

$
873

$
873

$
619

$
619
Short-term investments
1

–

–

100

100
Long-term debt

Retail
2

1,753

1,772

1,753

1,783

Institutional
2

534

546

534

522

Other
2

188

187

194

194



	Level within the Fair Value Hierarchy	June 30, 2019				December 31, 2018
	Level within the Fair Value Hierarchy	Book Value		Fair Value		Book Value		Fair Value
(Dollars in millions)
Cash and cash equivalents	1	$	834	$	834	$	921	$	921
Short-term investments	1	18		18		17		17
Long-term debt
Retail	2	1,753		1,781		1,753		1,596
Institutional	2	534		578		534		531
Other	2	176		176		182		182

The fair values of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. Long-term debt excludes ~~capital~~ lease obligations, other installment arrangements, 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 TDS’ 7.0% Senior Notes, 6.875% Senior Notes, 6.625% Senior Notes and 5.875% Senior Notes, and U.S. Cellular’s ~~6.95% Senior Notes,~~ 7.25% 2063 Senior Notes, ~~and~~ 7.25% 2064 Senior Notes and 6.95% Senior Notes. TDS’ “Institutional” debt consists of U.S. Cellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of a senior term loan credit agreement and other borrowings with financial institutions. 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 ~~4.60%~~4.16% to ~~7.45%~~6.75% and ~~4.74%~~5.03% to ~~7.13%~~8.00% at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Table of Contents

Note 4 Equipment Installment Plans

TDS 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. TDS values this trade-in right as a guarantee liability. The guarantee liability is initially measured at fair value and is determined based on assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the device being traded-in at the time of trade-in. When a customer exercises the trade-in option, both the outstanding receivable and guarantee liability balances related to the respective device are reduced to zero, and the value of the used device that is received in the transaction is recognized as inventory. If the customer does not exercise the trade-in option at the time of eligibility, TDS begins amortizing the liability and records this amortization as additional equipment revenue. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the guarantee liability related to these plans was ~~$12~~$10 million and ~~$15~~$11 million, respectively, and is reflected in Customer deposits and deferred revenues in the Consolidated Balance Sheet.

The following table summarizes equipment installment plan receivables as of June 30, ~~2018~~2019 and December 31, ~~2017.~~

June 30, 2018

December 31, 2017
(Dollars in millions)

Equipment installment plan receivables, gross

$
887

$
873
Deferred interest

–

(80)
Equipment installment plan receivables, net of deferred interest

887

793
Allowance for credit losses

(62)

(65)
Equipment installment plan receivables, net

$
825

$
728

Net balance presented in the Consolidated Balance Sheet as:

Accounts receivable — Customers and agents (Current portion)

$
514

$
428
Other assets and deferred charges (Non-current portion)

311

300
Equipment installment plan receivables, net

$
825

$
728

2018.



	June 30, 2019			December 31, 2018
(Dollars in millions)
Equipment installment plan receivables, gross	$	961		$	974
Allowance for credit losses	(80		)	(77		)
Equipment installment plan receivables, net	$	881		$	897

Net balance presented in the Consolidated Balance Sheet as:
Accounts receivable — Customers and agents (Current portion)	$	568		$	560
Other assets and deferred charges (Non-current portion)	313			337
Equipment installment plan receivables, net	$	881		$	897

TDS uses various inputs, including internal data, information from ~~the~~ credit bureaus and other sources, to evaluate the credit profiles of its customers. 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. Customers assigned to credit classes requiring no down payment represent a lower risk category, whereas those assigned to credit classes requiring a down payment represent a higher risk category. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:

June 30, 2018

December 31, 2017

Lower Risk

Higher Risk

Total

Lower Risk

Higher Risk

Total
(Dollars in millions)

Unbilled

$
828

$
18

$
846

$
807

$
20

$
827
Billed — current

26

1

27

31

1

32
Billed — past due

12

2

14

12

2

14
Equipment installment plan receivables, gross

$
866

$
21

$
887

$
850

$
23

$
873



	June 30, 2019						December 31, 2018
	Lower Risk		Higher Risk		Total		Lower Risk		Higher Risk		Total
(Dollars in millions)
Unbilled	$	888	$	9	$	897	$	904	$	17	$	921
Billed — current	43		1		44		35		1		36
Billed — past due	18		2		20		15		2		17
Equipment installment plan receivables, gross	$	949	$	12	$	961	$	954	$	20	$	974

Activity for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, in the allowance for credit losses ~~balance~~ for ~~the~~ equipment installment plan receivables was as follows:

June 30, 2018

June 30, 2017
(Dollars in millions)

Allowance for credit losses, beginning of period

$
65

$
50
Bad debts expense

23

31
Write-offs, net of recoveries

(26)

(24)
Allowance for credit losses, end of period

$
62

$
57

June 30, 2019 June 30, 2018
(Dollars in millions)
Allowance for credit losses, beginning of period $ 77
$ 65
Bad debts expense 38
30
Write-offs, net of recoveries (35 ) (26 )
Allowance for credit losses, end of period $ 80
$ 69

Table of Contents

Note 5 ~~Income Taxes~~

~~In December 2017, the Tax Act was signed into law. Following the guidance of the FASB’s Accounting Standards Update 2018-05,~~ ~~Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~, tax expense for the year ended December 31, 2017, included a provisional estimate for the impact of the Tax Act on TDS’ 2017 depreciation deduction. Tax expense for the six months ended June 30, 2018, includes an income tax benefit of $3 million related to adjusting this provisional estimate. TDS has not completed a full analysis of contracts and agreements related to fixed assets placed in service during 2017. TDS expects any final adjustments to the provisional amounts to be recorded by the third quarter of 2018, which could be material to TDS’ financial statements.

N ~~ote 6~~ Earnings Per Share

Basic earnings per share ~~available~~attributable to TDS ~~common~~ shareholders is computed by dividing Net income ~~available~~attributable to TDS ~~common~~ shareholders by the weighted average number of ~~common shares~~Common Shares outstanding during the period. Diluted earnings per share ~~available~~attributable to TDS ~~common~~ shareholders is computed by dividing Net income ~~available~~attributable to TDS ~~common~~ shareholders by the weighted average number of ~~common shares~~Common Shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.

The amounts used in computing earnings per common share and the effects of potentially dilutive securities on the weighted average number of ~~common shares~~Common Shares were as follows:

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017
(Dollars and shares in millions, except per share amounts)

Basic earnings per share available to TDS common

shareholders:

Net income available to TDS common shareholders
used in basic earnings per share
$
33

$
10

$
72

$
47
Adjustments to compute diluted earnings:

Noncontrolling interest adjustment

(1)

–

(1)

–

Net income available to TDS common shareholders

used in diluted earnings per share
$
32

$
10

$
71

$
47

Weighted average number of shares used in basic

earnings per share:

Common Shares

105

104

105

103

Series A Common Shares

7

7

7

7

Total

112

111

112

110

Effects of dilutive securities

1

1

1

2
Weighted average number of shares used in diluted

earnings per share

113

112

113

112

Basic earnings per share available to TDS common

shareholders
$
0.30

$
0.09

$
0.65

$
0.43

Diluted earnings per share available to TDS common

shareholders
$
0.29

$
0.09

$
0.63

$
0.42



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(Dollars and shares in millions, except per share amounts)
Basic earnings per share attributable to TDS shareholders:
Net income attributable to TDS shareholders used in basic earnings per share	$	33		$	33		$	92		$	72
Adjustments to compute diluted earnings:
Noncontrolling interest adjustment	(1		)	(1		)	(1		)	(1		)
Net income attributable to TDS shareholders used in diluted earnings per share	$	32		$	32		$	91		$	71

Weighted average number of shares used in basic earnings per share:
Common Shares	107			105			107			105
Series A Common Shares	7			7			7			7
Total	114			112			114			112

Effects of dilutive securities	2			1			2			1
Weighted average number of shares used in diluted earnings per share	116			113			116			113

Basic earnings per share attributable to TDS shareholders	$	0.29		$	0.30		$	0.81		$	0.65

Diluted earnings per share attributable to TDS shareholders	$	0.28		$	0.29		$	0.78		$	0.63

Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units ~~or conversion of preferred shares~~ were not included in average diluted shares outstanding for the calculation of Diluted earnings per share ~~available~~attributable to TDS ~~common~~ shareholders because their effects were antidilutive. The number of such Common Shares excluded was less than 1 million for both the three and six months ended June 30, 2019, and 3 million and 4 million for the three and six months ended June 30, 2018, ~~respectively, and 5million and 4 million for the three and six months ended June 30, 2017,~~ respectively.

Table of Contents

Note 76 Intangible Assets

			~~Licenses~~
~~(Dollars in millions)~~
~~Balance at December 31, 2017~~		$	~~2,232~~
	~~Acquisitions~~		2
	~~Transferred to Assets held for sale~~		~~(1)~~
	~~Divestitures~~		~~(10)~~
	~~Exchanges - Licenses received~~		18
	~~Exchanges - Licenses surrendered~~		~~(1)~~
~~Balance at June 30, 2018~~		$	~~2,240~~

below:



	Licenses
(Dollars in millions)
Balance at December 31, 2018	$	2,195
Acquisitions	257
Exchanges - Licenses received	26
Balance at June 30, 2019	$	2,478

Note 87 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in ~~wireless and wireline~~ entities in which TDS holds a noncontrolling interest. ~~On January 1, 2018, TDS adopted Accounting Standards Update 2016-01,~~ ~~Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ (ASU 2016-01) using the modified retrospective approach. Accordingly, prior periods have not been recast to reflect the new accounting principle. Equity securities are measured at fair value with changes in value recognized in Net income. The cumulative effect of applying the provisions of ASU 2016-01 resulted in an increase of $1 million in retained earnings as of January 1, 2018.

TDS’ Investments in unconsolidated entities are accounted for using either the equity method or measurement alternative method as shown in the table below. The measurement alternative method was elected for investments without readily determinable fair values formerly accounted for under the cost method. The carrying value of measurement alternative ~~fair value~~method investments represents cost minus any impairments plus or minus any observable price changes. ~~TDS did not have an impairment or observable price change related to these investments for the three and six months ended June 30, 2018.~~

June 30,

December 31,

2018

2017
(Dollars in millions)

Equity method investments

458

435
Measurement alternative method investments

19

18
Total investments in unconsolidated entities
$
477

$
453



	June 30, 2019		December 31, 2018
(Dollars in millions)
Equity method investments	$	469	$	459
Measurement alternative method investments	21		21
Total investments in unconsolidated entities	$	490	$	480

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

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017
(Dollars in millions)

Revenues
$
1,661

$
1,636

$
3,324

$
3,251
Operating expenses

1,204

1,229

2,417

2,446
Operating income

457

407

907

805
Other income (expense), net

1

(2)

(1)

(2)
Net income
$
458

$
405

$
906

$
803

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(Dollars in millions)

Revenues $ 1,660
$ 1,661
$ 3,356
$ 3,324
Operating expenses 1,192
1,204
2,413
2,417
Operating income 468
457
943
907
Other income (expense), net 3
1
(3 ) (1 )
Net income $ 471
$ 458
$ 940
$ 906

Table of Contents

Note ~~9 Debt~~

~~Revolving Credit Agreements~~

8 Leases

Change in Accounting Policy

In ~~May 2018,~~February 2016, the FASB issued Accounting Standards Update 2016-02, Leases and has since amended the standard with Accounting Standards Update 2018-01, Leases: Land Easement Practical Expedient for Transition to Topic 842, Accounting Standards Update 2018-10, Codification Improvements to Topic 842, Leases, Accounting Standards Update 2018-11, Leases: Targeted Improvements, and Accounting Standards Update 2018-20, Leases: Narrow-Scope Improvements for Lessors, collectively referred to as ASC 842. This standard replaces the previous lease accounting standard under ASC 840 - Leases and requires lessees to record a right-of-use (ROU) asset and lease liability for the majority of leases. TDS ~~entered into~~adopted the provisions of ASC 842 on January 1, 2019, using a modified retrospective method. Under this method, TDS elected to apply the new $400 million revolving credit agreement with certain lenders and other parties and U.S. Cellular entered into a new $300 million revolving credit agreement with certain lenders and other parties. Amounts under bothaccounting standard only to the most recent period presented, recognizing the cumulative effect of the accounting change, if any, as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new ~~revolving credit~~accounting standard. The cumulative effect of applying the provisions of ASC 842 had no material impact on retained earnings.

TDS elected transitional practical expedients for existing leases which eliminated the requirements to reassess existing lease classification, initial direct costs, and whether contracts contain leases. TDS also elected the practical expedient related to land easements that allows it to carry forward the accounting treatment for pre-existing land easement agreements.

The cumulative effect of the adoption of ASC 842 on TDS’ Consolidated Balance Sheet as of January 1, 2019 is presented below.



	December 31, 2018		ASC 842 Adjustment			January 1, 2019
(Dollars in millions)
Prepaid expenses	$	103	$	(13	)	$	90
Operating lease right-of-use assets	—		975			975
Other assets and deferred charges	616		(12		)	604
Short-term operating lease liabilities	—		112			112
Other current liabilities	114		(8		)	106
Long-term operating lease liabilities	—		949			949
Other deferred liabilities and credits	541		(103		)	438

In connection with the adoption of ASC 842, TDS recorded ROU assets and lease liabilities for its operating leases in its Consolidated Balance Sheet as of January 1, 2019. The amounts for ROU assets and lease liabilities initially were calculated as the discounted value of future lease payments. The difference between the ROU assets and the corresponding lease liabilities at January 1, 2019 as shown in the table above resulted from adjustments to ROU assets to account for various lease prepayments and straight-line expense recognition deferral balances which existed as of December 31, 2018. Finance leases are included in Property, plant and equipment and Long-term debt, net consistent with the presentation under prior accounting standards.

Lessee Agreements

A lease is generally present in a contract if the lessee controls the use of identified property, plant or equipment for a period of time in exchange for consideration. Nearly all of TDS’ leases are classified as operating leases, although it does have a small number of finance leases. TDS’ most significant leases are for land and tower spaces, network facilities, retail spaces, and offices.

TDS has agreements with both lease and nonlease components, which are ~~available~~accounted for ~~general corporate purposes, including acquisitions, spectrum purchases~~separately. As part of the present value calculation for the lease liabilities, TDS uses an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on TDS' unsecured rates, adjusted to approximate the rates at which TDS would be required to borrow on a collateralized basis over a term similar to the recognized lease term. TDS applies the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and ~~capital expenditures,~~the reporting entity in which the lease resides. The cost of nonlease components in TDS’ lease portfolio (e.g., utilities and ~~may be borrowed, repaid~~common area maintenance) are not typically predetermined at lease commencement and ~~reborrowed from time~~are expensed as incurred at their relative standalone price.

Variable lease expense occurs when, subsequent to ~~time until maturity~~the lease commencement, lease payments are made that were not originally included in ~~May 2023. As~~the lease liability calculation. TDS’ variable lease payments are primarily a result of ~~the new agreements, TDS’ and U.S. Cellular’s previous revolving credit agreements~~leases with escalations that are tied to an index. The incremental changes due to ~~expire~~the index changes are recorded as variable lease expense and are not included in ~~June 2021 were terminated.~~

the ROU assets or lease liabilities.

Lease term recognition determines the periods to which expense is allocated and also has a significant impact on the ROU asset and lease liability calculations. Many of TDS’ leases include renewal and early termination options. At lease commencement, the lease terms include options to extend the lease when TDS is reasonably certain that it will exercise the options. The lease terms do not include early termination options unless TDS is reasonably certain to exercise the options. Certain asset classes have similar lease characteristics; therefore, TDS has applied the portfolio approach for lease term recognition for its tower space, retail, and certain ground lease asset classes.

Table of Contents

The following table ~~summarizes~~shows the ~~terms~~components of lease cost included in the Consolidated Statement of Operations:



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
(Dollars in millions)
Operating lease cost	$	44	$	87
Financing lease cost:
Amortization of ROU assets	1		1
Variable lease cost	2		4
Total lease cost	$	47	$	92

The following table shows supplemental cash flow information related to lease activities:



	Six Months Ended June 30, 2019
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	84
ROU assets obtained in exchange for lease obligations:
Operating leases	$	57
Finance leases	7

The following table shows the classification of TDS’ operating and finance leases in its Consolidated Balance Sheet:



	June 30, 2019
(Dollars in millions)
Operating Leases
Operating lease right-of-use assets	$	963

Short-term operating lease liabilities	$	112
Long-term operating lease liabilities	927
Total operating lease liabilities	$	1,039

Finance Leases
Property, plant and equipment	$	17
Less: Accumulated depreciation and amortization	4
Property, plant and equipment, net	$	13
Current portion of long-term debt	$	1
Long-term debt, net	5
Total finance lease liabilities	$	6

The table below shows a weighted-average analysis for lease term and discount rate for all leases:



	June 30, 2019
Weighted Average Remaining Lease Term
Operating leases	12 years
Finance leases	23 years

Weighted Average Discount Rate
Operating leases	4.5	%
Finance leases	6.9	%

Table of Contents

The maturities of lease liabilities are as follows:



	Operating Leases		Finance Leases
(Dollars in millions)
Remainder of 2019	$	73	$	1
2020	162		1
2021	147		—
2022	131		1
2023	116		—
Thereafter	791		13
Total lease payments¹	$	1,420	$	16
Less: Imputed interest	381		10
Present value of lease liabilities	$	1,039	$	6


¹	Lease payments exclude $8 million of legally binding lease payments for leases signed but not yet commenced.

Lessor Agreements

TDS’ most significant lessor leases are for tower space and colocation space. All of TDS’ lessor leases are classified as operating leases. A lease is generally present in a contract if the lessee controls the use of identified property, plant, or equipment for a period of time in exchange for consideration. TDS’ lessor agreements with lease and nonlease components are generally accounted for separately; however, certain service agreements with insignificant lease components are accounted for as nonlease transactions.

Lease term recognition determines the periods to which revenue is allocated over the term of the ~~revolving credit agreements as~~lease. Many of ~~June 30, 2018:~~

TDS

U.S. Cellular

(Dollars in millions)

Maximum borrowing capacity
$
400

$
300

Letters of credit outstanding
$
1

$
2

Amount borrowed
$
–

$
–

Amount available for use
$
399

$
298

~~Except for~~TDS’ leases include renewal and early termination options. At lease commencement, lease terms include options to extend the ~~change~~lease when TDS is reasonably certain that lessees will exercise the options. Lease terms would not include periods after the date of a termination option that lessees are reasonably certain to exercise.

Variable lease income occurs when, subsequent to the lease commencement, lease payments are received that were not originally included in the ~~maturity date, the terms~~lease receivable calculation. TDS’ variable lease income is primarily a result of ~~the new revolving credit agreements~~leases with escalations that are ~~substantially the same as the previous revolving credit agreements.~~

~~Term Loan~~

~~In May 2018, U.S. Cellular also amended its senior term loan credit agreement in order~~tied to ~~align with the new revolving credit agreement. There were no significant changes~~an index. The incremental increases due to the ~~maturity date or other key~~index changes are recorded as variable lease income.

The following table shows the components of lease income which are included in service revenue in the Consolidated Statement of Operations:



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
(Dollars in millions)
Operating lease income	$	23	$	45

The maturities of expected lease payments to be received are as follows:



	Operating Leases
(Dollars in millions)
Remainder of 2019	$	39
2020	80
2021	45
2022	31
2023	19
Thereafter	14
Total future lease maturities	$	228

Table of Contents

Disclosures under ASC 840

As of December 31, 2018, future minimum rental payments required under operating leases and rental receipts expected under operating leases that have noncancellable lease terms in excess of ~~the agreement.~~

one year were as follows:



	Operating Leases Future Minimum Rental Payments		Operating Leases Future Minimum Rental Receipts
(Dollars in millions)
2019	$	170	$	59
2020	158		48
2021	142		35
2022	126		23
2023	110		10
Thereafter	784		7
Total	$	1,490	$	182

Note 109 Variable Interest Entities

Consolidated VIEs

TDS consolidates ~~variable interest entities (VIEs)~~VIEs in which it has a controlling financial interestas defined by GAAP and is therefore deemed the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance; and (b) the obligation to absorb the VIE losses and the right to receive benefits that are significant to the VIE. TDS reviews these criteria initially at the time it enters into agreements and subsequently when events warranting reconsideration occur.These VIEshave risks similar to those described in the “Risk Factors” in TDS’ Form 10-K for the year ended December 31, ~~2017.~~

2018.

During 2017, U.S. Cellular 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, U.S. Cellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, ~~will~~ transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer ~~will aggregate~~aggregates device equipment installment plan contracts, and ~~perform~~performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer ~~will sell~~sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which ~~will~~ subsequently ~~sell~~sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of U.S. Cellular, 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 U.S. Cellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, U.S. Cellular 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.~~


▪	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.

In the six months ended June 30, 2018, U.S. Cellular received liquidating distributions from Aquinas Wireless, L.P. (Aquinas Wireless). Subsequent to the final distribution date, Aquinas Wireless had no remaining assets and was dissolved.

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, U.S. Cellular 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 are also recognized as VIEs and are consolidated under the variable interest model.

Table of Contents

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

June 30,

December 31,

2018

2017
(Dollars in millions)

Assets

Cash and cash equivalents
$
6

$
3

Accounts receivable

559

473

Other current assets

8

7

Assets held for sale

1

–

Licenses

647

648

Property, plant and equipment, net

85

89

Other assets and deferred charges

320

304

Total assets
$
1,626

$
1,524

Liabilities

Current liabilities
$
26

$
36

Deferred liabilities and credits

13

12

Total liabilities
$
39

$
48



	June 30, 2019		December 31, 2018
(Dollars in millions)
Assets
Cash and cash equivalents	$	8	$	9
Short-term investments	18		17
Accounts receivable	616		609
Inventory, net	4		5
Other current assets	5		5
Licenses	647		647
Property, plant and equipment, net	84		88
Operating lease right-of-use assets	40		—
Other assets and deferred charges	322		347
Total assets	$	1,744	$	1,727

Liabilities
Current liabilities	$	32	$	31
Long-term operating lease liabilities	37		—
Other deferred liabilities and credits	11		15
Total liabilities	$	80	$	46

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 under the variable interest model.

TDS’ total investment in these unconsolidated entities was $5~~million and~~ $4 million at both June 30, ~~2018~~2019 and December 31, ~~2017, respectively,~~2018, 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

~~During the six months ended June 30, 2018 and 2017,~~

TDS made contributions, loans and/or advances to its VIEs totaling $208 million and $51 million, during the six months ended June 30, 2019 and ~~$676 million,~~2018, respectively; of ~~these amounts~~which $184 million in 2019 and $33 million ~~and $659 million, respectively,~~in 2018, 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 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 agreement 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 agreements of Advantage Spectrum and King Street Wireless also provide the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of U.S. Cellular, to purchase its interest in the limited partnership. The general partner’s put options related to its interests in King Street Wireless will become exercisable in the fourth quarter of 2019. The general partner’s put options related to its interest in Advantage Spectrum will become exercisable in 2021 and 2022. 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 options, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated Statement of Operations.

During the ~~six months ended June 30,~~first quarter of 2018, TDS recorded an out-of-period adjustment attributable to 2016 and 2017 due to errors in the application of accounting guidance applicable to the calculation of Noncontrolling interests with redemption features related to King Street Wireless, Inc. This out-of-period adjustment had the impact of increasing Net income attributable to noncontrolling interests, net of tax, by $6 million and decreasing Net income attributable to TDS shareholders by $6 million for the six months ended June 30, 2018. TDS determined that this adjustment was not material to any of the periods impacted. ~~The adjustment was made in the first quarter of 2018.~~

Table of Contents

Note 1110 Noncontrolling Interests

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

Six Months Ended June 30,
2018

2017
(Dollars in millions)

Net income attributable to TDS shareholders
$
72

$
47
Transfers to noncontrolling interests

Change in TDS' Capital in excess of par value from U.S. Cellular's issuance of
   U.S. Cellular shares

(17)

(11)
Change in TDS' Capital in excess of par value from U.S. Cellular's repurchases of
   U.S. Cellular shares

–

–
Purchase of ownership in subsidiaries from noncontrolling interests

–

–
Net transfers to noncontrolling interests

(17)

(11)
Change from net income attributable to TDS and transfers to
   noncontrolling interests
$
55

$
36

Six Months Ended June 30, 2019 2018
(Dollars in millions)
Net income attributable to TDS shareholders $ 92
$ 72
Transfers to noncontrolling interests
Change in TDS' Capital in excess of par value from U.S. Cellular's issuance of U.S. Cellular shares (23 ) (17 )
Change in TDS' Capital in excess of par value from U.S. Cellular's repurchases of U.S. Cellular shares —
—
Purchase of ownership in subsidiaries from noncontrolling interests —
—
Net transfers to noncontrolling interests (23 ) (17 )
Change from net income attributable to TDS and transfers to noncontrolling interests $ 69
$ 55

Table of Contents

Note 1211 Business Segment Information

U.S. Cellular and TDS Telecom are billed for ~~all~~ services they receive from TDS, consisting primarily of information processing, accounting and finance, and general management services. Such billings are based on expenses specifically identified to U.S. Cellular 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 U.S. Cellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if U.S. Cellular and TDS Telecom operated on a stand-alone basis. TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom, but is reported as a part of Corporate, Eliminations and Other. Prior periods have been recast to conform to the revised presentation.

Financial data for TDS’ reportable segments for the three and six month periods ended, or as of June 30, ~~2018~~2019 and ~~2017,~~2018, is as follows. See Note 1 — Basis of Presentation for additional information.

TDS Telecom

Three Months Ended or as of June 30, 2018¹

U.S. Cellular

Wireline

Cable

TDS Telecom Total2

Corporate, Eliminations and Other

Total
(Dollars in millions)

Operating revenues

Service

$
741

$
173

$
57

$
230

$
22

$
993

Equipment and product sales

233

–

–

1

28

262

Total operating revenues

974

174

57

230

51

1,255
Cost of services (excluding Depreciation, amortization

and accretion reported below)

187

67

27

93

20

300
Cost of equipment and products

240

–

–

–

26

266
Selling, general and administrative

342

50

15

64

11

417
Depreciation, amortization and accretion

159

36

18

53

8

220
(Gain) loss on asset disposals, net

1

1

–

1

–

2
(Gain) loss on license sales and exchanges, net

(11)

–

–

–

–

(11)
Operating income (loss)

56

21

(3)

18

(13)

61
Equity in earnings of unconsolidated entities

40

–

–

–

–

40
Interest and dividend income

3

2

–

2

1

6
Interest expense

(29)

–

–

–

(14)

(43)
Other, net

–

1

–

1

–

1
Income (loss) before income taxes

70

24

(2)

21

(26)

65
Income tax expense (benefit)3

18

5

(2)

21
Net income (loss)

52

16

(24)

44
Add back:

Depreciation, amortization and accretion

159

36

18

53

8

220
(Gain) loss on asset disposals, net

1

1

–

1

–

2
(Gain) loss on license sales and exchanges, net

(11)

–

–

–

–

(11)
Interest expense

29

–

–

–

14

43
Income tax expense (benefit)3

18

5

(2)

21
Adjusted EBITDA4

$
248

$
59

$
16

$
75

$
(4)

$
319

Investments in unconsolidated entities

$
439

$
4

$
–

$
4

$
34

$
477
Total assets

$
7,075

$
1,260

$
643

$
1,893

$
530

$
9,498
Capital expenditures

$
86

$
33

$
13

$
46

$
6

$
138



				TDS Telecom
Three Months Ended or as of June 30, 2019	U.S. Cellular			Wireline			Cable		TDS Telecom Total¹			Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	757		$	172		$	62	$	233		$	23		$	1,013
Equipment and product sales	216			—			—		—			32			248
Total operating revenues	973			172			62		233			55			1,261
Cost of services (excluding Depreciation, amortization and accretion reported below)	193			64			27		91			20			304
Cost of equipment and products	224			—			—		—			25			249
Selling, general and administrative	344			49			15		64			13			421
Depreciation, amortization and accretion	177			33			17		50			7			234
(Gain) loss on asset disposals, net	5			(1		)	—		(1		)	1			5
Operating income (loss)	30			27			2		29			(11		)	48
Equity in earnings of unconsolidated entities	40			—			—		—			1			41
Interest and dividend income	5			3			—		3			1			9
Interest expense	(29		)	1			—		1			(15		)	(43		)
Income (loss) before income taxes	46			30			3		33			(24		)	55
Income tax expense (benefit)²	14								8			(6		)	16
Net income (loss)	32								25			(18		)	39
Add back:
Depreciation, amortization and accretion	177			33			17		50			7			234
(Gain) loss on asset disposals, net	5			(1		)	—		(1		)	1			5
Interest expense	29			(1		)	—		(1		)	15			43
Income tax expense (benefit)²	14								8			(6		)	16
Adjusted EBITDA³	$	257		$	62		$	20	$	82		$	(2	)	$	337

Investments in unconsolidated entities	$	450		$	4		$	—	$	4		$	36		$	490
Total assets	$	8,223		$	1,377		$	641	$	2,009		$	563		$	10,795
Capital expenditures	$	195		$	55		$	15	$	70		$	(1	)	$	264

Table of Contents

TDS Telecom

Three Months Ended or as of June 30, 2017

U.S. Cellular

Wireline

Cable

TDS Telecom Total2

Corporate, Eliminations and Other

Total
(Dollars in millions)

Operating revenues

Service

$
740

$
180

$
51

$
231

$
21

$
992

Equipment and product sales

223

–

–

–

32

255

Total operating revenues

963

181

51

231

53

1,247
Cost of services (excluding Depreciation, amortization

and accretion reported below)

189

65

24

89

20

298
Cost of equipment and products

260

1

–

1

26

287
Selling, general and administrative5

351

49

13

62

7

420
Depreciation, amortization and accretion

155

37

11

48

8

211
(Gain) loss on asset disposals, net

5

–

–

1

–

6
(Gain) loss on license sales and exchanges, net

(2)

–

–

–

–

(2)
Operating income (loss)5

5

28

3

31

(9)

27
Equity in earnings of unconsolidated entities

33

–

–

–

–

33
Interest and dividend income

2

1

–

1

1

4
Interest expense

(28)

–

–

–

(15)

(43)
Other, net5

–

1

–

1

–

1
Income (loss) before income taxes

12

30

3

33

(23)

22
Income tax expense (benefit)3

–

13

(3)

10
Net income (loss)

12

20

(20)

12
Add back:

Depreciation, amortization and accretion

155

37

11

48

8

211
(Gain) loss on asset disposals, net

5

–

–

1

–

6
(Gain) loss on license sales and exchanges, net

(2)

–

–

–

–

(2)
Interest expense

28

–

–

–

15

43
Income tax expense (benefit)3

–

13

(3)

10
Adjusted EBITDA4

$
198

$
67

$
14

$
82

$
–

$
280

Investments in unconsolidated entities

$
414

$
4

$
–

$
4

$
34

$
452
Total assets

$
7,077

$
1,200

$
611

$
1,813

$
488

$
9,378
Capital expenditures

$
84

$
33

$
12

$
45

$
5

$
134



				TDS Telecom
Three Months Ended or as of June 30, 2018	U.S. Cellular			Wireline		Cable			TDS Telecom Total¹		Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	741		$	173	$	57		$	230	$	22		$	993
Equipment and product sales	233			—		—			1		28			262
Total operating revenues	974			174		57			230		51			1,255
Cost of services (excluding Depreciation, amortization and accretion reported below)	187			67		27			93		20			300
Cost of equipment and products	240			—		—			—		26			266
Selling, general and administrative	342			50		15			64		11			417
Depreciation, amortization and accretion	159			36		18			53		8			220
(Gain) loss on asset disposals, net	1			1		—			1		—			2
(Gain) loss on license sales and exchanges, net	(11		)	—		—			—		—			(11		)
Operating income (loss)	56			21		(3		)	18		(13		)	61
Equity in earnings of unconsolidated entities	40			—		—			—		—			40
Interest and dividend income	3			2		—			2		1			6
Interest expense	(29		)	—		—			—		(14		)	(43		)
Other, net	—			1		—			1		—			1
Income (loss) before income taxes	70			24		(2		)	21		(26		)	65
Income tax expense (benefit)²	18								5		(2		)	21
Net income (loss)	52								16		(24		)	44
Add back:
Depreciation, amortization and accretion	159			36		18			53		8			220
(Gain) loss on asset disposals, net	1			1		—			1		—			2
(Gain) loss on license sales and exchanges, net	(11		)	—		—			—		—			(11		)
Interest expense	29			—		—			—		14			43
Income tax expense (benefit)²	18								5		(2		)	21
Adjusted EBITDA³	$	248		$	59	$	16		$	75	$	(4	)	$	319

Investments in unconsolidated entities	$	439		$	4	$	—		$	4	$	34		$	477
Total assets	$	7,075		$	1,260	$	643		$	1,893	$	530		$	9,498
Capital expenditures	$	86		$	33	$	13		$	46	$	6		$	138

Table of Contents

TDS Telecom

Six Months Ended or as of June 30, 2018¹

U.S. Cellular

Wireline

Cable

TDS Telecom Total2

Corporate, Eliminations and Other

Total
(Dollars in millions)

Operating revenues

Service

$
1,465

$
348

$
112

$
460

$
45

$
1,970

Equipment and product sales

450

1

–

1

59

510

Total operating revenues

1,915

349

112

461

104

2,480
Cost of services (excluding Depreciation, amortization

and accretion reported below)

365

131

52

183

39

587
Cost of equipment and products

459

1

–

1

52

512
Selling, general and administrative

668

97

28

124

21

813
Depreciation, amortization and accretion

317

72

35

107

17

441
(Gain) loss on asset disposals, net

2

1

1

1

–

3
(Gain) loss on license sales and exchanges, net

(17)

–

–

–

–

(17)
Operating income (loss)

121

47

(4)

43

(23)

141
Equity in earnings of unconsolidated entities

78

–

–

–

–

78
Interest and dividend income

7

3

–

3

1

11
Interest expense

(58)

1

–

1

(29)

(86)
Other, net

(1)

1

–

1

2

2
Income (loss) before income taxes

147

52

(4)

48

(49)

146
Income tax expense (benefit)3

40

12

(7)

45
Net income (loss)

107

37

(43)

101
Add back:

Depreciation, amortization and accretion

317

72

35

107

17

441
(Gain) loss on asset disposals, net

2

1

1

1

–

3
(Gain) loss on license sales and exchanges, net

(17)

–

–

–

–

(17)
Interest expense

58

(1)

–

(1)

29

86
Income tax expense (benefit)3

40

12

(7)

45
Adjusted EBITDA4

$
507

$
124

$
32

$
156

$
(4)

$
659

Investments in unconsolidated entities

$
439

$
4

$
–

$
4

$
34

$
477
Total assets

$
7,075

$
1,260

$
643

$
1,893

$
530

$
9,498
Capital expenditures

$
155

$
62

$
24

$
87

$
11

$
253



				TDS Telecom
Six Months Ended or as of June 30, 2019	U.S. Cellular			Wireline			Cable		TDS Telecom Total¹			Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	1,498		$	342		$	121	$	463		$	47		$	2,008
Equipment and product sales	441			1			—		1			68			510
Total operating revenues	1,939			343			121		464			115			2,518
Cost of services (excluding Depreciation, amortization and accretion reported below)	369			127			52		179			40			588
Cost of equipment and products	458			1			—		1			54			513
Selling, general and administrative	669			96			30		125			25			819
Depreciation, amortization and accretion	345			66			34		100			15			460
(Gain) loss on asset disposals, net	7			(8		)	1		(8		)	1			—
(Gain) loss on sale of business and other exit costs, net	(2		)	—			—		—			—			(2		)
(Gain) loss on license sales and exchanges, net	(2		)	—			—		—			—			(2		)
Operating income (loss)	95			61			5		66			(19		)	142
Equity in earnings of unconsolidated entities	84			—			—		—			1			85
Interest and dividend income	11			5			1		6			—			17
Interest expense	(58		)	1			—		1			(29		)	(86		)
Other, net	(1		)	—			—		—			2			1
Income (loss) before income taxes	131			68			6		74			(46		)	159
Income tax expense (benefit)²	41								18			(9		)	50
Net income (loss)	90								56			(37		)	109
Add back:
Depreciation, amortization and accretion	345			66			34		100			15			460
(Gain) loss on asset disposals, net	7			(8		)	1		(8		)	1			—
(Gain) loss on sale of business and other exit costs, net	(2		)	—			—		—			—			(2		)
(Gain) loss on license sales and exchanges, net	(2		)	—			—		—			—			(2		)
Interest expense	58			(1		)	—		(1		)	29			86
Income tax expense (benefit)²	41								18			(9		)	50
Adjusted EBITDA³	$	537		$	125		$	40	$	165		$	(1	)	$	701

Capital expenditures	$	297		$	84		$	28	$	112		$	2		$	411

Table of Contents

TDS Telecom

Six Months Ended or as of June 30, 2017

U.S. Cellular

Wireline

Cable

TDS Telecom Total2

Corporate, Eliminations and Other

Total
(Dollars in millions)

Operating revenues

Service

$
1,486

$
359

$
100

$
459

$
44

$
1,989

Equipment and product sales

413

1

–

1

82

496

Total operating revenues

1,899

360

100

459

127

2,485
Cost of services (excluding Depreciation, amortization

and accretion reported below)

364

129

48

176

40

580
Cost of equipment and products

488

1

–

1

68

557
Selling, general and administrative5

691

97

25

123

12

826
Depreciation, amortization and accretion

307

76

21

97

18

422
(Gain) loss on asset disposals, net

9

1

1

1

–

10
(Gain) loss on license sales and exchanges, net

(19)

–

–

–

–

(19)
Operating income (loss)5

59

56

5

61

(11)

109
Equity in earnings of unconsolidated entities

66

–

–

–

(1)

65
Interest and dividend income

5

2

–

2

1

8
Interest expense

(56)

–

–

–

(29)

(85)
Other, net5

(1)

2

–

2

1

2
Income (loss) before income taxes

73

60

5

65

(39)

99
Income tax expense (benefit)3

33

25

(14)

44
Net income (loss)

40

40

(25)

55
Add back:

Depreciation, amortization and accretion

307

76

21

97

18

422
(Gain) loss on asset disposals, net

9

1

1

1

–

10
(Gain) loss on license sales and exchanges, net

(19)

–

–

–

–

(19)
Interest expense

56

–

–

–

29

85
Income tax expense (benefit)3

33

25

(14)

44
Adjusted EBITDA4

$
426

$
137

$
27

$
164

$
7

$
597

Investments in unconsolidated entities

$
414

$
4

$
–

$
4

$
34

$
452
Total assets

$
7,077

$
1,200

$
611

$
1,813

$
488

$
9,378
Capital expenditures

$
145

$
50

$
21

$
71

$
14

$
230

Numbers may not foot due to rounding.

1
As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASU 2014-09, but 2017 amounts remain as previously reported, except as specifically stated. See Note 2 — Revenue Recognition for additional information.

2
TDS Telecom Total includes eliminations between the Wireline and Cable segments.

3
Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense for “TDS Telecom Total”.

4
Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their 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.

5
ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior year numbers have been recast to conform to this standard.



				TDS Telecom
Six Months Ended or as of June 30, 2018	U.S. Cellular			Wireline			Cable			TDS Telecom Total¹			Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	1,465		$	348		$	112		$	460		$	45		$	1,970
Equipment and product sales	450			1			—			1			59			510
Total operating revenues	1,915			349			112			461			104			2,480
Cost of services (excluding Depreciation, amortization and accretion reported below)	365			131			52			183			39			587
Cost of equipment and products	459			1			—			1			52			512
Selling, general and administrative	668			97			28			124			21			813
Depreciation, amortization and accretion	317			72			35			107			17			441
(Gain) loss on asset disposals, net	2			1			1			1			—			3
(Gain) loss on license sales and exchanges, net	(17		)	—			—			—			—			(17		)
Operating income (loss)	121			47			(4		)	43			(23		)	141
Equity in earnings of unconsolidated entities	78			—			—			—			—			78
Interest and dividend income	7			3			—			3			1			11
Interest expense	(58		)	1			—			1			(29		)	(86		)
Other, net	(1		)	1			—			1			2			2
Income (loss) before income taxes	147			52			(4		)	48			(49		)	146
Income tax expense (benefit)²	40									12			(7		)	45
Net income (loss)	107									37			(43		)	101
Add back:
Depreciation, amortization and accretion	317			72			35			107			17			441
(Gain) loss on asset disposals, net	2			1			1			1			—			3
(Gain) loss on license sales and exchanges, net	(17		)	—			—			—			—			(17		)
Interest expense	58			(1		)	—			(1		)	29			86
Income tax expense (benefit)²	40									12			(7		)	45
Adjusted EBITDA³	$	507		$	124		$	32		$	156		$	(4	)	$	659

Capital expenditures	$	155		$	62		$	24		$	87		$	11		$	253

Numbers may not foot due to rounding.


¹	TDS Telecom Total includes eliminations between the Wireline and Cable segments.

²
Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense for “TDS Telecom Total”.
³
Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their 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.

Table of Contents

Telephone and Data Systems, Inc.

Additional Required Information

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As required by SEC Rules 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of June 30, ~~2018,~~2019, 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 six months ended June 30, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting, except as follows: TDS implemented internal controls to ensure that, upon adoption of the new ~~revenue recognition~~lease accounting standard ~~ASU 2014-09,~~codified in ASC 842, effective January 1, ~~2018,~~2019, and for all periods thereafter, ~~contracts will be properly evaluated and any impacts to~~ the financial statements will be ~~recognized~~presented in accordance with this new accounting standard.

Legal Proceedings

The United States Department of Justice (DOJ) has notified TDS that it is conducting inquiries of U.S. Cellular and TDS under the federal False Claims Act. The DOJ is investigating U.S. Cellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. U.S. Cellular is a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. TDS and U.S. Cellular are cooperating with the DOJ’s review. TDS and U.S. Cellular believe that U.S. Cellular’s arrangements with the limited ~~partnership~~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 this review.

Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, ~~2017,~~2018, for additional information. There have been no material changes to such information since December 31, ~~2017.~~

2018.

Unregistered Sales of Equity Securities and Use of Proceeds

On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the second quarter of ~~2018.~~

2019.

The maximum dollar value of shares that may yet be purchased under this program was $199 million as of June 30, ~~2018.~~2019. 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.

Table of Contents

Other Information

The following information is being provided to update prior disclosures made pursuant to the requirements of Form 8-K, Item 2.03 — Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

TDS entered into a revolving credit agreement on May 10, 2018. A description of TDS’ revolving credit agreement is included in TDS’ Current Report on Form 8-K dated May 10, 2018, and is incorporated by reference herein.

U.S. Cellular entered into a revolving credit agreement on May 10, 2018. A description of U.S. Cellular’s revolving credit agreement is included in U.S. Cellular’s Current Report on Form 8-K dated May 10, 2018, and is incorporated by reference herein.

Neither TDS nor U.S. Cellular borrowed or repaid any cash amounts under their revolving credit agreements in the second quarter of ~~2018~~2019 or through the filing date of this Form 10-Q, and had no cash borrowings outstanding under their revolving credit agreements as of June 30, ~~2018,~~2019, or as of the filing date of this Form 10-Q.

Further, U.S. Cellular did not borrow or repay any ~~significant~~ cash amounts under its receivables securitization agreement in the second quarter of ~~2018~~2019 or through the filing date of this Form 10-Q, and had no cash borrowings outstanding under its receivables securitization agreement as of June 30, ~~2018,~~2019, or as of the filing date of this Form 10-Q.

Table of Contents

Exhibits



Exhibit Number	Description of Documents
Exhibit ~~4.1~~ 3.1	~~Revolving Credit Agreement, among TDS, Wells Fargo National Association,~~Restated Bylaws, as ~~administrative agent, and the other lenders thereto, dated as of May 10, 2018, including Schedules and Exhibits, including the form of subsidiary Guaranty, is~~amended, are hereby incorporated by reference to Exhibit ~~4.1~~3.1 to ~~TDS’~~TDS' Current Report on Form 8-K dated May ~~10, 2018.~~23, 2019.
~~Exhibit 4.2~~	Revolving Credit Agreement, among U.S. Cellular, Toronto Dominion (Texas) LLC, as administrative agent, and the other lenders thereto, dated as of May 10, 2018, including Schedules and Exhibits, including the form of subsidiary Guaranty and Subordination Agreement, is hereby incorporated by reference to Exhibit 4.1 to U.S. Cellular’s Form 8-K dated May 10, 2018.
Exhibit ~~4.3~~ 4.1	~~First~~Third Amendment to Amended and Restated Term Loan Credit Agreement, among U.S. Cellular, CoBank, ACB, as administrative agent, and the other lenders thereto, dated as of ~~May 10, 2018,~~March 14, 2019, is hereby incorporated by reference to Exhibit ~~4.2~~4.1 to U.S. ~~Cellular’s~~Cellular's Current Report on Form 10-Q for the period ended March 31, 2019.

Exhibit 4.2	Restated Bylaws, as amended, are hereby incorporated as Exhibit 3.1.

Exhibit 10.1	TDS 2019 Officer Bonus Program is hereby incorporated by reference to Exhibit 10.1 to TDS' Current Report on Form 8-K dated ~~May 10, 2018.~~March 12, 2019.

Exhibit ~~10.1~~ 10.2	Form of 2019 TDS Performance Share Award Agreement is hereby incorporated by reference to Exhibit 10.2 to TDS' Current Report on Form 8-K dated March 12, 2019.

Exhibit 10.3	Form of U.S. Cellular 2013 Long-Term Incentive Plan ~~2018~~2019 Performance Award Agreement for the President and CEO of U.S. Cellular is hereby incorporated by reference to Exhibit 10.2 to U.S. ~~Cellular’s~~Cellular's Current Report on Form 8-K dated March 12, ~~2018.~~2019.
~~Exhibit 10.2~~	~~Form of 2018 TDS Performance Share Award Agreement is hereby incorporated by reference to Exhibit 10.1 to TDS’ Current Report on Form 8-K dated March 14, 2018.~~
~~Exhibit 10.3~~	~~TDS 2018 Officer Bonus Program is hereby incorporated by reference to Exhibit 10.1 to TDS’ Current Report on Form 8-K dated March 23, 2018.~~
~~Exhibit 10.4~~	Form of Consulting Agreement Effective June 1, 2018, between TDS and Douglas D. Shuma is hereby incorporated by reference to Exhibit 10.1 to TDS’ Current Report on Form 8-K/A dated February 23, 2018, as filed with the SEC on May 23, 2018.
~~Exhibit 10.5~~	Summary of Letter Agreement between TDS and Douglas W. Chambers is hereby incorporated by reference to Exhibit 10.1 to TDS’ Current Report on Form 8-K/A dated February 23, 2018, as filed with the SEC on June 4, 2018.
~~Exhibit 11~~	~~Statement regarding computation of per share earnings is included herein as Note 6 — Earnings Per Share in the Notes to Consolidated Financial Statements.~~
~~Exhibit 12~~	~~Statement regarding computation of ratio of earnings to fixed charges.~~
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

The foregoing exhibits include only the exhibits that relate specifically to this Form 10-Q or that supplement the exhibits identified in TDS’ Form 10-K for the year ended December 31, ~~2017.~~2018. Reference is made to TDS’ Form 10-K for the year ended December 31, ~~2017,~~2018, for a complete list of exhibits, which are incorporated herein except to the extent supplemented or superseded above.

Table of Contents

Form 10-Q Cross Reference Index



Item Number			Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)	34	-	39
		Notes to Consolidated Financial Statements	43	-	57

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1	-	31

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

	Item 4.	Controls and Procedures	61

Part II.	Other Information

	Item 1.	Legal Proceedings	61

	Item1A.	Risk Factors	33

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

	Item 5.	Other Information	62

	Item 6.	Exhibits	63

Signatures			65

~~Form 10-Q Cross Reference Index~~

~~Item Number~~			~~Page No.~~
~~Part I.~~	~~Financial Information~~

	~~Item 1.~~	~~Financial Statements (Unaudited)~~	37- 43
		~~Notes to Consolidated Financial Statements~~	44 - 63

	~~Item 2.~~	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~	1 - 35

	~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	36

	~~Item 4.~~	~~Controls and Procedures~~	64

~~Part II.~~	~~Other Information~~

	~~Item 1.~~	~~Legal Proceedings~~	64

	~~Item1A.~~	~~Risk Factors~~	36

	~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	64

	~~Item 5.~~	~~Other Information~~	65

	~~Item 6.~~	~~Exhibits~~	66

~~Signatures~~			68

Table of Contents

SIGNATURES

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



		TELEPHONE AND DATA SYSTEMS, INC.
		(Registrant)

Date:	August ~~3, 2018~~ 1, 2019		/s/ LeRoy T. Carlson, Jr.
			LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer)

Date:	August ~~3, 2018~~ 1, 2019		/s/ ~~Douglas W. Chambers~~ Peter L. Sereda
			~~Douglas W. Chambers~~ ~~Senior~~ Peter L. Sereda Executive Vice President and Chief Financial Officer (principal financial officer)

Date:	August 1, 2019		/s/ Anita J. Kroll
			Anita J. Kroll Vice President - ~~Finance~~Controller and Chief Accounting Officer (~~principal financial officer and~~ principal accounting officer)

~~Date:~~	~~August 3, 2018~~		~~/s/ Anita J. Kroll~~
			~~Anita J. Kroll~~ ~~Vice President and Controller~~

			Three Months Ended					Six Months Ended
			June 30,					June 30,
			2018¹		2017		2018 vs. 2017	2018¹		2017		2018 vs. 2017
(Dollars in millions)
Operating revenues
	U.S. Cellular		$	974	$	963	1%	$	1,915	$	1,899	1%
	TDS Telecom			230		231	–		461		459	–
	All other2			51		53	(4)%		104		127	(18)%
		Total operating revenues		1,255		1,247	1%		2,480		2,485	–
Operating expenses
	U.S. Cellular			918		958	(4)%		1,794		1,840	(2)%
	TDS Telecom			212		200	6%		417		398	5%
	All other2			64		62	4%		128		138	(8)%
		Total operating expenses		1,194		1,220	(2)%		2,339		2,376	(2)%
Operating income (loss)
	U.S. Cellular			56		5	>100%		121		59	>100%
	TDS Telecom			18		31	(41)%		43		61	(29)%
	All other2			(13)		(9)	(53)%		(23)		(11)	>(100)%
		Total operating income		61		27	>100%		141		109	29%
Investment and other income (expense)
	Equity in earnings of unconsolidated entities			40		33	23%		78		65	20%
	Interest and dividend income			6		4	65%		11		8	48%
	Interest expense			(43)		(43)	(1)%		(86)		(85)	(1)%
	Other, net			1		1	(33)%		2		2	(39)%
		Total investment and other income (expense)		4		(5)	>100%		5		(10)	>100%

Income before income taxes				65		22	>100%		146		99	47%
	Income tax expense			21		10	>100%		45		44	1%

Net income				44		12	>100%		101		55	84%
	Less: Net income attributable to noncontrolling interests, net of tax			11		2	>100%		29		8	>100%
Net income attributable to TDS shareholders			$	33	$	10	>100%	$	72	$	47	52%

Adjusted OIBDA (Non-GAAP)3			$	272	$	242	12%	$	568	$	522	9%
Adjusted EBITDA (Non-GAAP)3			$	319	$	280	14%	$	659	$	597	10%
Capital expenditures			$	138	$	134	3%	$	253	$	230	10%

1	As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

2	Consists of corporate and other operations and intercompany eliminations.

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

		Six Months Ended June 30,
		2018		2017
(Dollars in millions)
Cash flows from operating activities (GAAP)		$	463	$	358
Less: Cash paid for additions to property, plant and equipment			275		242
	Free cash flow (Non-GAAP)	$	188	$	116

			Three Months Ended June 30,				Six Months Ended June 30,
			2018¹		2017		2018¹		2017
(Dollars and connection counts in millions)
Calculation of Postpaid ARPU
Postpaid service revenues			$	600	$	597	$	1,198	$	1,205
Average number of postpaid connections				4.47		4.47		4.49		4.46
Number of months in period				3		3		6		6
	Postpaid ARPU (GAAP metric)		$	44.74	$	44.60	$	44.54	$	45.00

Calculation of Postpaid ABPU
Postpaid service revenues			$	600	$	597	$	1,198	$	1,205
Equipment installment plan billings				174		142		347		281
	Total billings to postpaid connections		$	774	$	739	$	1,545	$	1,486
Average number of postpaid connections				4.47		4.47		4.49		4.46
Number of months in period				3		3		6		6
	Postpaid ABPU (Non-GAAP metric)		$	57.75	$	55.19	$	57.42	$	55.49

Calculation of Postpaid ARPA
Postpaid service revenues			$	600	$	597	$	1,198	$	1,205
Average number of postpaid accounts				1.69		1.66		1.69		1.67
Number of months in period				3		3		6		6
	Postpaid ARPA (GAAP metric)		$	118.57	$	119.73	$	118.38	$	120.46

Calculation of Postpaid ABPA
Postpaid service revenues			$	600	$	597	$	1,198	$	1,205
Equipment installment plan billings				174		142		347		281
	Total billings to postpaid accounts		$	774	$	739	$	1,545	$	1,486
Average number of postpaid accounts				1.69		1.66		1.69		1.67
Number of months in period				3		3		6		6
	Postpaid ABPA (Non-GAAP metric)		$	153.03	$	148.15	$	152.63	$	148.54

1		As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

				June 30,		December 31,
				2018		2017
(Dollars in millions)
Current assets
	Cash and cash equivalents			$	873	$	619
	Short-term investments				–		100
	Accounts receivable
		Customers and agents, less allowances of $65 and $61, respectively			886		861
		Other, less allowances of $2 and $2, respectively			101		100
	Inventory, net				153		145
	Prepaid expenses				103		112
	Income taxes receivable				1		2
	Other current assets				43		27
			Total current assets		2,160		1,966

Assets held for sale					1		10

Licenses					2,240		2,232
Goodwill					509		509
Other intangible assets, net of accumulated amortization of $155 and $142, respectively					266		279
Investments in unconsolidated entities					477		453

Property, plant and equipment
	In service and under construction				11,754		11,742
	Less: Accumulated depreciation and amortization				8,495		8,318
			Property, plant and equipment, net		3,259		3,424

Other assets and deferred charges					586		422

Total assets1				$	9,498	$	9,295

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

	Results under prior accounting standards

Three Months Ended June 30, 2018			Adjustment		As reported
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	1,022	$	(29)	$	993
Equipment and product sales		241		21		262
Total operating revenues		1,263		(8)		1,255
Cost of equipment and products		268		(2)		266
Selling, general and administrative		413		4		417
(Gain) loss on license sales and exchanges, net		(11)		–		(11)
Total operating expenses		1,192		2		1,194
Operating income (loss)		71		(10)		61
Income (loss) before income taxes		75		(10)		65
Income tax expense (benefit)		23		(2)		21
Net income (loss)		52		(8)		44
Less: Net income attributable to noncontrolling interests, net of tax		12		(1)		11
Net income (loss) attributable to TDS shareholders		39		(6)		33
Net income (loss) available to TDS common shareholders		39		(6)		33
Basic earnings (loss) per share available to TDS common shareholders		0.35		(0.05)		0.30
Diluted earnings (loss) per share available to TDS common shareholders		0.35		(0.06)		0.29

Numbers may not foot due to rounding.

		Service Revenue
(Dollars in millions)
Remainder of 2018		$	285
2019			200
Thereafter			93
	Total	$	578

	June 30, 2018		June 30, 2017
(Dollars in millions)
Allowance for credit losses, beginning of period	$	65	$	50
Bad debts expense		23		31
Write-offs, net of recoveries		(26)		(24)
Allowance for credit losses, end of period	$	62	$	57

	TDS		U.S. Cellular
(Dollars in millions)
Maximum borrowing capacity	$	400	$	300
Letters of credit outstanding	$	1	$	2
Amount borrowed	$	–	$	–
Amount available for use	$	399	$	298

					TDS Telecom
Six Months Ended or as of June 30, 2018¹			U.S. Cellular		Wireline		Cable		TDS Telecom Total2		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service		$	1,465	$	348	$	112	$	460	$	45	$	1,970
	Equipment and product sales			450		1		–		1		59		510
		Total operating revenues		1,915		349		112		461		104		2,480
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			365		131		52		183		39		587
Cost of equipment and products				459		1		–		1		52		512
Selling, general and administrative				668		97		28		124		21		813
Depreciation, amortization and accretion				317		72		35		107		17		441
(Gain) loss on asset disposals, net				2		1		1		1		–		3
(Gain) loss on license sales and exchanges, net				(17)		–		–		–		–		(17)
Operating income (loss)				121		47		(4)		43		(23)		141
Equity in earnings of unconsolidated entities				78		–		–		–		–		78
Interest and dividend income				7		3		–		3		1		11
Interest expense				(58)		1		–		1		(29)		(86)
Other, net				(1)		1		–		1		2		2
Income (loss) before income taxes				147		52		(4)		48		(49)		146
Income tax expense (benefit)3				40						12		(7)		45
Net income (loss)				107						37		(43)		101
Add back:
Depreciation, amortization and accretion				317		72		35		107		17		441
(Gain) loss on asset disposals, net				2		1		1		1		–		3
(Gain) loss on license sales and exchanges, net				(17)		–		–		–		–		(17)
Interest expense				58		(1)		–		(1)		29		86
Income tax expense (benefit)3				40						12		(7)		45
Adjusted EBITDA4			$	507	$	124	$	32	$	156	$	(4)	$	659

Investments in unconsolidated entities			$	439	$	4	$	–	$	4	$	34	$	477
Total assets			$	7,075	$	1,260	$	643	$	1,893	$	530	$	9,498
Capital expenditures			$	155	$	62	$	24	$	87	$	11	$	253

					TDS Telecom
Six Months Ended or as of June 30, 2017			U.S. Cellular		Wireline		Cable		TDS Telecom Total2		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service		$	1,486	$	359	$	100	$	459	$	44	$	1,989
	Equipment and product sales			413		1		–		1		82		496
		Total operating revenues		1,899		360		100		459		127		2,485
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			364		129		48		176		40		580
Cost of equipment and products				488		1		–		1		68		557
Selling, general and administrative5				691		97		25		123		12		826
Depreciation, amortization and accretion				307		76		21		97		18		422
(Gain) loss on asset disposals, net				9		1		1		1		–		10
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		(19)
Operating income (loss)5				59		56		5		61		(11)		109
Equity in earnings of unconsolidated entities				66		–		–		–		(1)		65
Interest and dividend income				5		2		–		2		1		8
Interest expense				(56)		–		–		–		(29)		(85)
Other, net5				(1)		2		–		2		1		2
Income (loss) before income taxes				73		60		5		65		(39)		99
Income tax expense (benefit)3				33						25		(14)		44
Net income (loss)				40						40		(25)		55
Add back:
Depreciation, amortization and accretion				307		76		21		97		18		422
(Gain) loss on asset disposals, net				9		1		1		1		–		10
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		(19)
Interest expense				56		–		–		–		29		85
Income tax expense (benefit)3				33						25		(14)		44
Adjusted EBITDA4			$	426	$	137	$	27	$	164	$	7	$	597

Investments in unconsolidated entities			$	414	$	4	$	–	$	4	$	34	$	452
Total assets			$	7,077	$	1,200	$	611	$	1,813	$	488	$	9,378
Capital expenditures			$	145	$	50	$	21	$	71	$	14	$	230

Numbers may not foot due to rounding.

1		As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASU 2014-09, but 2017 amounts remain as previously reported, except as specifically stated. See Note 2 — Revenue Recognition for additional information.

2		TDS Telecom Total includes eliminations between the Wireline and Cable segments.

3		Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense for “TDS Telecom Total”.

4		Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their 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.

5		ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior year numbers have been recast to conform to this standard.