UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| (Mark One) |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
OR
| | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-14157
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| TELEPHONE AND DATA SYSTEMS, INC. |
| (Exact name of Registrant as specified in its charter) |
| Delaware | | 36-2669023 |
| (State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (312) 630-1900
| | | | | | | | | | | | | | | | | | | | |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common Shares, $.01 par value | | TDS | | New York Stock Exchange |
| Depository Shares each representing a 1/1000th interest in a share of 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock, $.01 par value | | TDSPrU | | New York Stock Exchange |
6.625% Senior Notes due 2045Depository Shares each representing a 1/1000th interest in a share of 6.000% Series VV Cumulative Redeemable Perpetual Preferred Stock, $.01 par value | | TDITDSPrV | | New York Stock Exchange |
5.875% Senior Notes due 2061 | | TDA | | New York Stock Exchange |
| | | | | | | | | | | | | | | | | | | | | | | |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes | ☒ | No | ☐ |
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| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes | ☒ | No | ☐ |
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| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
| | | | | | | |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | No | ☒ |
The number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 2021,2022, is 107,441,800106,528,800 Common Shares, $.01 par value, and 7,303,6007,364,100 Series A Common Shares, $.01 par value.
Telephone and Data Systems, Inc.
Quarterly Report on Form 10-Q
For the Period Ended June 30, 20212022
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| Telephone and Data Systems, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive Overview
The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and six months ended June 30, 2021,2022, to the three and six months ended June 30, 2020.2021. It should be read in conjunction with TDS’ interim consolidated financial statements and notes included herein, and with the description of TDS’ business, its audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2020.2021. 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” 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 reasonreasons TDS determines these metrics to be useful and reconciliations 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 is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide. TDS provides wireless services through its 82%83%-owned subsidiary, United States Cellular Corporation (UScellular). TDS also provides broadband, video and voice services through its wholly-owned subsidiaries,subsidiary, TDS Telecommunications LLC and TDS Broadband LLC (collectively, TDS(TDS Telecom). TDS operates entirely in the United States.
During the first quarter of 2021, TDS modified its reporting segment structure to combine its Wireline and Cable segments into a single reportable segment for TDS Telecom. TDS Telecom believes this presentation better articulates its progress and performance against its strategy, which includes a focus on overall broadband growth and future fiber deployment across its markets. This change also reflects TDS Telecom's progress in aligning its organizational, operational and support structures to leverage one cost base to better support its customers across all of its markets. Prior periods have been updated to conform to this revised presentation. See Note 13 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments.
The coronavirus (COVID-19) pandemic did not have a material impact on TDS' financial results for the three and six months ended June 30, 2021. The impact of COVID-19 on TDS' future financial results is uncertain, but is not projected to have a material impact. There are many factors, including the severity and duration of the outbreak, as well as other direct and indirect impacts, that could negatively impact TDS.
TDS Mission and Strategy
TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, support the communities it serves, and build value over the long-term for its shareholders. Across all of its businesses, TDS is focused on providing exceptional customer experiences through best-in-class services and products and superior customer service. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities. TDS continues to make progress on developing and enhancing its Environmental, Social and Governance (ESG) program, including the publication of the first TDS ESG Report in 2021.
TDS’ long-term strategy calls for the majority of its operating capital to be reinvested in its businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders primarily through the payment of a regular quarterly cash dividend.
TDS plans to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused services and products. Strategic efforts include:
▪UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as fixed wireless home internet. In addition, UScellular is focused on increasing revenues from prepaid plans, tower rent revenues and expanding its solutions available to business and government customers.
▪UScellular continues to devote efforts to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. UScellular's 5G deployment is initially focused on mobility services using its low band spectrum. UScellular has acquired high-band spectrum and is in the process of acquiring mid-band spectrum, which itdeployed high-band spectrum on a limited basis, and will further deploy high-band and mid-band in the future to further enable the delivery of 5G services. UScellular has launched commercial 5G services in portions of substantially all of UScellular’s markets and will continue to launch in additional areas in the coming years. In addition to the deployment of 5G technology, UScellular is also modernizing its 4G LTE network to further enhance 4G LTE speeds.
▪UScellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, UScellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions.
▪TDS Telecom strives to be the preferred broadband provider in its markets with the ability to provide value-added bundling with video and voice service options. TDS Telecom focuses on driving growth by investing in fiber deployment in its expansion markets and in its incumbent markets that have historically utilized copper and coaxial cable technologies.
▪TDS Telecom may also seekseeks to grow its operations through the acquisitionby creating new clusters of markets in attractive locations and may seek to acquire businesses that support and complement its existing markets or by creating entirely new clusters of marketsmarkets. Fiber deployments in advantageous locations.strategically selected locations allow TDS Telecom intends to avoidtarget attractive, growing markets served by other fiber overbuilders or municipalities which have constructed their own networks with fiber to the home.expand its total footprint.
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 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 helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
▪Account – represents an individual or business financially responsible for one or multiple associated connections. An account may include a variety of types of connections such as handsets and connected devices.
▪Alternative Connect America Cost Model (A-CAM) – a USF support mechanism for rate-of-returncertain carriers, which provides revenue support through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations.
▪Auctions 105, 107, 108 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 iswas an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that is expected to startstarted in October 2021.2021 and concluded in January 2022. Auction 108 is an FCC auction of 2.5 GHz wireless spectrum licenses that began in July 2022.
▪Broadband Connections – refers to the individual customers provided high-speed internet access through various transmission technologies, including fiber, DSL, dedicated internet circuit technologies or cable modem service.coaxial and copper.
▪Broadband Penetration – metric which is calculated by dividing total broadband connections by total service addresses.
▪Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
▪Connected Devices – non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, and hotspots.
▪Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.
▪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.
▪Expansion Markets – markets utilizing fiber networks in areas where TDS does not serve as the incumbent service provider.
▪Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
▪Incumbent Markets – markets where TDS is positioned as the traditional local telephone or cable company.
▪IPTV – internet protocol television.
▪Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.
▪OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
▪Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.
▪Residential Revenue per Connection – metric which is calculated by dividing total residential revenue by the average number of residential connections and by the number of months in the period.
▪Retail Connections – individual lines of service associated with each device activated by a postpaid or prepaid customer. Connections are associated with all types of devices that connect directly to the sum of UScellular postpaid connections and UScellular prepaid connections.network.
▪Service Addresses – number of single residence homes, multi-dwelling units, and business locations that are capable of being connected to the TDS network, based on best available information.
▪Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.
▪UScellular Connections – individual lines of service associated with each device activated by a customer. Connections include all types of devices that connect directly to the UScellular network.
▪Video Connections – represents the individual customers provided video services.
▪Voice Connections – refers to the individual circuits connecting a customer to TDS' central office facilities that provide voice services or the billable number of lines into a building for voice services.
Results of Operations — TDS Consolidated
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2022 | | 2021 | | 2022 vs. 2021 | | 2022 | | 2021 | | 2022 vs. 2021 |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Operating revenues | Operating revenues | | Operating revenues | |
| UScellular | UScellular | $ | 1,014 | | | $ | 973 | | | 4 | % | | $ | 2,037 | | | $ | 1,937 | | | 5 | % | UScellular | $ | 1,027 | | | $ | 1,014 | | | 1 | % | | $ | 2,037 | | | $ | 2,037 | | | – |
| TDS Telecom | TDS Telecom | 252 | | | 241 | | | 5 | % | | 501 | | | 481 | | | 4 | % | TDS Telecom | 256 | | | 252 | | | 2 | % | | 507 | | | 501 | | | 1 | % |
All other1 | All other1 | 45 | | | 49 | | | (8) | % | | 91 | | | 106 | | | (15) | % | All other1 | 66 | | | 45 | | | 47 | % | | 120 | | | 91 | | | 32 | % |
| Total operating revenues | Total operating revenues | 1,311 | | | 1,263 | | | 4 | % | | 2,629 | | | 2,524 | | | 4 | % | Total operating revenues | 1,349 | | | 1,311 | | | 3 | % | | 2,664 | | | 2,629 | | | 1 | % |
| Operating expenses | Operating expenses | | Operating expenses | |
| UScellular | UScellular | 978 | | | 920 | | | 6 | % | | 1,917 | | | 1,833 | | | 5 | % | UScellular | 987 | | | 978 | | | 1 | % | | 1,926 | | | 1,917 | | | – |
| TDS Telecom | TDS Telecom | 224 | | | 210 | | | 7 | % | | 441 | | | 422 | | | 5 | % | TDS Telecom | 233 | | | 224 | | | 4 | % | | 456 | | | 441 | | | 3 | % |
All other1 | All other1 | 51 | | | 55 | | | (7) | % | | 103 | | | 118 | | | (14) | % | All other1 | 66 | | | 51 | | | 29 | % | | 124 | | | 103 | | | 21 | % |
| Total operating expenses | Total operating expenses | 1,253 | | | 1,185 | | | 6 | % | | 2,461 | | | 2,373 | | | 4 | % | Total operating expenses | 1,286 | | | 1,253 | | | 3 | % | | 2,506 | | | 2,461 | | | 2 | % |
| Operating income (loss) | Operating income (loss) | | | | | | | Operating income (loss) | | | | | | |
| UScellular | UScellular | 36 | | | 53 | | | (32) | % | | 120 | | | 104 | | | 16 | % | UScellular | 40 | | | 36 | | | 10 | % | | 111 | | | 120 | | | (8) | % |
| TDS Telecom | TDS Telecom | 28 | | | 31 | | | (10) | % | | 60 | | | 59 | | | 1 | % | TDS Telecom | 23 | | | 28 | | | (18) | % | | 51 | | | 60 | | | (14) | % |
All other1 | All other1 | (6) | | | (6) | | | – | | (12) | | | (12) | | | 2 | % | All other1 | — | | | (6) | | | N/M | | (4) | | | (12) | | | 65 | % |
| Total operating income | Total operating income | 58 | | | 78 | | | (26) | % | | 168 | | | 151 | | | 12 | % | Total operating income | 63 | | | 58 | | | 8 | % | | 158 | | | 168 | | | (6) | % |
| Investment and other income (expense) | Investment and other income (expense) | | Investment and other income (expense) | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 7 | % | | 90 | | | 90 | | | – | Equity in earnings of unconsolidated entities | 38 | | | 48 | | | (21) | % | | 83 | | | 90 | | | (8) | % |
| Interest and dividend income | Interest and dividend income | 3 | | | 2 | | | 40 | % | | 6 | | | 8 | | | (22) | % | Interest and dividend income | 5 | | | 3 | | | 77 | % | | 7 | | | 6 | | | 7 | % |
| | Interest expense | Interest expense | (86) | | | (38) | | | N/M | | (138) | | | (75) | | | (85) | % | Interest expense | (40) | | | (86) | | | 53 | % | | (72) | | | (138) | | | 48 | % |
| Other, net | Other, net | — | | | — | | | (11) | % | | (1) | | | (1) | | | 10 | % | Other, net | — | | | — | | | N/M | | — | | | (1) | | | N/M |
| Total investment and other income (expense) | Total investment and other income (expense) | (35) | | | 8 | | | N/M | | (43) | | | 22 | | | N/M | Total investment and other income (expense) | 3 | | | (35) | | | N/M | | 18 | | | (43) | | | N/M |
| | Income before income taxes | Income before income taxes | 23 | | | 86 | | | (73) | % | | 125 | | | 173 | | | (28) | % | Income before income taxes | 66 | | | 23 | | | N/M | | 176 | | | 125 | | | 41 | % |
| Income tax expense (benefit) | Income tax expense (benefit) | (11) | | | 8 | | | N/M | | 20 | | | 12 | | | 62 | % | Income tax expense (benefit) | 27 | | | (11) | | | N/M | | 65 | | | 20 | | | N/M |
| | Net income | Net income | 34 | | | 78 | | | (56) | % | | 105 | | | 161 | | | (35) | % | Net income | 39 | | | 34 | | | 15 | % | | 111 | | | 105 | | | 6 | % |
| Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | (44) | % | | 19 | | | 26 | | | (26) | % | Less: Net income attributable to noncontrolling interests, net of tax | 4 | | | 7 | | | (35) | % | | 15 | | | 19 | | | (20) | % |
| Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | 27 | | | 65 | | | (59) | % | | 86 | | | 135 | | | (36) | % | Net income attributable to TDS shareholders | 35 | | | 27 | | | 28 | % | | 96 | | | 86 | | | 11 | % |
| TDS Preferred Share dividends | TDS Preferred Share dividends | 7 | | | — | | | N/M | | 9 | | | — | | | N/M | TDS Preferred Share dividends | 17 | | | 7 | | | N/M | | 35 | | | 9 | | | N/M |
| Net income attributable to TDS common shareholders | Net income attributable to TDS common shareholders | $ | 20 | | | $ | 65 | | | (69) | % | | $ | 77 | | | $ | 135 | | | (43) | % | Net income attributable to TDS common shareholders | $ | 18 | | | $ | 20 | | | (13) | % | | $ | 61 | | | $ | 77 | | | (20) | % |
| Adjusted OIBDA (Non-GAAP)2 | Adjusted OIBDA (Non-GAAP)2 | $ | 295 | | | $ | 318 | | | (7) | % | | $ | 632 | | | $ | 629 | | | 1 | % | Adjusted OIBDA (Non-GAAP)2 | $ | 302 | | | $ | 295 | | | 2 | % | | $ | 626 | | | $ | 632 | | | (1) | % |
Adjusted EBITDA (Non-GAAP)2 | Adjusted EBITDA (Non-GAAP)2 | $ | 346 | | | $ | 364 | | | (5) | % | | $ | 727 | | | $ | 726 | | | – | Adjusted EBITDA (Non-GAAP)2 | $ | 345 | | | $ | 346 | | | – | | $ | 716 | | | $ | 727 | | | (2) | % |
Capital expenditures3 | Capital expenditures3 | $ | 250 | | | $ | 247 | | | 1 | % | | $ | 446 | | | $ | 539 | | | (17) | % | Capital expenditures3 | $ | 391 | | | $ | 250 | | | 57 | % | | $ | 633 | | | $ | 446 | | | 42 | % |
Numbers may not foot due to rounding.
N/M - Percentage change not meaningful
1Consists of corporate and other operations and intercompany eliminations.
2Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
3Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
Refer to individual segment discussions in this MD&A for additional details on operating revenues and expenses at the segment level.
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for using the equity method.method or the net asset value practical expedient. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pretaxpre-tax income of $22$16 million and $20$22 million for the three months ended June 30, 20212022 and 2020,2021, respectively and $41$34 million and $42$41 million for the six months ended June 30, 20212022 and 2020,2021, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Interest expense
Interest expense increaseddecreased for the three and six months ended June 30, 2021,2022, due primarily as a result of (i)to the write off of $36 millionwrite-off of unamortized debt issuance costs related to $525 million of TDS Senior Notes and $575 million of UScellular Senior Notes that were redeemed during the three months ended June 30, 2021 and (ii) the issuance of $500 million of 6.25% UScellular Senior Notes in August 2020 and $500 million of 5.50% UScellular Senior Notes in both December 2020 and May 2021. See Note 9 replaced by other debt facilities with lower interest rates— Debt in the Notes to Consolidated Financial Statements for additional information..
Income tax expense
The effective tax rate on Income before income taxes for the three months ended June 30, 2022 and 2021 was 40.4% and 2020 was (48.9)% and 9.6%, respectively. The effective tax rate for the three months ended June 30, 2021 was lower due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years. The decrease was partially offset by the income tax benefits of the CARES Act included in the 2020 tax rate, which do not recur as benefits in the 2021 tax rate.
The effective tax rate on Income before income taxes for the six months ended June 30, 2022 and 2021 was 36.7% and 2020, was 15.5% and 6.9%, respectively. The increase to the effective tax rate forrates in the three and six months ended June 30, 2022 is due primarily to the 2021 reduction of tax accruals resulting from expiration of state statute of limitations of prior tax years, which did not recur in 2022.
During the six months ended June 30, 2021 was higher due primarily2022, TDS received a federal income tax refund of $125 million related to the income tax benefits of2020 net operating loss carryback enabled by the CARES Act included in the 2020 tax rate, which do not recur as benefits in the 2021 tax rate. The increase was partially offset by the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.Act.
Net income attributable to noncontrolling interests, net of tax
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| UScellular noncontrolling public shareholders’ | UScellular noncontrolling public shareholders’ | $ | 6 | | | $ | 12 | | | $ | 17 | | | $ | 24 | | UScellular noncontrolling public shareholders’ | $ | 4 | | | $ | 6 | | | $ | 12 | | | $ | 17 | |
| Noncontrolling shareholders’ or partners’ | Noncontrolling shareholders’ or partners’ | 1 | | | 1 | | | 2 | | | 2 | | Noncontrolling shareholders’ or partners’ | — | | | 1 | | | 3 | | | 2 | |
| Net income attributable to noncontrolling interests, net of tax | Net income attributable to noncontrolling interests, net of tax | $ | 7 | | | $ | 13 | | | $ | 19 | | | $ | 26 | | Net income attributable to noncontrolling interests, net of tax | $ | 4 | | | $ | 7 | | | $ | 15 | | | $ | 19 | |
Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public shareholders’ share of UScellular’s net income, the noncontrolling shareholders’ or partners’ share of certain UScellular subsidiaries’ net income and other TDS noncontrolling interests.
TDS Preferred Share dividends
TDS Preferred Share dividends increased for the three and six months ended June 30, 2022, due to quarterly dividends for Series UU Preferred Shares issued in March 2021 and Series VV Preferred Shares issued in August 2021.
Earnings
(Dollars in millions)
Three Months Ended
Net income decreasedincreased due primarily to higher operating revenues and lower interest and operating expenses,expense, partially offset by higher operating and income tax expenses and lower investment income. Adjusted EBITDA was relatively flat year-over-year as higher operating revenues were offset by higher operating expenses and lower investment income.
Six Months Ended
Net income increased due primarily to higher operating revenues and lower interest expense, partially offset by higher operating and income taxes.tax expenses and lower investment income. Adjusted EBITDA decreased due primarily to higher operating expenses and lower investment income partially offset by higher operating revenues.
Six Months Ended
Net income decreased due primarily to higher interest, operating, and income tax expenses, partially offset by higher operating revenues. Adjusted EBITDA increased due primarily to higher operating revenues, partially offset by higher operating expenses.
*Represents a non-GAAP financial measure. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
Business Overview
UScellular owns, operates, and invests in wireless markets throughout the United States. UScellular is an 82%83%-owned subsidiary of TDS. UScellular’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 community focus.
OPERATIONS
▪Serves customers with 5.04.8 million retail connections including 4.44.3 million postpaid and 0.5 million prepaid and 0.1 million reseller and other connections
▪Operates in 21 states
▪Employs approximately 5,0004,700 associates
▪4,2784,323 owned towers
▪6,8196,916 cell sites in service
Operational Overview — UScellular
| | | As of June 30, | As of June 30, | | 2021 | | 2020 | As of June 30, | | 2022 | | 2021 |
| Retail Connections – End of Period | Retail Connections – End of Period | | Retail Connections – End of Period | |
| | | Postpaid | | 4,399,000 | | | 4,372,000 | | Postpaid | | 4,296,000 | | | 4,399,000 |
| | | Prepaid | | 507,000 | | | 496,000 | | Prepaid | | 490,000 | | | 507,000 |
| | | Total | | 4,906,000 | | | 4,868,000 | | Total | | 4,786,000 | | | 4,906,000 |
| | | | | | | | | | | | | |
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| | | Q2 2021 | | Q2 2020 | | Q2 2021 vs. Q2 2020 | | YTD 2021 | | YTD 2020 | YTD 2021 vs. YTD 2020 | | Q2 2022 | | Q2 2021 | | Q2 2022 vs. Q2 2021 | | YTD 2022 | | YTD 2021 | YTD 2022 vs. YTD 2021 |
| Postpaid Activity and Churn | Postpaid Activity and Churn | | Postpaid Activity and Churn | |
| Gross Additions | Gross Additions | | Gross Additions | |
| Handsets | Handsets | 101,000 | | | 85,000 | | | 19 | % | | 204,000 | | | 175,000 | | 17 | % | Handsets | 94,000 | | | 101,000 | | | (7) | % | | 185,000 | | | 204,000 | | (9) | % |
| Connected Devices | Connected Devices | 40,000 | | | 44,000 | | | (9) | % | | 79,000 | | | 86,000 | | (8) | % | Connected Devices | 34,000 | | | 40,000 | | | (15) | % | | 69,000 | | | 79,000 | | (13) | % |
| Total Gross Additions | Total Gross Additions | 141,000 | | | 129,000 | | | 9 | % | | 283,000 | | | 261,000 | | 8 | % | Total Gross Additions | 128,000 | | | 141,000 | | | (9) | % | | 254,000 | | | 283,000 | | (10) | % |
| Net Additions (Losses) | Net Additions (Losses) | | | | | | | | | Net Additions (Losses) | | | | | | | | |
| Handsets | Handsets | (1,000) | | | 3,000 | | | N/M | | (4,000) | | | (17,000) | | 76 | % | Handsets | (31,000) | | | (1,000) | | | N/M | | (67,000) | | | (4,000) | | N/M |
| Connected Devices | Connected Devices | (5,000) | | | 9,000 | | | N/M | | (8,000) | | | 3,000 | | N/M | Connected Devices | (9,000) | | | (5,000) | | | (80) | % | | (17,000) | | | (8,000) | | N/M |
| Total Net Additions (Losses) | Total Net Additions (Losses) | (6,000) | | | 12,000 | | | N/M | | (12,000) | | | (14,000) | | 14 | % | Total Net Additions (Losses) | (40,000) | | | (6,000) | | | N/M | | (84,000) | | | (12,000) | | N/M |
| Churn | Churn | | | | | | | | | Churn | | | | | | | | |
| Handsets | Handsets | 0.88 | % | | 0.71 | % | | 0.90 | % | | 0.83 | % | | Handsets | 1.10 | % | | 0.88 | % | | 1.10 | % | | 0.90 | % | |
| Connected Devices | Connected Devices | 2.69 | % | | 2.24 | % | | 2.61 | % | | 2.67 | % | | Connected Devices | 2.73 | % | | 2.69 | % | | 2.72 | % | | 2.61 | % | |
| Total Churn | Total Churn | 1.11 | % | | 0.89 | % | | 1.12 | % | | 1.05 | % | | Total Churn | 1.30 | % | | 1.11 | % | | 1.30 | % | | 1.12 | % | |
N/M - Percentage change not meaningful
Total postpaid handset net additions decreasedlosses increased for the three and six months ended June 30, 2021,2022, when compared to the same period last year due to lower gross additions and higher defections resulting from aggressive industry-wide competition and an increase in non-pay defections.
Total postpaid connected device net losses increased for the three and six months ended June 30, 2022, when compared to the same period last year due primarily to an increase in defections resulting from higher consumer switching activity which was depressed in 2020 due to COVID-19. Partially offsetting the increase in defections was an increase in grosslower demand for connected watches and lower tablet additions.
Total postpaid handset net losses decreased for the six months ended June 30, 2021, when compared to the same period last yearMacroeconomic factors have caused some supply chain disruption and delays, including constraints on certain devices. These supply constraints are due primarily to an increasecomponent availability, resulting in gross additions as a result of higher consumer switching activityextended lead times and additional uncertainty, which may negatively impact UScellular in 2021, as well as a decrease in non-pay defections. Partially offsetting the decrease was an increase in voluntary defections.
Total postpaid connected device net additions decreased for the three and six months ended June 30, 2021, when compared to the same period last year, in substantial part, due to lower demand for internet related products as a result of a reduction in COVID-related funding vehicles, many of which are connected to government subsidies.
Postpaid Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 |
| Average Revenue Per User (ARPU) | $ | 47.74 | | | $ | 46.24 | | | 3 | % | | $ | 47.70 | | | $ | 46.72 | | | 2 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average Revenue Per Account (ARPA) | $ | 125.25 | | | $ | 120.70 | | | 4 | % | | $ | 125.25 | | | $ | 121.80 | | | 3 | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 vs. 2021 | | 2022 | | 2021 | | 2022 vs. 2021 |
| Average Revenue Per User (ARPU) | $ | 50.07 | | | $ | 47.74 | | | 5 | % | | $ | 49.88 | | | $ | 47.70 | | | 5 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Average Revenue Per Account (ARPA) | $ | 130.43 | | | $ | 125.25 | | | 4 | % | | $ | 130.17 | | | $ | 125.25 | | | 4 | % |
| | | | | | | | | | | |
Postpaid ARPU and Postpaid ARPA increased for the three and six months ended June 30, 2021,2022, when compared to the same period last year, due to (i) an increase in regulatory recovery revenues, (ii) favorable plan and product offering mix, (ii) an increase in cost recovery surcharges and (iii) an increase in device protection plan revenues, and (iv) an increase in overage fees which were waived in Q2 2020 to assist customers during the COVID-19 pandemic.revenues. These increases were partially offset by an increase in promotional discounts.
Financial Overview -— UScellular
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2022 | | 2021 | | 2022 vs. 2021 | | 2022 | | 2021 | | 2022 vs. 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | (Dollars in millions) | | | | | | |
| Retail service | $ | 686 | | | $ | 658 | | | 4 | % | | $ | 1,371 | | | $ | 1,329 | | | 3 | % | |
Retail service1 | | Retail service1 | $ | 700 | | | $ | 684 | | | 2 | % | | $ | 1,402 | | | $ | 1,367 | | | 3 | % |
| Inbound roaming | Inbound roaming | 28 | | | 41 | | | (31) | % | | 56 | | | 77 | | | (27) | % | Inbound roaming | 18 | | | 28 | | | (36) | % | | 39 | | | 56 | | | (31) | % |
| Other | 60 | | | 54 | | | 10 | % | | 118 | | | 109 | | | 8 | % | |
Other1 | | Other1 | 65 | | | 62 | | | 5 | % | | 129 | | | 122 | | | 6 | % |
| Service revenues | Service revenues | 774 | | | 753 | | | 3 | % | | 1,545 | | | 1,515 | | | 2 | % | Service revenues | 783 | | | 774 | | | 1 | % | | 1,570 | | | 1,545 | | | 2 | % |
| Equipment sales | Equipment sales | 240 | | | 220 | | | 9 | % | | 492 | | | 422 | | | 17 | % | Equipment sales | 244 | | | 240 | | | 2 | % | | 467 | | | 492 | | | (5) | % |
| Total operating revenues | Total operating revenues | 1,014 | | | 973 | | | 4 | % | | 2,037 | | | 1,937 | | | 5 | % | Total operating revenues | 1,027 | | | 1,014 | | | 1 | % | | 2,037 | | | 2,037 | | | – |
| | System operations (excluding Depreciation, amortization and accretion reported below) | System operations (excluding Depreciation, amortization and accretion reported below) | 204 | | | 197 | | | 4 | % | | 389 | | | 377 | | | 3 | % | System operations (excluding Depreciation, amortization and accretion reported below) | 192 | | | 204 | | | (6) | % | | 377 | | | 389 | | | (3) | % |
| Cost of equipment sold | Cost of equipment sold | 258 | | | 218 | | | 19 | % | | 533 | | | 435 | | | 23 | % | Cost of equipment sold | 275 | | | 258 | | | 7 | % | | 533 | | | 533 | | | – |
| Selling, general and administrative | Selling, general and administrative | 334 | | | 323 | | | 3 | % | | 639 | | | 659 | | | (3) | % | Selling, general and administrative | 339 | | | 334 | | | 2 | % | | 663 | | | 639 | | | 4 | % |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 180 | | | 178 | | | 1 | % | | 350 | | | 354 | | | (2) | % | Depreciation, amortization and accretion | 172 | | | 180 | | | (4) | % | | 342 | | | 350 | | | (2) | % |
| | Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | N/M | | 3 | | | — | | | N/M |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 2 | | | 4 | | | (50) | % | | 7 | | | 8 | | | (9) | % | (Gain) loss on asset disposals, net | 6 | | | 2 | | | N/M | | 8 | | | 7 | | | 7 | % |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | N/M | | (1) | | | — | | | N/M | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | N/M | | — | | | (1) | | | 52 | % |
| | Total operating expenses | Total operating expenses | 978 | | | 920 | | | 6 | % | | 1,917 | | | 1,833 | | | 5 | % | Total operating expenses | 987 | | | 978 | | | 1 | % | | 1,926 | | | 1,917 | | | – |
| | Operating income | Operating income | $ | 36 | | | $ | 53 | | | (32) | % | | $ | 120 | | | $ | 104 | | | 16 | % | Operating income | $ | 40 | | | $ | 36 | | | 10 | % | | $ | 111 | | | $ | 120 | | | (8) | % |
| | Net income | Net income | $ | 35 | | | $ | 69 | | | (49) | % | | $ | 97 | | | $ | 141 | | | (31) | % | Net income | $ | 22 | | | $ | 35 | | | (37) | % | | $ | 74 | | | $ | 97 | | | (24) | % |
Adjusted OIBDA (Non-GAAP)1 | $ | 218 | | | $ | 235 | | | (7) | % | | $ | 476 | | | $ | 466 | | | 2 | % | |
Adjusted EBITDA (Non-GAAP)1 | $ | 267 | | | $ | 280 | | | (5) | % | | $ | 567 | | | $ | 560 | | | 1 | % | |
Capital expenditures2 | $ | 148 | | | $ | 168 | | | (12) | % | | $ | 273 | | | $ | 405 | | | (33) | % | |
Adjusted OIBDA (Non-GAAP)2 | | Adjusted OIBDA (Non-GAAP)2 | $ | 221 | | | $ | 218 | | | 2 | % | | $ | 464 | | | $ | 476 | | | (2) | % |
Adjusted EBITDA (Non-GAAP)2 | | Adjusted EBITDA (Non-GAAP)2 | $ | 261 | | | $ | 267 | | | (2) | % | | $ | 550 | | | $ | 567 | | | (3) | % |
Capital expenditures3 | | Capital expenditures3 | $ | 268 | | | $ | 148 | | | 81 | % | | $ | 405 | | | $ | 273 | | | 48 | % |
N/M - Percentage change not meaningful
1For the three and six months ended June 30, 2021, amounts have been adjusted to reclassify $2 million and $4 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other.
2Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
23Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
Operating Revenues
Three Months Ended June 30, 20212022 and 20202021
(Dollars in millions)
Operating Revenues
Six Months Ended June 30, 20212022 and 20202021
(Dollars in millions)
Service revenues consist of:
▪Retail Service - ChargesPostpaid and prepaid charges for voice, data and value-added services and cost recovery of regulatory costssurcharges
▪Inbound Roaming - Charges to other wireless carriers whose customers use UScellular’s wireless systems when roaming
▪Other Service - Amounts received from the Federal USF, tower rental revenues, Internet of Things (IoT), 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 and six months ended June 30, 2021,2022, primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section, as well as an increasepartially offset by a decrease in the average number of postpaid subscribers.connections.
Inbound roaming revenues decreased for the three and six months ended June 30, 2021,2022, primarily driven by lower data revenues resulting from lower usage and lower rates. UScellular expects inbound roaming revenues to continue to decline during 20212022 relative to prior year levels.
Other service revenues increased for the three and six months ended June 30, 2021,2022, resulting from increases in tower rental revenues and miscellaneous other serviceIoT revenues.
Equipment sales revenues increased for the three and six months ended June 30, 2021,2022, due primarily to an increase in the volumeaverage price per unit of new smartphone and accessory sales, partially offset by an increasehigher promotional activity. Equipment sales revenues decreased for the six months ended June 30, 2022 due primarily to higher promotional activity and a decrease in promotional activity.volume of new smartphone and accessory sales.
In recent periods, wireless service providers have increased promotional aggressiveness to attract new customers and retain existing customers. Operating revenues and Operating income may be negatively impacted in future periods by the competitive needresponse to offer increased promotional discounts to new and existing customers.
SystemSystems operations expenses
System operations expenses increaseddecreased for the three and six months ended June 30, 2021,2022, due primarily to higher circuit costs as well as an increasedecreases in cell site rentroaming and maintenance expense.customer usage expenses.
Cost of equipment sold increased for the three and six months ended June 30, 2021,2022, due primarily to an increase in average cost per unit of new smartphone sales. Cost of equipment sold was flat for the six months ended June 30, 2022 as an increase in average cost per unit was offset by a decrease in volume of smartphonesmartphones and accessory sales.accessories.
Selling, general and administrative expenses
Selling, general and administrative expenses increased for the three and six months ended June 30, 2021,2022, due primarily to increases in system development costs and Federal USF expense.
Selling, general and administrative expenses decreased for the six months ended June 30, 2021, due primarily to reductions in (i) bad debts expense driven by feweran increase in non-pay customers asand a shift to higher priced devices that result of better credit mix and improved customer payment behavior, and (ii) advertising expenses. This was partially offset by increases in system development costs and Federal USF expense.higher bad debts expense per uncollectible account.
Business Overview
TDS Telecom owns, operates and invests in communications services in a mix of rural and metropolitansuburban communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers. TDS Telecom's strategy is to grow its customer base through market expansions and offering state-of-the-art services. The companybe the preferred broadband provider in the markets it serves. TDS Telecom invests in high-quality networks, services and provides excellentproducts, with the constant focus on delivering a best-in-class customer service, a key tenet of its long-standing mission.experience.
OPERATIONS
▪Serves 1.2 million connections in 32 states
▪Employs approximately 2,9003,100 associates
Operational Overview — TDS Telecom
Total Service AddressesAddress Mix
As of June 30,
*2021 fiber addresses in cable markets are included in Coaxial.
TDS Telecom grewincreased its service addresses 6%7% from 1.3 million to 1.4 million through network expansion and now offers 1Gig service to 56%63% of its total footprint.
Wireline Service Addresses
As of June 30,
TDS Telecom serves 39% of its wireline service addresses with fiber-to-the-homefootprint as of June 30, 2021,2022, compared to 33% a year ago. Expansion markets have increased to 11% of wireline service addresses, up from 6%56% a year ago.
In 2022, TDS Telecom began measuring fiber service addresses in its cable markets. Including cable, 34% of service addresses are served by fiber.
| | As of June 30, | As of June 30, | 2021 | | 2020 | | 2021 vs. 2020 | As of June 30, | 2022 | | 2021 | | 2022 vs. 2021 |
| Residential connections | Residential connections | | Residential connections | |
| Broadband | Broadband | | Broadband | |
| Wireline, Incumbent | Wireline, Incumbent | 249,200 | | | 240,400 | | | 4 | % | Wireline, Incumbent | 252,700 | | | 249,200 | | | 1 | % |
| Wireline, Expansion | Wireline, Expansion | 28,300 | | | 14,700 | | | 92 | % | Wireline, Expansion | 44,100 | | | 28,300 | | | 56 | % |
| Cable | Cable | 201,200 | | | 191,000 | | | 5 | % | Cable | 204,000 | | | 201,200 | | | 1 | % |
| Total Broadband | Total Broadband | 478,700 | | | 446,000 | | | 7 | % | Total Broadband | 500,800 | | | 478,700 | | | 5 | % |
| Video | Video | 143,200 | | | 144,600 | | | (1) | % | Video | 137,400 | | | 143,200 | | | (4) | % |
| Voice | Voice | 308,100 | | | 317,100 | | | (3) | % | Voice | 298,300 | | | 308,100 | | | (3) | % |
| Total Residential Connections | Total Residential Connections | 930,100 | | | 907,800 | | | 2 | % | Total Residential Connections | 936,500 | | | 930,100 | | | 1 | % |
| Commercial connections | Commercial connections | 274,400 | | | 297,200 | | | (8) | % | Commercial connections | 250,700 | | | 274,400 | | | (9) | % |
| Total connections | Total connections | 1,204,500 | | | 1,205,000 | | | – | Total connections | 1,187,200 | | | 1,204,500 | | | (1) | % |
Numbers may not foot due to rounding.
Total connections decreased slightly despite strong broadband connection growth due primarily to a decrease in legacy voice, connectionsvideo, and competitive local exchange carrier (CLEC) commercial connections.connections declines, partially offset by broadband connection growth.
A majority of TDS Telecom's residential customers take advantage of bundling options as 64%61% of customers subscribe to more than one service.
Total residential revenue per connection increased 7% and 6% for the three and six months ended June 30, 2021, respectively, due to a higher concentration of broadband connection growth as well as an increase in broadband speeds and price increases. Cable residential revenue per connection exceeds wireline due to a higher mix of video connections.
Residential Broadband Connections by Speed
As of June 30,
Residential broadband customers continue to choose higher speeds with 63%68% taking speeds of 100 Mbps or greater and 7%9% choosing 1Gig.
Residential Revenue per Connection
Broadband Penetration
As of June 30,
Broadband penetration has stayed steadyTotal residential revenue per connection increased 3% for the three and six months ended June 30, 2022, due primarily to broadband connection growth as service addresses have grown 6%.price increases and product mix changes.
Financial Overview -— TDS Telecom
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2022 | | 2021 | | 2022 vs. 2021 | | 2022 | | 2021 | | 2022 vs. 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Residential | Residential | | | | | | | | | | | | Residential | | | | | | | | | | | |
| Wireline, Incumbent | Wireline, Incumbent | $ | 86 | | | $ | 81 | | | 7 | % | | $ | 171 | | | $ | 162 | | | 6 | % | Wireline, Incumbent | $ | 88 | | | $ | 86 | | | 2 | % | | $ | 173 | | | $ | 171 | | | 1 | % |
| Wireline, Expansion | Wireline, Expansion | 8 | | | 4 | | | 81 | % | | 15 | | | 8 | | | 80 | % | Wireline, Expansion | 12 | | | 8 | | | 48 | % | | 22 | | | 15 | | | 51 | % |
| Cable | Cable | 66 | | | 60 | | | 10 | % | | 131 | | | 119 | | | 9 | % | Cable | 68 | | | 66 | | | 3 | % | | 135 | | | 131 | | | 3 | % |
| Total residential | Total residential | 160 | | | 145 | | | 10 | % | | 317 | | | 289 | | | 10 | % | Total residential | 168 | | | 160 | | | 5 | % | | 330 | | | 317 | | | 4 | % |
| Commercial | Commercial | 46 | | | 48 | | | (4) | % | | 93 | | | 98 | | | (5) | % | Commercial | 44 | | | 46 | | | (6) | % | | 87 | | | 93 | | | (6) | % |
| Wholesale | Wholesale | 45 | | | 47 | | | (3) | % | | 91 | | | 94 | | | (3) | % | Wholesale | 45 | | | 45 | | | (1) | % | | 89 | | | 91 | | | (2) | % |
| Total service revenues | Total service revenues | 251 | | | 240 | | | 5 | % | | 500 | | | 480 | | | 4 | % | Total service revenues | 256 | | | 251 | | | 2 | % | | 507 | | | 500 | | | 1 | % |
| Equipment revenues | Equipment revenues | — | | | — | | | 5 | % | | 1 | | | 1 | | | 7 | % | Equipment revenues | — | | | — | | | (34) | % | | 1 | | | 1 | | | (6) | % |
| Total operating revenues | Total operating revenues | 252 | | | 241 | | | 5 | % | | 501 | | | 481 | | | 4 | % | Total operating revenues | 256 | | | 252 | | | 2 | % | | 507 | | | 501 | | | 1 | % |
| | Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 101 | | | 92 | | | 10 | % | | 199 | | | 188 | | | 6 | % | Cost of services (excluding Depreciation, amortization and accretion reported below) | 103 | | | 101 | | | 2 | % | | 199 | | | 199 | | | – |
| Cost of equipment and products | Cost of equipment and products | — | | | — | | | (12) | % | | — | | | — | | | (7) | % | Cost of equipment and products | — | | | — | | | (9) | % | | — | | | — | | | 11 | % |
| Selling, general and administrative | Selling, general and administrative | 73 | | | 66 | | | 11 | % | | 143 | | | 130 | | | 10 | % | Selling, general and administrative | 77 | | | 73 | | | 6 | % | | 150 | | | 143 | | | 4 | % |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 49 | | | 51 | | | (5) | % | | 98 | | | 103 | | | (5) | % | Depreciation, amortization and accretion | 52 | | | 49 | | | 6 | % | | 106 | | | 98 | | | 8 | % |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 1 | | | — | | | N/M | | 1 | | | — | | | N/M | (Gain) loss on asset disposals, net | 1 | | | 1 | | | 8 | % | | 1 | | | 1 | | | 6 | % |
| Total operating expenses | Total operating expenses | 224 | | | 210 | | | 7 | % | | 441 | | | 422 | | | 5 | % | Total operating expenses | 233 | | | 224 | | | 4 | % | | 456 | | | 441 | | | 3 | % |
| | Operating income | Operating income | $ | 28 | | | $ | 31 | | | (10) | % | | $ | 60 | | | 59 | | | 1 | % | Operating income | $ | 23 | | | $ | 28 | | | (18) | % | | $ | 51 | | | $ | 60 | | | (14) | % |
| | Net income | Net income | $ | 22 | | | $ | 28 | | | (22) | % | | $ | 46 | | | 56 | | | (17) | % | Net income | $ | 19 | | | $ | 22 | | | (15) | % | | $ | 41 | | | $ | 46 | | | (11) | % |
Adjusted OIBDA (Non-GAAP)1 | Adjusted OIBDA (Non-GAAP)1 | $ | 78 | | | $ | 82 | | | (6) | % | | $ | 159 | | | 162 | | | (2) | % | Adjusted OIBDA (Non-GAAP)1 | $ | 76 | | | $ | 78 | | | (3) | % | | $ | 158 | | | $ | 159 | | | – |
Adjusted EBITDA (Non-GAAP)1 | Adjusted EBITDA (Non-GAAP)1 | $ | 78 | | | $ | 83 | | | (7) | % | | $ | 158 | | | 165 | | | (4) | % | Adjusted EBITDA (Non-GAAP)1 | $ | 76 | | | $ | 78 | | | (2) | % | | $ | 159 | | | $ | 158 | | | 1 | % |
Capital expenditures2 | Capital expenditures2 | $ | 99 | | | $ | 75 | | | 33 | % | | $ | 169 | | | 128 | | | 32 | % | Capital expenditures2 | $ | 120 | | | $ | 99 | | | 21 | % | | $ | 225 | | | $ | 169 | | | 33 | % |
Numbers may not foot due to rounding.
N/M - Percentage change not meaningful
1Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
Operating Revenues
Three Months Ended June 30, 20212022 and 20202021
(Dollars in millions)
Operating Revenues
Six Months Ended June 30, 20212022 and 20202021
(Dollars in millions)
Residential revenues consist of:
•Broadband services, including internet, security and support services
•Video services, including IPTV, traditional cable programming and satellite offerings
•Voice services
Commercial revenues consist of:
•High-speed and dedicated business internet services
•Video services
•Voice services
Wholesale revenues consist of:
•Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom's networks
•Federal and state USFregulatory support, including A-CAM
Key components of changes in the statement of operations items were as follows:
Total operating revenues
Residential revenues increased for the three and six months ended June 30, 2021,2022, due primarily to price increases and growth in broadband connections, price increases and federal universal service surcharges, partially offset by a decline in video and voice connections.connections and federal universal service charges.
Commercial revenues decreased for the three and six months ended June 30, 2021,2022, due primarily to declining connections in CLEC markets.
Wholesale revenues decreased for the threemarkets and six months ended June 30, 2021, due primarily to decreased access revenues.
Cost of services
Cost of services increased for the three and six months ended June 30, 2021, due primarily to higher employee expenses to support current and future growth, plant and maintenance costs, and increases indeclining video programming costs,connections, partially offset by a decreasean increase in costs to provide legacy services and building expenses.broadband connections.
Selling, general and administrative
Selling, general and administrative expenses increased for the three and six months ended June 30, 2021,2022, due primarily to higher employee and call center expensesincreases to support current and future growth, increasesincluding employee-related expenses, advertising and marketing expenses, and software-related costs, partially offset by decreases to charges for federal universal service support, increased project costs associated with a new customer management system, and increased advertising expenses in TDS Telecom's expansion markets.charges.
Depreciation, amortization and accretion
Depreciation, amortization and accretion decreasedincreased for the three and six months ended June 30, 2021,2022, due primarily to certain assets becoming fully depreciated partially offset by higher depreciation due to increased capital expenditures on new fiber assets throughout 2020 and increased software amortization.customer-related equipment.
Liquidity and Capital Resources
Sources of Liquidity
TDS and its subsidiaries operate capital-intensive businesses. In the past, TDS’ existing cash and investment balances, funds available under its revolving credit and receivables securitizationfinancing agreements, funds from other financing sources, including term loans, other long-term debt, preferred share offerings, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its 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.
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, term loan and receivables securitizationfinancing agreements, expected future tax refunds 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 years.foreseeable future. TDS will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.
TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, the repurchaserepurchases of shares, the payment of dividends, or making additional investments, including new technologies and fiber builds.deployments. 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. TDS does not have direct access to UScellular cash.
Cash and Cash Equivalents
(Dollars in millions)
The majority of TDS’ Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.
In addition to Cash and cash equivalents, TDS and UScellular had undrawn borrowing capacity from the following debt facilities at June 30, 2022. See the Financing section below for further details. | | | | | | | | | | | | | | |
| | TDS | | UScellular |
| (Dollars in millions) | | | | |
| Revolving Credit Agreement | | $ | 399 | | | $ | 300 | |
| Term Loan Agreements | | 150 | | | 100 | |
| Receivables Securitization Agreement | | — | | | 150 | |
| Repurchase Agreement | | — | | | 140 | |
| Total undrawn borrowing capacity | | $ | 549 | | | $ | 690 | |
Financing
Revolving Credit Agreements
In March 2020, TDS entered into a $400 millionand UScellular have unsecured revolving credit agreementagreements with certain lendersmaximum borrowing capacities of $400 million and other parties and UScellular entered into a $300 million, unsecured revolving credit agreement with certain lenders and other parties.respectively. Amounts under the revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in March 2025.July 2026. During the threesix months ended June 30, 2021, TDS2022, UScellular borrowed $125and repaid $75 million under its revolving credit agreement. As of June 30, 2021,2022, there were no outstanding borrowings under the UScellular revolving credit agreement. Asagreements, except for letters of June 30, 2021, TDS’credit, and UScellular’sTDS' and UScellular's unused borrowing capacity was $274$399 million and $300 million, respectively.
In July 2021, TDS and UScellular amended and restated their revolving credit agreements. The maturity date of the agreements was extended to July 2026 and the consolidated leverage ratio, as defined in the agreements, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the revolving credit agreements.
Term Loan Agreements
In January 2021,TDS and UScellular have term loan agreements with maximum borrowing capacities of $500 million and $800 million, respectively. The maturity dates for the term loan agreements range from July 2026 to July 2031. During the six months ended June 30, 2022, TDS borrowed $75$150 million under its senior term loan credit agreement. In February 2021,agreements and UScellular borrowed $217$400 million under its senior term loan credit agreement.agreements. As of June 30, 2021,2022, TDS' and UScellular's outstanding borrowings under the term loan agreements were $349 million and $698 million, respectively, and TDS' and UScellular's unused borrowing capacity was $150 million and $100 million, respectively. In July 2022, TDS borrowed the remaining $150 million and UScellular have both borrowed the remaining $100 million under the term loan agreements.
Export Credit Financing Agreement
In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) equipment imported from Canada, including equipment purchased prior to entering the term loan credit facility agreement. During the six months ended June 30, 2022, UScellular borrowed $150 million, which is the full amountsamount available under the senior term loan credit agreements of $200 millionagreement and $300 million, respectively.
In July 2021, TDS and UScellular amended and restated their term loan agreements to allow for additional borrowing capacity of $300 million and $200 million, respectively.
See Note 9 — Debtis due in the Notes to Consolidated Financial Statements for additional information related to the senior term loan agreements.January 2027.
Receivables Securitization Agreement
UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In March 2021,2022, UScellular amended the agreement to extend the maturity date to March 2024. Amounts under the agreement may be borrowed, an additional $275repaid and reborrowed from time to time until the maturity date. During the six months ended June 30, 2022, UScellular repaid $150 million under its receivables securitizationthe agreement. In June 2021, UScellular repaid $200 million of the outstanding borrowing.
In June 2021, UScellular increased the borrowing capacity under the receivables securitization agreement to $450 million. As of June 30, 2021,2022, the outstanding borrowings under the agreement were $100$300 million and the unused borrowing capacity under the agreement was $350$150 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. AmountsIn July 2022, UScellular repaid $50 million under the receivables securitization agreement may be repaid and reborrowed from time to time until December 2022, which may be extended from time to time as specified therein. See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information related to theits receivables securitization agreement.
Repurchase Agreement
In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. The transaction is accounted for as a one-month secured borrowing. The expiration date of the repurchase agreement is in January 2023. During the six months ended June 30, 2022, the repo subsidiary borrowed $60 million under the repurchase agreement. As of June 30, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million. In July 2021,2022, UScellular amended the receivables securitization agreement. The consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the receivable securitizationrepaid $50 million under its repurchase agreement.
Financial Covenants
TDS and UScellular believe they were in compliance with all of the financial covenants and requirements set forth in their revolving credit agreements, senior term loan credit agreements, export credit financing agreement and receivables securitization agreement as of June 30, 2021.2022.
Other Long-Term Financing
In 2020, UScellular issued $500 million of 6.25% Senior Notes due in 2069 and $500 million of 5.5% Senior Notes due in March 2070. The proceeds from both issuances were for general corporate purposes, including but not limited to, the purchase of additional wireless spectrum licenses acquired in Auction 107, funding of capital expenditures, including in connection with 5G buildout projects and retirement of existing debt.
In March 2021, TDS issued 16,800 shares of 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock (Preferred Shares) for $25,000 per Preferred Share, for total gross proceeds of $420 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 16,800,000 depositary shares (Depositary Shares), each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $406 million after payment of issuance costs of $14 million. The proceeds were for general corporate purposes, including but not limited to, the funding of capital expenditures associated with TDS Telecom's fiber program and retirement of existing debt. See Note 12 — Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information related to TDS' Preferred Shares.
In May 2021, TDS redeemed its outstanding $225 million of 6.875% Senior Notes due 2059 and $300 million of 7.0% Senior Notes due 2060, and UScellular redeemed its outstanding $275 million of 7.25% Senior Notes due 2063. At time of redemption, $26 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.
In May 2021, UScellular issued $500 million of 5.5% Senior Notes due in June 2070. The proceeds from the issuance were used for general corporate purposes, including but not limited to, the repayment of other debt, the purchase of additional spectrum and the funding of capital expenditures, including in connection with 5G buildout projects.
In June 2021, UScellular redeemed its outstanding $300 million of 7.25% Senior Notes due 2064. At time of redemption, $10 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.
In August 2021, TDS announced that it will redeem its outstanding $116 million of 6.625% Senior Notes due 2045 and UScellular announced that it will redeem its outstanding $342 million of 6.95% Senior Notes due 2060. At time of redemption, $14 million of interest expense will be recorded related to unamortized debt issuance costs related to the notes. The notes are expected to be redeemed on September 1, 2021, at a redemption price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.
TDS and UScellular have in place effective shelf registration statements on Form S-3 to issue senior or subordinated securities, preferred shares and depositary shares.
Credit Ratings
In August 2021, Moody’s lowered its ratingSee Note 9 — Debt in the Notes to Consolidated Financial Statements for UScellular’s senior unsecured notes from Ba1 to Ba2. This downgrade is due primarilyadditional information related to the impact of the financing activities noted above that increase the capacity of debt facilities that are structurally senior to UScellular’s senior unsecured notes.
Capital Expenditures
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the six months ended June 30, 20212022 and 2020,2021, were as follows:
Capital Expenditures
(Dollars in millions)
UScellular’s capital expenditures for the six months ended June 30, 2022 and 2021, and 2020, were $273$405 million and $405$273 million, respectively.
Capital expenditures for the full year 20212022 are expected to be between $775$700 million and $875$800 million. These expenditures are expected to be used principally for the following purposes:
▪Continue network modernization and 5G deployment;
▪Enhance and maintain UScellular's network coverage, including providing additional speed and capacity to accommodate increased data usage by current customers; and
▪Invest in information technology to support existing and new services and products.
TDS Telecom’s capital expenditures for the six months ended June 30, 2022 and 2021, and 2020, were $169$225 million and $128$169 million, respectively.
Capital expenditures for the full year 20212022 are expected to be between $425$500 million and $475$550 million. These expenditures are expected to be used principally for the following purposes:
▪Continue to expand fiber deployment;deployment in incumbent and expansion markets;
▪Maintain and enhance existing infrastructure including build-out requirements to meet state broadband and A-CAM programs;
▪Upgrade broadband capacity and speeds; and
▪Support success-based spending for broadband and video growth.
Macroeconomic factors may impact the acquisition or cost of products and materials as well as contribute to internal and external labor shortages.
TDS intends to finance its capital expenditures for 20212022 using primarily Cash flows from operating activities, existing cash balances and, ifas required, additional debt financing from its revolving credit, term loan and receivables securitizationexisting agreements and/or other forms of financing.
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 (including pursuant to FCC auctions) and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement.
Other Obligations
TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; Auction 107 relocation costs and accelerated relocation incentive payments;commitments for wireless spectrum licenses acquired through FCC auctions; and other agreements to purchase goods or services.
Variable Interest Entities
TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 10 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.
Common Share Repurchase Programs
During the six months ended June 30, 2021,2022, TDS repurchased 162,5001,220,226 Common Shares for $3$20 million at an average cost per share of $18.50.$16.66. As of June 30, 2021,2022, the maximum dollar value of TDS Common Shares that may yet be repurchased under TDS’ program was $182$157 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended June 30, 2021,2022, UScellular repurchased 54,900658,542 Common Shares for $2$19 million at an average cost per share of $29.52.$28.87. As of June 30, 2021,2022, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 4,452,000.
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.2,858,000.
Consolidated Cash Flow Analysis
TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade communications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. 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, 20212022 and 2020.2021.
2022 Commentary
TDS’ Cash, cash equivalents and restricted cash increased $91 million. Net cash provided by operating activities was $734 million due to net income of $111 million adjusted for non-cash items of $517 million, distributions received from unconsolidated entities of $80 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $26 million. The working capital changes were primarily driven by a federal income tax refund of $125 million received during the first quarter, partially offset by an increase in customer and agent receivables, increases in inventory and the payment of annual associate bonuses.
Cash flows used for investing activities were $1,122 million, which included payments for wireless spectrum licenses of $563 million and payments for property, plant and equipment of $526 million. Cash payments for property, plant and equipment are lower than the total capital expenditures in the six months ended June 30, 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid over time.
Cash flows provided by financing activities were $479 million, due primarily to $550 million borrowed under the term loan facilities, $150 million borrowed under the UScellular export credit financing agreement, $75 million borrowed under the UScellular revolving credit agreement, and $60 million borrowed under the UScellular EIP receivables repurchase agreement. These were partially offset by $150 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, the payment of dividends and repurchase of TDS and UScellular Common Shares.
2021 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $1,033 million. Net cash provided by operating activities was $481 million due to net income of $105 million adjusted for non-cash items of $497 million and distributions received from unconsolidated entities of $80 million, including $32 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $201 million. The working capital changes were primarily influenced by the timing of vendor payments, increases in inventory, and the timingpayment of annual associate bonus payments.bonuses.
Cash flows used for investing activities were $1,715 million. Cash paidmillion, which included payments for additions to property, plant and equipment totaledof $457 million. Cashmillion and payments for wireless spectrum license acquisitions were $1,253licenses of $1,259 million.
Cash flows provided by financing activities were $201 million, due primarily to the issuance of $420 million of TDS Preferred Shares, the issuance of $500 million of 5.5% UScellular Senior Notes, $275 million borrowed under the UScellular receivables securitization agreement, $217 million borrowed under the UScellular term loan, $125 million borrowed under the TDS revolving credit agreement, and $75 million borrowed under the TDS term loan. These were partially offset by the redemption of $525 million of TDS Senior Notes, $575 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, the payment of dividends and the payment of debt and equity issuance costs.
2020 Commentary
TDS’ Cash, cash equivalents and restricted cash increased $112 million. Net cash provided by operating activities was $806 million due to net income of $161 million adjusted for non-cash items of $612 million and distributions received from unconsolidated entities of $91 million, including $43 million in distributions from the LA Partnership. This was offset by changes in working capital items which decreased net cash by $58 million. The working capital changes were primarily influenced by tax impacts from the CARES Act and annual associate bonus payments, partially offset by the timing of vendor payments and collections of customer and agent receivables.
Cash flows used for investing activities were $769 million. Cash paid for additions to property, plant and equipment totaled $610 million. Cash payments for wireless spectrum license acquisitions were $144 million.
Cash flows provided by financing activities were $75 million, due primarily to cash received from the UScellular receivables securitization agreement and TDS term loan borrowing, partially offset by the repurchase of TDS and UScellular Common Shares and the payment of dividends.
Consolidated Balance Sheet Analysis
The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 20212022 were as follows:
Inventory, net
Inventory, net increased $35 million due primarily to an increase in the volume of inventory at UScellular.inventory.
LicensesIncome taxes receivable
Licenses increased $1,288Income taxes receivable decreased $126 million due primarily to wireless spectruma federal income tax refund received related to the 2020 net operating loss carryback enabled by the CARES Act.
Accrued compensation
Accrued compensation decreased $39 million due primarily to associate bonus payments in March 2022.
Other current liabilities
Other current liabilities increased $116 million due primarily to accruals related to software license rights acquired through Auction 107.agreements and $60 million borrowed under the EIP receivables repurchase agreement. See Note 79 — Intangible AssetsDebt in the Notes to Consolidated Financial Statements for additional information.
Accounts payableOther deferred liabilities and credits
Accounts payable decreased $134Other deferred liabilities and credits increased $120 million due primarily to vendor payment timing differences.
Accrued compensation
Accrued compensation decreased $40 million due primarilyaccruals related to associate bonus payments in March 2021.software license agreements.
Long-term debt, net
The following table presents the components of the $89$535 million decreaseincrease in Long-term debt, net:
| | | | | |
| Long-term debt, net |
| (Dollars in millions) | |
Balance at December 31, 20202021 | $ | 3,4242,928 | |
| Borrowings under Revolving Credit Agreements | 12575 | |
| Borrowings under Term Loan Agreements | 292550 | |
Borrowings under Receivables SecuritizationExport Credit Financing Agreement | 275150 | |
Issuance of Senior NotesRepayments under Revolving Credit Agreements | 500 | |
Payment of debt issuance costs | (16)(75) | |
| Repayments under Receivables Securitization Agreement | (200) | |
Redemptions of Senior Notes | (1,100) | |
Debt issuance costs charged to interest expense | 37 (150) | |
| Other | (2)(15) | |
Balance at June 30, 20212022 | $ | 3,3353,463 | |
Preferred Shares
Preferred Shares increased $406 million due to the issuance of $420 million of TDS Preferred Shares, net of issuance costs.
Supplemental Information Relating to Non-GAAP Financial Measures
TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this 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. Following are explanations of each of these measures.
EBITDA, Adjusted EBITDA and Adjusted OIBDA
EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation below. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under GAAP and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation below are non-recurring, infrequent or unusual; such items may occur in the future.
Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. See Note 1312 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.
Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income.
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| TDS - CONSOLIDATED | TDS - CONSOLIDATED | 2021 | | 2020 | | 2021 | | 2020 | TDS - CONSOLIDATED | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | (Dollars in millions) | | | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 34 | | | $ | 78 | | | $ | 105 | | | $ | 161 | | Net income (GAAP) | $ | 39 | | | $ | 34 | | | $ | 111 | | | $ | 105 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense (benefit) | (11) | | | 8 | | | 20 | | | 12 | | |
| Income tax expense | | Income tax expense | 27 | | | (11) | | | 65 | | | 20 | |
| Interest expense | Interest expense | 86 | | | 38 | | | 138 | | | 75 | | Interest expense | 40 | | | 86 | | | 72 | | | 138 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | | Depreciation, amortization and accretion | 229 | | | 234 | | | 456 | | | 457 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 343 | | | 360 | | | 720 | | | 718 | | EBITDA (Non-GAAP) | 335 | | | 343 | | | 704 | | | 720 | |
| Add back or deduct: | Add back or deduct: | | Add back or deduct: | |
| | Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | 3 | | | — | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 8 | | (Gain) loss on asset disposals, net | 7 | | | 3 | | | 9 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | (1) | | | — | | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | — | | | (1) | |
| | Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 346 | | | 364 | | | 727 | | | 726 | | Adjusted EBITDA (Non-GAAP) | 345 | | | 346 | | | 716 | | | 727 | |
| Deduct: | Deduct: | | Deduct: | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 90 | | | 90 | | Equity in earnings of unconsolidated entities | 38 | | | 48 | | | 83 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 3 | | | 2 | | | 6 | | | 8 | | Interest and dividend income | 5 | | | 3 | | | 7 | | | 6 | |
| Other, net | Other, net | — | | | — | | | (1) | | | (1) | | Other, net | — | | | — | | | — | | | (1) | |
| Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 295 | | | 318 | | | 632 | | | 629 | | Adjusted OIBDA (Non-GAAP) | 302 | | | 295 | | | 626 | | | 632 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | | Depreciation, amortization and accretion | 229 | | | 234 | | | 456 | | | 457 | |
| | Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | 3 | | | — | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 8 | | (Gain) loss on asset disposals, net | 7 | | | 3 | | | 9 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | (1) | | | — | | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | — | | | (1) | |
| | Operating income (GAAP) | Operating income (GAAP) | $ | 58 | | | $ | 78 | | | $ | 168 | | | $ | 151 | | Operating income (GAAP) | $ | 63 | | | $ | 58 | | | $ | 158 | | | $ | 168 | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| UScellular | UScellular | 2021 | | 2020 | | 2021 | | 2020 | UScellular | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 35 | | | $ | 69 | | | $ | 97 | | | $ | 141 | | Net income (GAAP) | $ | 22 | | | $ | 35 | | | $ | 74 | | | $ | 97 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense (benefit) | (10) | | | 4 | | | 17 | | | 8 | | |
| Income tax expense | | Income tax expense | 18 | | | (10) | | | 50 | | | 17 | |
| Interest expense | Interest expense | 60 | | | 25 | | | 97 | | | 49 | | Interest expense | 40 | | | 60 | | | 73 | | | 97 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 180 | | | 178 | | | 350 | | | 354 | | Depreciation, amortization and accretion | 172 | | | 180 | | | 342 | | | 350 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 265 | | | 276 | | | 561 | | | 552 | | EBITDA (Non-GAAP) | 252 | | | 265 | | | 539 | | | 561 | |
| Add back or deduct: | Add back or deduct: | | Add back or deduct: | |
| | Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | 3 | | | — | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 2 | | | 4 | | | 7 | | | 8 | | (Gain) loss on asset disposals, net | 6 | | | 2 | | | 8 | | | 7 | |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | (1) | | | — | | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | — | | | (1) | |
| | Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 267 | | | 280 | | | 567 | | | 560 | | Adjusted EBITDA (Non-GAAP) | 261 | | | 267 | | | 550 | | | 567 | |
| Deduct: | Deduct: | | Deduct: | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 47 | | | 44 | | | 88 | | | 89 | | Equity in earnings of unconsolidated entities | 37 | | | 47 | | | 82 | | | 88 | |
| Interest and dividend income | Interest and dividend income | 2 | | | 1 | | | 3 | | | 5 | | Interest and dividend income | 3 | | | 2 | | | 4 | | | 3 | |
| | Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 218 | | | 235 | | | 476 | | | 466 | | Adjusted OIBDA (Non-GAAP) | 221 | | | 218 | | | 464 | | | 476 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 180 | | | 178 | | | 350 | | | 354 | | Depreciation, amortization and accretion | 172 | | | 180 | | | 342 | | | 350 | |
| | Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | 3 | | | — | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 2 | | | 4 | | | 7 | | | 8 | | (Gain) loss on asset disposals, net | 6 | | | 2 | | | 8 | | | 7 | |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | (1) | | | — | | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | — | | | (1) | |
| | Operating income (GAAP) | Operating income (GAAP) | $ | 36 | | | $ | 53 | | | $ | 120 | | | $ | 104 | | Operating income (GAAP) | $ | 40 | | | $ | 36 | | | $ | 111 | | | $ | 120 | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| TDS TELECOM | TDS TELECOM | 2021 | | 2020 | | 2021 | | 2020 | TDS TELECOM | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 22 | | | $ | 28 | | | $ | 46 | | | $ | 56 | | Net income (GAAP) | $ | 19 | | | $ | 22 | | | $ | 41 | | | $ | 46 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense | Income tax expense | 7 | | | 5 | | | 15 | | | 8 | | Income tax expense | 7 | | | 7 | | | 14 | | | 15 | |
| Interest expense | Interest expense | (1) | | | (1) | | | (2) | | | (2) | | Interest expense | (2) | | | (1) | | | (4) | | | (2) | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 49 | | | 51 | | | 98 | | | 103 | | Depreciation, amortization and accretion | 52 | | | 49 | | | 106 | | | 98 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 77 | | | 83 | | | 157 | | | 165 | | EBITDA (Non-GAAP) | 75 | | | 77 | | | 158 | | | 157 | |
| Add back or deduct: | Add back or deduct: | | Add back or deduct: | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 1 | | | — | | | 1 | | | — | | (Gain) loss on asset disposals, net | 1 | | | 1 | | | 1 | | | 1 | |
| Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 78 | | | 83 | | | 158 | | | 165 | | Adjusted EBITDA (Non-GAAP) | 76 | | | 78 | | | 159 | | | 158 | |
| Deduct: | Deduct: | | Deduct: | |
| Interest and dividend income | Interest and dividend income | — | | | 1 | | | — | | | 4 | | Interest and dividend income | — | | | — | | | — | | | — | |
| Other, net | — | | | — | | | — | | | (1) | | |
| | Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 78 | | | 82 | | | 159 | | | 162 | | Adjusted OIBDA (Non-GAAP) | 76 | | | 78 | | | 158 | | | 159 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 49 | | | 51 | | | 98 | | | 103 | | Depreciation, amortization and accretion | 52 | | | 49 | | | 106 | | | 98 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 1 | | | — | | | 1 | | | — | | (Gain) loss on asset disposals, net | 1 | | | 1 | | | 1 | | | 1 | |
| Operating income (GAAP) | Operating income (GAAP) | $ | 28 | | | $ | 31 | | | $ | 60 | | | $ | 59 | | Operating income (GAAP) | $ | 23 | | | $ | 28 | | | $ | 51 | | | $ | 60 | |
Numbers may not foot due to rounding.
Free Cash Flow
The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. 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, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Cash flows from operating activities (GAAP) | Cash flows from operating activities (GAAP) | $ | 481 | | | $ | 806 | | Cash flows from operating activities (GAAP) | $ | 734 | | | $ | 481 | |
| Less: Cash paid for additions to property, plant and equipment | Less: Cash paid for additions to property, plant and equipment | 457 | | | 610 | | Less: Cash paid for additions to property, plant and equipment | 526 | | | 457 | |
| Free cash flow (Non-GAAP) | Free cash flow (Non-GAAP) | $ | 24 | | | $ | 196 | | Free cash flow (Non-GAAP) | $ | 208 | | | $ | 24 | |
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, Note 2 — Revenue Recognition and Note 10 — Leases 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, 2020.2021.
Regulatory Matters
5G Fund
On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America. The 5G Fund will be implemented through a two-phase competitive process, using multi-round auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones. The order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment.
UScellular cannot predict at this time when the 5G fund auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the 5G fund auction will provide opportunities to UScellular to offset any loss in existing support.
FCC Rulemaking - Restoring Internet Freedom
In December 2017, the FCC approved rules reversing or revising decisions made in the FCC’s 2015 Open Internet and Title II Order (Restoring Internet Freedom). The 2017 action reversed the FCC’s 2015 decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II of the Telecommunications Act. The 2017 action also reversed the FCC’s 2015 restrictions on blocking, throttling and paid prioritization, and modified transparency rules relating to such practices. Several parties filed suit in federal court challenging the 2017 actions. On October 1, 2019, the Court of Appeals for the D.C. Circuit issued an order reaffirming the FCC in most respects, but limiting the FCC's ability to preempt state and local net neutrality laws. On February 19, 2020, the FCC issued a Public Notice seeking comment on three issues under further consideration by the FCC based on a recent D.C. Circuit decision. On October 27, 2020, the FCC adopted an Order on Remand in response to the U.S. Court of Appeals for the D.C. Circuit’s remand on the three issues under further consideration by the FCC and found no basis to alter the FCC’s conclusions in the Restoring Internet Freedom Order.
A number of states, including certain states in which TDS operates, have adopted or considered laws intended to reinstate aspects of the foregoing net neutrality regulations that were reversed or revised by the FCC in 2017. To the extent such laws are enacted, it is expected that legal proceedings will be pursued challenging such laws, subject now to the DC Circuit ruling limiting the FCC's preemptive authority in this matter. The new administration may also conduct rulemaking proceedings that may reinstate, in some form, net neutrality rules. TDS cannot predict the outcome of any of these proceedings or the impact on its business.
Spectrum Auctions
On March 2, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.5 GHz band (Auction 105). On September 2, 2020, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million. Themillion. On July 15, 2022, the FCC released a Consent Decree related to its spectrum aggregation and ownership attribution rules in which UScellular agreed to relinquish its rights to 27 wireless spectrum licenses have not yet beenawarded in Auction 105 and is expecting a full refund. The remaining 216 wireless spectrum licenses were granted by the FCC.FCC on July 26, 2022.
On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $178$187 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, which occurred aftergranted. In October 2021, UScellular paid $36 million related to the period ended June 30, 2021.additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023. Combined with prior mid-band purchases in Auction 105, UScellular will have mid-band spectrum in nearly all of its operating footprint, covering approximately 95% of subscribers.
On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.
On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 2.5 GHz band (Auction 108). UScellular filed an application to participate in Auction 110108 on May 9, 2022, and on July 19, 2021. Upfront payments are due11, 2022, the FCC announced that UScellular was a qualified bidder. Bidding in Auction 108 began on September 2, 2021 and bidding will commence on October 5, 2021.July 29, 2022.
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, 20202021 and in this Form 10-Q. Each of the following risks could have a material adverse effect on TDS’ business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. You should carefully consider the Risk Factors in TDS’ Form 10-K for the year ended December 31, 2020,2021, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to TDS’ business, financial condition or results of operations.
Operational Risk Factors
▪Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect TDS’ revenues or increase its costs to compete.
▪Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.
▪A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on TDS’ business, financial condition or results of operations.
▪An inability to attract people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.
▪TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
▪Changes in various business factors, including changes in demand, consumer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on TDS’ business, financial condition or results of operations.
▪Advances or changes in technology could render certain technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase its costs of doing business.
▪Complexities associated with deploying new technologies present substantial risk and TDS’ investments in unproven technologies may not produce the benefits that TDS expects.
▪Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of TDS’ businesses could have an adverse effect on TDS’ business, financial condition or results of operations.
▪A failure by TDS to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
▪Difficulties involving third parties with which TDS does business, including changes in TDS’ relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.
▪A failure by TDS to maintain flexible and capable telecommunication networks or information technology,technologies, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
Financial Risk Factors
▪Uncertainty in TDS’ future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development or acquisition programs, reduce the amount of wireless 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.
▪TDS’ assets and revenue are concentrated primarily in the U.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
▪TDS has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.
Regulatory, Legal and Governance Risk Factors
▪Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.
▪TDS receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on TDS’ business, financial condition or results of operations.
▪Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.
▪The possible development of adverse precedent in litigation or conclusions in professional 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,or frequencies used by other industries, 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.
General Risk Factors
▪TDS has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on TDS' business, financial condition or results of operations.
▪Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or results of operations.
▪The impact of public health emergencies, such as the COVID-19 pandemic, on TDS' business is uncertain, but depending on duration and severity could have a material adverse effect on TDS' business, financial condition or results of operations.
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, 2020,2021, 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, 2020,2021, 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, 2020.2021.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
As of June 30, 2022, approximately 60% of TDS' long-term debt was in fixed-rate senior notes and approximately 40% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt.
The following table presents the scheduled principal payments on long-term debt, finance lease obligations, and the related weighted average interest rates by maturity dates at June 30, 2021.2022.
| | | Principal Payments Due by Period | | Principal Payments Due by Period |
| | Long-Term Debt Obligations1 | | Weighted-Avg. Interest Rates on Long-Term Debt Obligations2 | | Long-Term Debt Obligations1 | | Weighted-Avg. Interest Rates on Long-Term Debt Obligations2 |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Remainder of 2021 | $ | 4 | | | 2.7 | % | |
| 2022 | 105 | | | 1.3 | % | |
| Remainder of 2022 | | Remainder of 2022 | $ | 3 | | | 3.8 | % |
| 2023 | 2023 | 5 | | | 2.4 | % | 2023 | 16 | | | 3.3 | % |
| 2024 | 2024 | 5 | | | 2.4 | % | 2024 | 16 | | | 3.3 | % |
| 2025 | 2025 | 130 | | | 1.6 | % | 2025 | 16 | | | 3.3 | % |
| 2026 | | 2026 | 286 | | | 2.8 | % |
| Thereafter | Thereafter | 3,181 | | | 5.6 | % | Thereafter | 2,911 | | | 5.3 | % |
| Total | Total | $ | 3,430 | | | 5.3 | % | Total | $ | 3,248 | | | 5.2 | % |
1The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, and unamortized discounts related to UScellular's 6.7% Senior Notes.Notes, and outstanding borrowings under the receivables securitization agreement, which principal repayments are not scheduled but are instead based on actual receivable collections.
2Represents the weighted average stated interest rates at June 30, 2021,2022, for debt maturing in the respective periodsperiods.
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, 2021.2022.
Financial Statements
Telephone and Data Systems, Inc.
Consolidated Statement of Operations
(Unaudited)
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars and shares in millions, except per share amounts) | (Dollars and shares in millions, except per share amounts) | | (Dollars and shares in millions, except per share amounts) | |
| Operating revenues | Operating revenues | | Operating revenues | |
| Service | Service | $ | 1,049 | | | $ | 1,016 | | | $ | 2,091 | | | $ | 2,042 | | Service | $ | 1,064 | | | $ | 1,049 | | | $ | 2,125 | | | $ | 2,091 | |
| Equipment and product sales | Equipment and product sales | 262 | | | 247 | | | 538 | | | 482 | | Equipment and product sales | 285 | | | 262 | | | 539 | | | 538 | |
| Total operating revenues | Total operating revenues | 1,311 | | | 1,263 | | | 2,629 | | | 2,524 | | Total operating revenues | 1,349 | | | 1,311 | | | 2,664 | | | 2,629 | |
| | Operating expenses | Operating expenses | | Operating expenses | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 324 | | | 306 | | | 623 | | | 599 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 312 | | | 324 | | | 611 | | | 623 | |
| Cost of equipment and products | Cost of equipment and products | 276 | | | 241 | | | 570 | | | 487 | | Cost of equipment and products | 308 | | | 276 | | | 590 | | | 570 | |
| Selling, general and administrative | Selling, general and administrative | 416 | | | 398 | | | 804 | | | 809 | | Selling, general and administrative | 427 | | | 416 | | | 837 | | | 804 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | | Depreciation, amortization and accretion | 229 | | | 234 | | | 456 | | | 457 | |
| Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | — | | | 3 | | | — | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 8 | | (Gain) loss on asset disposals, net | 7 | | | 3 | | | 9 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (Gain) loss on sale of business and other exit costs, net | 0 | | | 0 | | | (1) | | | 0 | | (Gain) loss on sale of business and other exit costs, net | — | | | — | | | — | | | (1) | |
| | Total operating expenses | Total operating expenses | 1,253 | | | 1,185 | | | 2,461 | | | 2,373 | | Total operating expenses | 1,286 | | | 1,253 | | | 2,506 | | | 2,461 | |
| | Operating income | Operating income | 58 | | | 78 | | | 168 | | | 151 | | Operating income | 63 | | | 58 | | | 158 | | | 168 | |
| | Investment and other income (expense) | Investment and other income (expense) | | Investment and other income (expense) | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 90 | | | 90 | | Equity in earnings of unconsolidated entities | 38 | | | 48 | | | 83 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 3 | | | 2 | | | 6 | | | 8 | | Interest and dividend income | 5 | | | 3 | | | 7 | | | 6 | |
| | Interest expense | Interest expense | (86) | | | (38) | | | (138) | | | (75) | | Interest expense | (40) | | | (86) | | | (72) | | | (138) | |
| Other, net | Other, net | 0 | | | 0 | | | (1) | | | (1) | | Other, net | — | | | — | | | — | | | (1) | |
| Total investment and other income (expense) | Total investment and other income (expense) | (35) | | | 8 | | | (43) | | | 22 | | Total investment and other income (expense) | 3 | | | (35) | | | 18 | | | (43) | |
| | Income before income taxes | Income before income taxes | 23 | | | 86 | | | 125 | | | 173 | | Income before income taxes | 66 | | | 23 | | | 176 | | | 125 | |
| Income tax expense (benefit) | Income tax expense (benefit) | (11) | | | 8 | | | 20 | | | 12 | | Income tax expense (benefit) | 27 | | | (11) | | | 65 | | | 20 | |
| Net income | Net income | 34 | | | 78 | | | 105 | | | 161 | | Net income | 39 | | | 34 | | | 111 | | | 105 | |
| Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | 19 | | | 26 | | Less: Net income attributable to noncontrolling interests, net of tax | 4 | | | 7 | | | 15 | | | 19 | |
| Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | 27 | | | 65 | | | 86 | | | 135 | | Net income attributable to TDS shareholders | 35 | | | 27 | | | 96 | | | 86 | |
| TDS Preferred Share dividends | TDS Preferred Share dividends | 7 | | | 0 | | | 9 | | | 0 | | TDS Preferred Share dividends | 17 | | | 7 | | | 35 | | | 9 | |
| Net income attributable to TDS common shareholders | Net income attributable to TDS common shareholders | $ | 20 | | | $ | 65 | | | $ | 77 | | | $ | 135 | | Net income attributable to TDS common shareholders | $ | 18 | | | $ | 20 | | | $ | 61 | | | $ | 77 | |
| | Basic weighted average shares outstanding | Basic weighted average shares outstanding | 115 | | | 114 | | | 115 | | | 115 | | Basic weighted average shares outstanding | 115 | | | 115 | | | 115 | | | 115 | |
| Basic earnings per share attributable to TDS common shareholders | Basic earnings per share attributable to TDS common shareholders | $ | 0.18 | | | $ | 0.57 | | | $ | 0.67 | | | $ | 1.18 | | Basic earnings per share attributable to TDS common shareholders | $ | 0.15 | | | $ | 0.18 | | | $ | 0.53 | | | $ | 0.67 | |
| | Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 116 | | | 115 | | | 116 | | | 115 | | Diluted weighted average shares outstanding | 116 | | | 116 | | | 116 | | | 116 | |
| Diluted earnings per share attributable to TDS common shareholders | Diluted earnings per share attributable to TDS common shareholders | $ | 0.17 | | | $ | 0.56 | | | $ | 0.65 | | | $ | 1.15 | | Diluted earnings per share attributable to TDS common shareholders | $ | 0.15 | | | $ | 0.17 | | | $ | 0.52 | | | $ | 0.65 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | | | | | | | |
| Net income | $ | 39 | | | $ | 34 | | | $ | 111 | | | $ | 105 | |
| 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 | 39 | | | 35 | | | 111 | | | 106 | |
| Less: Net income attributable to noncontrolling interests, net of tax | 4 | | | 7 | | | 15 | | | 19 | |
| Comprehensive income attributable to TDS shareholders | $ | 35 | | | $ | 28 | | | $ | 96 | | | $ | 87 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2022 | | 2021 |
| (Dollars in millions) | | | |
| Cash flows from operating activities | | | |
| Net income | $ | 111 | | | $ | 105 | |
| Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | | | |
| Depreciation, amortization and accretion | 456 | | | 457 | |
| Bad debts expense | 54 | | | 22 | |
| Stock-based compensation expense | 23 | | | 24 | |
| Deferred income taxes, net | 52 | | | 40 | |
| Equity in earnings of unconsolidated entities | (83) | | | (90) | |
| Distributions from unconsolidated entities | 80 | | | 80 | |
| Loss on impairment of licenses | 3 | | | — | |
| (Gain) loss on asset disposals, net | 9 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | — | | | (1) | |
| | | |
| | | |
| Other operating activities | 3 | | | 37 | |
| Changes in assets and liabilities from operations | | | |
| Accounts receivable | (25) | | | 37 | |
| Equipment installment plans receivable | (25) | | | (32) | |
| Inventory | (35) | | | (35) | |
| Accounts payable | (6) | | | (106) | |
| Customer deposits and deferred revenues | 7 | | | 6 | |
| Accrued taxes | 131 | | | (25) | |
| Accrued interest | 1 | | | (3) | |
| Other assets and liabilities | (22) | | | (43) | |
| Net cash provided by operating activities | 734 | | | 481 | |
| | | |
| Cash flows from investing activities | | | |
| Cash paid for additions to property, plant and equipment | (526) | | | (457) | |
| Cash paid for intangible assets | (585) | | | (1,264) | |
| Cash received from investments | — | | | 3 | |
| | | |
| Cash received from divestitures and exchanges | 1 | | | 1 | |
| Advance payments for license acquisitions | (1) | | | — | |
| Other investing activities | (11) | | | 2 | |
| Net cash used in investing activities | (1,122) | | | (1,715) | |
| | | |
| Cash flows from financing activities | | | |
| Issuance of long-term debt | 776 | | | 1,192 | |
| Repayment of long-term debt | (228) | | | (1,301) | |
| Issuance of short-term debt | 60 | | | — | |
| Issuance of TDS Preferred Shares | — | | | 420 | |
| TDS Common Shares reissued for benefit plans, net of tax payments | (4) | | | (5) | |
| UScellular Common Shares reissued for benefit plans, net of tax payments | (5) | | | (13) | |
| Repurchase of TDS Common Shares | (20) | | | (3) | |
| Repurchase of UScellular Common Shares | (18) | | | (2) | |
| Dividends paid to TDS shareholders | (76) | | | (49) | |
| Payment of debt and equity issuance costs | (2) | | | (30) | |
| Distributions to noncontrolling interests | (2) | | | (2) | |
| Other financing activities | (2) | | | (6) | |
| Net cash provided by financing activities | 479 | | | 201 | |
| | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 91 | | | (1,033) | |
| | | |
| Cash, cash equivalents and restricted cash | | | |
| Beginning of period | 414 | | | 1,452 | |
| End of period | $ | 505 | | | $ | 419 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Comprehensive IncomeBalance Sheet — Assets
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | | | | | | | |
| Net income | $ | 34 | | | $ | 78 | | | $ | 105 | | | $ | 161 | |
| 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 | | | 1 | | | 2 | |
| Comprehensive income | 35 | | | 79 | | | 106 | | | 163 | |
| Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | 19 | | | 26 | |
| Comprehensive income attributable to TDS shareholders | $ | 28 | | | $ | 66 | | | $ | 87 | | | $ | 137 | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 466 | | | $ | 367 | |
| | | |
| Accounts receivable | | | |
| Customers and agents, less allowances of $63 and $60, respectively | 1,055 | | | 1,058 | |
| Other, less allowances of $2 and $2, respectively | 99 | | | 93 | |
| Inventory, net | 213 | | | 178 | |
| Prepaid expenses | 106 | | | 103 | |
| Income taxes receivable | 58 | | | 184 | |
| Other current assets | 54 | | | 61 | |
| Total current assets | 2,051 | | | 2,044 | |
| | | |
| Assets held for sale | 17 | | | 18 | |
| | | |
| Licenses | 4,686 | | | 4,097 | |
| | | |
| Goodwill | 547 | | | 547 | |
| | | |
| Other intangible assets, net of accumulated amortization of $100 and $91, respectively | 208 | | | 197 | |
| | | |
| Investments in unconsolidated entities | 483 | | | 479 | |
| | | |
| Property, plant and equipment | | | |
| In service and under construction | 14,723 | | | 14,265 | |
| Less: Accumulated depreciation and amortization | 10,170 | | | 9,904 | |
| Property, plant and equipment, net | 4,553 | | | 4,361 | |
| | | |
| Operating lease right-of-use assets | 1,022 | | | 1,040 | |
| | | |
| Other assets and deferred charges | 675 | | | 710 | |
| | | |
Total assets1 | $ | 14,242 | | | $ | 13,493 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Cash FlowsBalance Sheet — Liabilities and Equity
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2021 | | 2020 |
| (Dollars in millions) | | | |
| Cash flows from operating activities | | | |
| Net income | $ | 105 | | | $ | 161 | |
| Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | | | |
| Depreciation, amortization and accretion | 457 | | | 470 | |
| Bad debts expense | 22 | | | 48 | |
| Stock-based compensation expense | 24 | | | 25 | |
| Deferred income taxes, net | 40 | | | 150 | |
| Equity in earnings of unconsolidated entities | (90) | | | (90) | |
| Distributions from unconsolidated entities | 80 | | | 91 | |
| | | |
| (Gain) loss on asset disposals, net | 8 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (1) | | | 0 | |
| | | |
| | | |
| Other operating activities | 37 | | | 1 | |
| Changes in assets and liabilities from operations | | | |
| Accounts receivable | 37 | | | 21 | |
| Equipment installment plans receivable | (32) | | | 22 | |
| Inventory | (35) | | | 15 | |
| Accounts payable | (106) | | | 49 | |
| Customer deposits and deferred revenues | 6 | | | (8) | |
| Accrued taxes | (25) | | | (115) | |
| Accrued interest | (3) | | | 0 | |
| Other assets and liabilities | (43) | | | (42) | |
| Net cash provided by operating activities | 481 | | | 806 | |
| | | |
| Cash flows from investing activities | | | |
| Cash paid for additions to property, plant and equipment | (457) | | | (610) | |
| Cash paid for intangible assets | (1,264) | | | (144) | |
| Cash received from investments | 3 | | | 1 | |
| Cash paid for investments | 0 | | | (1) | |
| Cash received from divestitures and exchanges | 1 | | | 1 | |
| Advance payments for license acquisitions | 0 | | | (16) | |
| Other investing activities | 2 | | | 0 | |
| Net cash used in investing activities | (1,715) | | | (769) | |
| | | |
| Cash flows from financing activities | | | |
| Issuance of long-term debt | 1,192 | | | 175 | |
| Repayment of long-term debt | (1,301) | | | (5) | |
| Issuance of TDS Preferred Shares | 420 | | | 0 | |
| TDS Common Shares reissued for benefit plans, net of tax payments | (5) | | | (3) | |
| UScellular Common Shares reissued for benefit plans, net of tax payments | (13) | | | (8) | |
| Repurchase of TDS Common Shares | (3) | | | (14) | |
| Repurchase of UScellular Common Shares | (2) | | | (23) | |
| Dividends paid to TDS shareholders | (49) | | | (39) | |
| Payment of debt and equity issuance costs | (30) | | | (7) | |
| Distributions to noncontrolling interests | (2) | | | (1) | |
| Other financing activities | (6) | | | 0 | |
| Net cash provided by financing activities | 201 | | | 75 | |
| | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (1,033) | | | 112 | |
| | | |
| Cash, cash equivalents and restricted cash | | | |
| Beginning of period | 1,452 | | | 474 | |
| End of period | $ | 419 | | | $ | 586 | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (Dollars and shares in millions, except per share amounts) | | | |
| Current liabilities | | | |
| Current portion of long-term debt | $ | 11 | | | $ | 6 | |
| Accounts payable | 443 | | | 481 | |
| Customer deposits and deferred revenues | 243 | | | 236 | |
| Accrued interest | 11 | | | 10 | |
| Accrued taxes | 42 | | | 45 | |
| Accrued compensation | 98 | | | 137 | |
| Short-term operating lease liabilities | 146 | | | 141 | |
| Other current liabilities | 240 | | | 124 | |
| Total current liabilities | 1,234 | | | 1,180 | |
| | | |
| | | |
| | | |
| Deferred liabilities and credits | | | |
| Deferred income tax liability, net | 971 | | | 921 | |
| Long-term operating lease liabilities | 940 | | | 960 | |
| Other deferred liabilities and credits | 879 | | | 759 | |
| | | | |
| Long-term debt, net | 3,463 | | | 2,928 | |
| | | | |
| Commitments and contingencies | 0 | | 0 |
| | | | |
| Noncontrolling interests with redemption features | 12 | | | 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) and 115 shares (7 Series A Common and 108 Common Shares), respectively | | | |
| Par Value ($0.01 per share) | 1 | | | 1 | |
| Capital in excess of par value | 2,511 | | | 2,496 | |
| Preferred Shares, 0.279 shares authorized, par value $0.01 per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV) | 1,074 | | | 1,074 | |
| Treasury shares, at cost, 19 and 18 Common Shares, respectively | (463) | | | (461) | |
| Accumulated other comprehensive income | 6 | | | 5 | |
| Retained earnings | 2,810 | | | 2,812 | |
| Total TDS shareholders' equity | 5,939 | | | 5,927 | |
| | | | |
| Noncontrolling interests | 804 | | | 807 | |
| | | | |
| Total equity | 6,743 | | | 6,734 | |
| | | | |
Total liabilities and equity1 | $ | 14,242 | | | $ | 13,493 | |
The accompanying notes are an integral part of these consolidated financial statements.
1The consolidated total assets as of June 30, 2022 and December 31, 2021, include assets held by consolidated variable interest entities (VIEs) of $1,299 million and $1,456 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2022 and December 31, 2021, include certain liabilities of consolidated VIEs of $21 million for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 10 — Variable Interest Entities for additional information.
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — AssetsStatement of Changes in Equity
(Unaudited)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 385 | | | $ | 1,429 | |
| Short-term investments | 0 | | | 3 | |
| Accounts receivable | | | |
| Customers and agents, less allowances of $59 and $67, respectively | 976 | | | 1,004 | |
| Other, less allowances of $3 and $2, respectively | 96 | | | 108 | |
| Inventory, net | 189 | | | 154 | |
| Prepaid expenses | 108 | | | 105 | |
| Income taxes receivable | 187 | | | 187 | |
| Other current assets | 50 | | | 36 | |
| Total current assets | 1,991 | | | 3,026 | |
| | | |
| Assets held for sale | 3 | | | 2 | |
| | | |
| Licenses | 3,926 | | | 2,638 | |
| | | |
| Goodwill | 547 | | | 547 | |
| | | |
| Other intangible assets, net of accumulated amortization of $81 and $71, respectively | 207 | | | 213 | |
| | | |
| Investments in unconsolidated entities | 487 | | | 477 | |
| | | |
| Property, plant and equipment | | | |
| In service and under construction | 13,857 | | | 13,659 | |
| Less: Accumulated depreciation and amortization | 9,885 | | | 9,687 | |
| Property, plant and equipment, net | 3,972 | | | 3,972 | |
| | | |
| Operating lease right-of-use assets | 1,021 | | | 998 | |
| | | |
| Other assets and deferred charges | 626 | | | 652 | |
| | | |
Total assets1 | $ | 12,780 | | | $ | 12,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TDS Shareholders | | | | |
| | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling
interests | | Total equity |
| (Dollars in millions, except per share amounts) | | | | | | | | | | | | | | | | | |
| March 31, 2022 | $ | 1 | | | $ | 2,511 | | | $ | 1,074 | | | $ | (456) | | | $ | 6 | | | $ | 2,824 | | | $ | 5,960 | | | $ | 801 | | | $ | 6,761 | |
| | | | | | | | | | | | | | | | | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 35 | | | 35 | | | — | | | 35 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
| | | | | | | | | | | | | | | | | |
| TDS Common and Series A Common share dividends ($0.180 per share) | — | | | — | | | — | | | — | | | — | | | (21) | | | (21) | | | — | | | (21) | |
| | | | | | | | | | | | | | | | | |
| TDS Preferred share dividends ($414 per Series UU share and $375 per Series VV share) | — | | | — | | | — | | | — | | | — | | | (17) | | | (17) | | | — | | | (17) | |
| Repurchase of Common Shares | — | | | — | | | — | | | (16) | | | — | | | — | | | (16) | | | — | | | (16) | |
| Dividend reinvestment plan | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 1 | |
| Incentive and compensation plans | — | | | 5 | | | — | | | 8 | | | — | | | (11) | | | 2 | | | — | | | 2 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (5) | | | — | | | — | | | — | | | — | | | (5) | | | — | | | (5) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| June 30, 2022 | $ | 1 | | | $ | 2,511 | | | $ | 1,074 | | | $ | (463) | | | $ | 6 | | | $ | 2,810 | | | $ | 5,939 | | | $ | 804 | | | $ | 6,743 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — Liabilities andStatement of Changes in Equity
(Unaudited)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (Dollars and shares in millions, except per share amounts) | | | |
| Current liabilities | | | |
| Current portion of long-term debt | $ | 6 | | | $ | 5 | |
| Accounts payable | 374 | | | 508 | |
| Customer deposits and deferred revenues | 199 | | | 193 | |
| Accrued interest | 13 | | | 16 | |
| Accrued taxes | 66 | | | 69 | |
| Accrued compensation | 92 | | | 132 | |
| Short-term operating lease liabilities | 138 | | | 129 | |
| Other current liabilities | 98 | | | 101 | |
| Total current liabilities | 986 | | | 1,153 | |
| | | | |
| Liabilities held for sale | 0 | | | 1 | |
| | | |
| Deferred liabilities and credits | | | |
| Deferred income tax liability, net | 903 | | | 863 | |
| Long-term operating lease liabilities | 951 | | | 940 | |
| Other deferred liabilities and credits | 538 | | | 541 | |
| | | | |
| Long-term debt, net | 3,335 | | | 3,424 | |
| | | | |
| Commitments and contingencies | 0 | | 0 |
| | | | |
| Noncontrolling interests with redemption features | 10 | | | 10 | |
| | | | |
| 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 115 shares (7 Series A Common and 108 Common Shares) and 114 shares (7 Series A Common and 107 Common Shares), respectively | | | |
| Par Value ($0.01 per share) | 1 | | | 1 | |
| Capital in excess of par value | 2,462 | | | 2,482 | |
| Preferred Shares, par value $0.01 per share, $25,000 liquidation preference per share, .017 shares outstanding | 406 | | | 0 | |
| Treasury shares, at cost, 18 and 19 Common Shares, respectively | (458) | | | (477) | |
| Accumulated other comprehensive loss | (2) | | | (4) | |
| Retained earnings | 2,812 | | | 2,802 | |
| Total TDS shareholders' equity | 5,221 | | | 4,804 | |
| | | | |
| Noncontrolling interests | 836 | | | 789 | |
| | | | |
| Total equity | 6,057 | | | 5,593 | |
| | | | |
Total liabilities and equity1 | $ | 12,780 | | | $ | 12,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TDS Shareholders | | | | |
| | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions, except per share amounts) | | | | | | | | | | | | | | | | | |
| March 31, 2021 | $ | 1 | | | $ | 2,488 | | | $ | 408 | | | $ | (472) | | | $ | (3) | | | $ | 2,830 | | | $ | 5,252 | | | $ | 802 | | | $ | 6,054 | |
| | | | | | | | | | | | | | | | | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 27 | | | 27 | | | — | | | 27 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 7 | | | 7 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
| TDS Common and Series A Common share dividends ($0.175 per share) | — | | | — | | | — | | | — | | | — | | | (20) | | | (20) | | | — | | | (20) | |
| | | | | | | | | | | | | | | | | |
| TDS Preferred share dividends ($552 per Series UU share) | — | | | — | | | (2) | | | — | | | — | | | (7) | | | (9) | | | — | | | (9) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Incentive and compensation plans | — | | | 8 | | | — | | | 14 | | | — | | | (18) | | | 4 | | | — | | | 4 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (34) | | | — | | | — | | | — | | | — | | | (34) | | | 27 | | | (7) | |
| | | | | | | | | | | | | | | | | |
| June 30, 2021 | $ | 1 | | | $ | 2,462 | | | $ | 406 | | | $ | (458) | | | $ | (2) | | | $ | 2,812 | | | $ | 5,221 | | | $ | 836 | | | $ | 6,057 | |
The accompanying notes are an integral part of these consolidated financial statements.
1The consolidated total assets as of June 30, 2021 and December 31, 2020, include assets held by consolidated variable interest entities (VIEs) of $1,240 million and $1,042 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2021 and December 31, 2020, include certain liabilities of consolidated VIEs of $17 million and $18 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.
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| | | | TDS Shareholders | | | | | |
| | | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling
interests | | Total equity | | TDS Shareholders | | | | |
| (Dollars in millions) | | | | | | | | | | | | | | | | |
| March 31, 2021 | $ | 1 | | | $ | 2,488 | | | $ | 408 | | | $ | (472) | | | $ | (3) | | | $ | 2,830 | | | $ | 5,252 | | | $ | 802 | | | $ | 6,054 | | |
| | | | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions, except per share amounts) | | (Dollars in millions, except per share amounts) | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2021 | $ | 1 | | | $ | 2,496 | | | $ | 1,074 | | | $ | (461) | | | $ | 5 | | | $ | 2,812 | | | $ | 5,927 | | | $ | 807 | | | $ | 6,734 | |
| | Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 27 | | | 27 | | | — | | | 27 | | Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 96 | | | 96 | | | — | | | 96 | |
| Net income attributable to noncontrolling interests classified as equity | Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | 7 | | | 7 | | Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 14 | | | 14 | |
| Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | | Other comprehensive income | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
| TDS Common and Series A Common share dividends ($0.175 per share) | — | | | — | | | — | | | — | | | — | | | (20) | | | (20) | | | — | | | (20) | | |
| TDS Common and Series A Common share dividends ($0.360 per share) | | TDS Common and Series A Common share dividends ($0.360 per share) | — | | | — | | | — | | | — | | | — | | | (41) | | | (41) | | | — | | | (41) | |
| | TDS Preferred share dividends ($552.0833 per share) | — | | | — | | | (2) | | | — | | | — | | | (7) | | | (9) | | | — | | | (9) | | |
| | TDS Preferred share dividends ($828 per Series UU share and $750 per Series VV share) | | TDS Preferred share dividends ($828 per Series UU share and $750 per Series VV share) | — | | | — | | | — | | | — | | | — | | | (35) | | | (35) | | | — | | | (35) | |
| Repurchase of Common Shares | | Repurchase of Common Shares | — | | | — | | | — | | | (20) | | | — | | | — | | | (20) | | | — | | | (20) | |
| Dividend reinvestment plan | | Dividend reinvestment plan | — | | | 1 | | | — | | | 1 | | | — | | | (1) | | | 1 | | | — | | | 1 | |
| Incentive and compensation plans | Incentive and compensation plans | — | | | 8 | | | — | | | 14 | | | — | | | (18) | | | 4 | | | — | | | 4 | | Incentive and compensation plans | — | | | 9 | | | — | | | 17 | | | — | | | (21) | | | 5 | | | — | | | 5 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (34) | | | — | | | — | | | — | | | — | | | (34) | | | 27 | | | (7) | | Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | 5 | | | — | | | — | | | — | | | — | | | 5 | | | (15) | | | (10) | |
| | June 30, 2021 | $ | 1 | | | $ | 2,462 | | | $ | 406 | | | $ | (458) | | | $ | (2) | | | $ | 2,812 | | | $ | 5,221 | | | $ | 836 | | | $ | 6,057 | | |
| Distributions to noncontrolling interests | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
| June 30, 2022 | | June 30, 2022 | $ | 1 | | | $ | 2,511 | | | $ | 1,074 | | | $ | (463) | | | $ | 6 | | | $ | 2,810 | | | $ | 5,939 | | | $ | 804 | | | $ | 6,743 | |
The accompanying notes are an integral part of these consolidated financial statements.
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 | | TDS Shareholders | | | | |
| (Dollars in millions) | | | | | | | | | | | | | | | | |
| March 31, 2020 | $ | 1 | | | $ | 2,489 | | | $ | (480) | | | $ | (8) | | | $ | 2,718 | | | $ | 4,720 | | | $ | 729 | | | $ | 5,449 | | |
| Cumulative effect of accounting changes | — | | | — | | | — | | | (1) | | | (1) | | | — | | | (1) | | |
| | | | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions, except per share amounts) | | (Dollars in millions, except per share amounts) | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2020 | $ | 1 | | | $ | 2,482 | | | $ | — | | | $ | (477) | | | $ | (4) | | | $ | 2,802 | | | $ | 4,804 | | | $ | 789 | | | $ | 5,593 | |
| | Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 65 | | | 65 | | | — | | | 65 | | Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 86 | | | 86 | | | — | | | 86 | |
| Net income attributable to noncontrolling interests classified as equity | Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 13 | | | 13 | | Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19 | | | 19 | |
| Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | | Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
| TDS Common and Series A Common share dividends ($0.170 per share) | — | | | — | | | — | | | — | | | (20) | | | (20) | | | — | | | (20) | | |
| TDS Common and Series A Common share dividends ($0.350 per share) | | TDS Common and Series A Common share dividends ($0.350 per share) | — | | | — | | | — | | | — | | | — | | | (40) | | | (40) | | | — | | | (40) | |
| Issuance of TDS Preferred Shares, net of costs | | Issuance of TDS Preferred Shares, net of costs | — | | | — | | | 406 | | | — | | | — | | | — | | | 406 | | | — | | | 406 | |
| TDS Preferred share dividends ($552 per Series UU share) | | TDS Preferred share dividends ($552 per Series UU share) | — | | | — | | | — | | | — | | | — | | | (9) | | | (9) | | | — | | | (9) | |
| Repurchase of Common Shares | Repurchase of Common Shares | — | | | — | | | (8) | | | — | | | — | | | (8) | | | — | | | (8) | | Repurchase of Common Shares | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | | | — | | | (3) | |
| | Dividend reinvestment plan | | Dividend reinvestment plan | — | | | — | | | — | | | 1 | | | — | | | (1) | | | — | | | — | | | — | |
| Incentive and compensation plans | Incentive and compensation plans | — | | | 5 | | | 9 | | | — | | | (11) | | | 3 | | | — | | | 3 | | Incentive and compensation plans | — | | | 12 | | | — | | | 21 | | | — | | | (26) | | | 7 | | | — | | | 7 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (22) | | | — | | | — | | | — | | | (22) | | | 23 | | | 1 | | Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (32) | | | — | | | — | | | — | | | — | | | (32) | | | 30 | | | (2) | |
| | June 30, 2020 | $ | 1 | | | $ | 2,472 | | | $ | (479) | | | $ | (7) | | | $ | 2,751 | | | $ | 4,738 | | | $ | 765 | | | $ | 5,503 | | |
| Distributions to noncontrolling interests | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
| June 30, 2021 | | June 30, 2021 | $ | 1 | | | $ | 2,462 | | | $ | 406 | | | $ | (458) | | | $ | (2) | | | $ | 2,812 | | | $ | 5,221 | | | $ | 836 | | | $ | 6,057 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | TDS Shareholders | | | | |
| | Series A Common and Common shares | | Capital in excess of par value | | Preferred Shares | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions) | | | | | | | | | | | | | | | | | |
| December 31, 2020 | $ | 1 | | | $ | 2,482 | | | $ | 0 | | | $ | (477) | | | $ | (4) | | | $ | 2,802 | | | $ | 4,804 | | | $ | 789 | | | $ | 5,593 | |
| | | | | | | | | | | | | | | | | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | — | | | 86 | | | 86 | | | — | | | 86 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | 19 | | | 19 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
| TDS Common and Series A Common share dividends ($0.350 per share) | — | | | — | | | — | | | — | | | — | | | (40) | | | (40) | | | — | | | (40) | |
| Issuance of TDS Preferred Shares, net of costs | — | | | — | | | 406 | | | — | | | — | | | — | | | 406 | | | — | | | 406 | |
| TDS Preferred share dividends ($552.0833 per share) | — | | | — | | | — | | | — | | | — | | | (9) | | | (9) | | | — | | | (9) | |
| Repurchase of Common Shares | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | | | — | | | (3) | |
| Dividend reinvestment plan | — | | | — | | | — | | | 1 | | | — | | | (1) | | | 0 | | | — | | | 0 | |
| Incentive and compensation plans | — | | | 12 | | | — | | | 21 | | | — | | | (26) | | | 7 | | | — | | | 7 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (32) | | | — | | | — | | | — | | | — | | | (32) | | | 30 | | | (2) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (2) | | | (2) | |
| June 30, 2021 | $ | 1 | | | $ | 2,462 | | | $ | 406 | | | $ | (458) | | | $ | (2) | | | $ | 2,812 | | | $ | 5,221 | | | $ | 836 | | | $ | 6,057 | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2019 | $ | 1 | | | $ | 2,468 | | | $ | (479) | | | $ | (9) | | | $ | 2,672 | | | $ | 4,653 | | | $ | 751 | | | $ | 5,404 | |
| Cumulative effect of accounting changes | — | | | — | | | — | | | — | | | (1) | | | (1) | | | — | | | (1) | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 135 | | | 135 | | | — | | | 135 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 26 | | | 26 | |
| Other comprehensive income | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
| TDS Common and Series A Common share dividends ($0.340 per share) | — | | | — | | | — | | | — | | | (39) | | | (39) | | | — | | | (39) | |
| Repurchase of Common Shares | — | | | — | | | (14) | | | — | | | — | | | (14) | | | — | | | (14) | |
| Dividend reinvestment plan | — | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 1 | |
| Incentive and compensation plans | — | | | 8 | | | 13 | | | — | | | (16) | | | 5 | | | — | | | 5 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (4) | | | — | | | — | | | — | | | (4) | | | (11) | | | (15) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 0 | | | (1) | | | (1) | |
| June 30, 2020 | $ | 1 | | | $ | 2,472 | | | $ | (479) | | | $ | (7) | | | $ | 2,751 | | | $ | 4,738 | | | $ | 765 | | | $ | 5,503 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
Note 1 Basis of Presentation
The accounting policies of Telephone and Data Systems, Inc. (TDS) conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Unless otherwise specified, references to accounting provisions and GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements include the accounts of TDS and subsidiaries in which it has a controlling financial interest, including TDS’ 82%83%-owned subsidiary, United States Cellular Corporation (UScellular) and TDS’ wholly-owned subsidiaries,subsidiary, TDS Telecommunications LLC and TDS Broadband LLC (collectively, TDS(TDS Telecom). In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that requires consolidation under GAAP. Intercompany accounts and transactions have been eliminated.
TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended June 30, 2021,2022, are UScellular and TDS Telecom. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle-Straus). HMS’ and Suttle-Straus’ financial results were not significant to TDS’ operations. All of TDS’ segments operate only in the United States. See Note 1312 — 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, 2020.2021.
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, 20212022 and December 31, 20202021 and its results of operations, comprehensive income and changes in equity for the three and six months ended June 30, 20212022 and 2020,2021, and its cash flows for the six months ended June 30, 20212022 and 2020.2021. 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, 2020.2021.
ChangeSoftware License Agreements
Certain software licenses are recorded as acquisitions of property, plant and equipment and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition, and are treated as non-cash activity in Reportable Segments
During the first quarterConsolidated Statement of 2021, TDS modified its reporting segment structure to combine its Wireline and Cable segments into a single reportable segmentCash Flows. Such non-cash acquisitions of software license agreements were $139 million for TDS Telecom. TDS Telecom believes this presentation better articulates its progress and performance against its strategy, which includes a focus on overall broadband growth and future fiber deployment across its markets. This change also reflects TDS Telecom's progress in aligning its organizational, operational and support structures to leverage one cost base to better support its customers across all of its markets. Prior periods have been updated to conform to this revised presentation. See Note 13 — Business Segment Information for additional information on TDS' reportable segments.the six months ended June 30, 2022.
Restricted Cash
TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 9 — Debt for additional information related to the receivables securitization agreement. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 385 | | | $ | 1,429 | | Cash and cash equivalents | $ | 466 | | | $ | 367 | |
| Restricted cash included in Other current assets | Restricted cash included in Other current assets | 34 | | | 23 | | Restricted cash included in Other current assets | 39 | | | 47 | |
| Cash, cash equivalents and restricted cash in the statement of cash flows | Cash, cash equivalents and restricted cash in the statement of cash flows | $ | 419 | | | $ | 1,452 | | Cash, cash equivalents and restricted cash in the statement of cash flows | $ | 505 | | | $ | 414 | |
Note 2 Revenue Recognition
Disaggregation of Revenue
In the following table, TDS' revenues are disaggregated by type of service, which represents the relevant categorization of revenues for TDS' reportable segments, and timing of recognition. Service revenues are recognized over time and Equipment and product sales are point in time.
| | Three Months Ended June 30, 2021 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | UScellular | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | Revenues from contracts with customers: | | | | | | | |
| Type of service: | Type of service: | | | | | | | | | Type of service: | | | | | | | |
| Retail service | Retail service | $ | 686 | | | | $ | 0 | | | $ | 0 | | | $ | 686 | | Retail service | $ | 700 | | | $ | — | | | $ | — | | | $ | 700 | |
| Inbound roaming | Inbound roaming | 28 | | | | 0 | | | 0 | | | 28 | | Inbound roaming | 18 | | | — | | | — | | | 18 | |
| Residential | Residential | 0 | | | | 160 | | | 0 | | | 160 | | Residential | — | | | 168 | | | — | | | 168 | |
| Commercial | Commercial | 0 | | | | 46 | | | 0 | | | 46 | | Commercial | — | | | 44 | | | — | | | 44 | |
| Wholesale | Wholesale | 0 | | | | 44 | | | 0 | | | 44 | | Wholesale | — | | | 44 | | | — | | | 44 | |
| Other service | Other service | 40 | | | | 0 | | | 18 | | | 58 | | Other service | 42 | | | — | | | 19 | | | 61 | |
| Service revenues from contracts with customers | Service revenues from contracts with customers | 754 | | | | 251 | | | 18 | | | 1,022 | | Service revenues from contracts with customers | 760 | | | 255 | | | 19 | | | 1,035 | |
| Equipment and product sales | Equipment and product sales | 240 | | | | 0 | | | 22 | | | 262 | | Equipment and product sales | 244 | | | — | | | 41 | | | 285 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | 994 | | | | 251 | | | 39 | | | 1,284 | | Total revenues from contracts with customers | 1,004 | | | 255 | | | 60 | | | 1,320 | |
| Operating lease income | Operating lease income | 20 | | | | 1 | | | 6 | | | 27 | | Operating lease income | 23 | | | 1 | | | 6 | | | 29 | |
| Total operating revenues | Total operating revenues | $ | 1,014 | | | | $ | 252 | | | $ | 45 | | | $ | 1,311 | | Total operating revenues | $ | 1,027 | | | $ | 256 | | | $ | 66 | | | $ | 1,349 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Revenues from contracts with customers: | | | | | | | | | | | |
| Type of service: | | | | | | | | | | | |
| Retail service | $ | 658 | | | | | | | $ | 0 | | | $ | 0 | | | $ | 658 | |
| Inbound roaming | 41 | | | | | | | 0 | | | 0 | | | 41 | |
| Residential | 0 | | | | | | | 145 | | | 0 | | | 145 | |
| Commercial | 0 | | | | | | | 48 | | | 0 | | | 48 | |
| Wholesale | 0 | | | | | | | 46 | | | 0 | | | 46 | |
| Other service | 35 | | | | | | | 0 | | | 17 | | | 52 | |
| Service revenues from contracts with customers | 734 | | | | | | | 239 | | | 17 | | | 990 | |
| Equipment and product sales | 220 | | | | | | | 0 | | | 27 | | | 247 | |
| Total revenues from contracts with customers | 954 | | | | | | | 240 | | | 43 | | | 1,237 | |
| Operating lease income | 19 | | | | | | | 1 | | | 6 | | | 26 | |
| Total operating revenues | $ | 973 | | | | | | | $ | 241 | | | $ | 49 | | | $ | 1,263 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | UScellular | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | |
| Revenues from contracts with customers: | | | | | | | |
| Type of service: | | | | | | | |
Retail service1 | $ | 684 | | | $ | — | | | $ | — | | | $ | 684 | |
| Inbound roaming | 28 | | | — | | | — | | | 28 | |
| Residential | — | | | 160 | | | — | | | 160 | |
| Commercial | — | | | 46 | | | — | | | 46 | |
| Wholesale | — | | | 44 | | | — | | | 44 | |
Other service1 | 42 | | | — | | | 18 | | | 60 | |
| Service revenues from contracts with customers | 754 | | | 251 | | | 18 | | | 1,022 | |
| Equipment and product sales | 240 | | | — | | | 22 | | | 262 | |
| Total revenues from contracts with customers | 994 | | | 251 | | | 39 | | | 1,284 | |
| Operating lease income | 20 | | | 1 | | | 6 | | | 27 | |
| Total operating revenues | $ | 1,014 | | | $ | 252 | | | $ | 45 | | | $ | 1,311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Revenues from contracts with customers: | | | | | | | | | | | |
| Type of service: | | | | | | | | | | | |
| Retail service | $ | 1,371 | | | | | | | $ | 0 | | | $ | 0 | | | $ | 1,371 | |
| Inbound roaming | 56 | | | | | | | 0 | | | 0 | | | 56 | |
| Residential | 0 | | | | | | | 317 | | | 0 | | | 317 | |
| Commercial | 0 | | | | | | | 93 | | | 0 | | | 93 | |
| Wholesale | 0 | | | | | | | 89 | | | 0 | | | 89 | |
| Other service | 77 | | | | | | | 0 | | | 34 | | | 111 | |
| Service revenues from contracts with customers | 1,504 | | | | | | | 499 | | | 34 | | | 2,037 | |
| Equipment and product sales | 492 | | | | | | | 1 | | | 45 | | | 538 | |
| Total revenues from contracts with customers | 1,996 | | | | | | | 499 | | | 79 | | | 2,575 | |
| Operating lease income | 41 | | | | | | | 1 | | | 12 | | | 54 | |
| Total operating revenues | $ | 2,037 | | | | | | | $ | 501 | | | $ | 91 | | | $ | 2,629 | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2020 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | UScellular | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | Revenues from contracts with customers: | | | | | | | |
| Type of service: | Type of service: | | | | | | | | | Type of service: | | | | | | | |
| Retail service | Retail service | $ | 1,329 | | | | $ | 0 | | | $ | 0 | | | $ | 1,329 | | Retail service | $ | 1,402 | | | $ | — | | | $ | — | | | $ | 1,402 | |
| Inbound roaming | Inbound roaming | 77 | | | | 0 | | | 0 | | | 77 | | Inbound roaming | 39 | | | — | | | — | | | 39 | |
| Residential | Residential | 0 | | | | 289 | | | 0 | | | 289 | | Residential | — | | | 330 | | | — | | | 330 | |
| Commercial | Commercial | 0 | | | | 98 | | | 0 | | | 98 | | Commercial | — | | | 87 | | | — | | | 87 | |
| Wholesale | Wholesale | 0 | | | | 92 | | | 0 | | | 92 | | Wholesale | — | | | 87 | | | — | | | 87 | |
| Other service | Other service | 71 | | | | 0 | | | 35 | | | 106 | | Other service | 84 | | | — | | | 36 | | | 120 | |
| Service revenues from contracts with customers | Service revenues from contracts with customers | 1,477 | | | | 479 | | | 35 | | | 1,990 | | Service revenues from contracts with customers | 1,525 | | | 505 | | | 36 | | | 2,065 | |
| Equipment and product sales | Equipment and product sales | 422 | | | | 1 | | | 59 | | | 482 | | Equipment and product sales | 467 | | | 1 | | | 71 | | | 539 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | 1,899 | | | | 479 | | | 94 | | | 2,472 | | Total revenues from contracts with customers | 1,992 | | | 506 | | | 107 | | | 2,604 | |
| Operating lease income | Operating lease income | 38 | | | | 2 | | | 12 | | | 52 | | Operating lease income | 45 | | | 2 | | | 13 | | | 60 | |
| Total operating revenues | Total operating revenues | $ | 1,937 | | | | $ | 481 | | | $ | 106 | | | $ | 2,524 | | Total operating revenues | $ | 2,037 | | | $ | 507 | | | $ | 120 | | | $ | 2,664 | |
| Numbers may not foot due to rounding. | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Six Months Ended June 30, 2021 | UScellular | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | |
| Revenues from contracts with customers: | | | | | | | |
| Type of service: | | | | | | | |
Retail service1 | $ | 1,367 | | | $ | — | | | $ | — | | | $ | 1,367 | |
| Inbound roaming | 56 | | | — | | | — | | | 56 | |
| Residential | — | | | 317 | | | — | | | 317 | |
| Commercial | — | | | 93 | | | — | | | 93 | |
| Wholesale | — | | | 89 | | | — | | | 89 | |
Other service1 | 81 | | | — | | | 34 | | | 115 | |
| Service revenues from contracts with customers | 1,504 | | | 499 | | | 34 | | | 2,037 | |
| Equipment and product sales | 492 | | | 1 | | | 45 | | | 538 | |
| Total revenues from contracts with customers | 1,996 | | | 499 | | | 79 | | | 2,575 | |
| Operating lease income | 41 | | | 1 | | | 12 | | | 54 | |
| Total operating revenues | $ | 2,037 | | | $ | 501 | | | $ | 91 | | | $ | 2,629 | |
For the three and six months ended June 30, 2021, amounts have been adjusted to reclassify $2 million and $4 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other service.Contract Balances
The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.
| | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | | | |
| Contract assets | $ | 13 | | | $ | 13 | |
| Contract liabilities | $ | 229 | | | $ | 216 | |
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | | | |
| Contract assets | $ | 9 | | | $ | 10 | |
| Contract liabilities | $ | 303 | | | $ | 289 | |
Revenue recognized related to contract liabilities existing at January 1, 20212022 was $146$171 million for the six months ended June 30, 2021.2022.
Transaction price allocated to the remaining performance obligations
The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of June 30, 20212022 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.
| | | | Service Revenues | | Service Revenues |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Remainder of 2021 | $ | 262 | | |
| 2022 | 200 | | |
| Remainder of 2022 | | Remainder of 2022 | $ | 277 | |
| 2023 | | 2023 | 216 | |
| Thereafter | Thereafter | 207 | | Thereafter | 186 | |
| Total | Total | $ | 669 | | Total | $ | 679 | |
Contract Cost Assets
TDS expects that commission fees paid as a result of obtaining contracts are recoverable and therefore TDS defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Deferred commission fees and fulfillment costs are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows:
| | | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | (Dollars in millions) | | |
| Costs to obtain contracts | Costs to obtain contracts | | | Costs to obtain contracts | | |
| Sales commissions | Sales commissions | $ | 136 | | | $ | 139 | | Sales commissions | $ | 134 | | | $ | 139 | |
| Fulfillment costs | Fulfillment costs | | Fulfillment costs | |
| Installation costs | Installation costs | 10 | | | 10 | | Installation costs | 9 | | | 10 | |
| | Total contract cost assets | Total contract cost assets | $ | 146 | | | $ | 149 | | Total contract cost assets | $ | 143 | | | $ | 149 | |
Amortization of contract cost assets was $28 million and $57 million for the three and six months ended June 30, 2022, respectively, and $29 million and $59 million for the three and six months ended June 30, 2021, respectively, and $30 million and $61 million for the three and six months ended June 30, 2020, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.
Note 3 Fair Value Measurements
As of June 30, 20212022 and December 31, 2020,2021, 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, 2021 | | December 31, 2020 | | Level within the Fair Value Hierarchy | | June 30, 2022 | | December 31, 2021 |
| | | Book Value | | Fair Value | | Book Value | | Fair Value | | Book Value | | Fair Value | | Book Value | | Fair Value |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | | (Dollars in millions) | | | | | | | | | |
| Long-term debt | Long-term debt | | Long-term debt | |
| Retail | Retail | 2 | | $ | 2,153 | | | $ | 2,276 | | | $ | 2,753 | | | $ | 2,809 | | Retail | 2 | | $ | 1,500 | | | $ | 1,156 | | | $ | 1,500 | | | $ | 1,594 | |
| Institutional | Institutional | 2 | | 535 | | | 670 | | | 535 | | | 707 | | Institutional | 2 | | 536 | | | 425 | | | 535 | | | 659 | |
| Other | Other | 2 | | 720 | | | 720 | | | 230 | | | 230 | | Other | 2 | | 1,486 | | | 1,486 | | | 944 | | | 944 | |
Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for TDS and UScellular Senior Notes, which are traded on the New York Stock Exchange. TDS’ “Institutional” debt consists of UScellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of senior term loan credit agreements, revolving creditreceivables securitization agreement and receivables securitizationin 2022, export credit financing agreement. TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 1.26%2.22% to 4.34%7.75% and 1.35%1.31% to 3.75%4.40% at June 30, 20212022 and December 31, 2020,2021, respectively.
The fair values of Cash and cash equivalents, restricted cash and Short-term investmentsshort-term debt approximate their book values due to the short-term nature of these financial instruments.
Note 4 Equipment Installment Plans
UScellular sells devices to customers under equipment installment plans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.
The following table summarizes equipment installment plan receivables.
| | | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Equipment installment plan receivables, gross | Equipment installment plan receivables, gross | $ | 1,015 | | | $ | 1,007 | | Equipment installment plan receivables, gross | $ | 1,074 | | | $ | 1,085 | |
| | Allowance for credit losses | Allowance for credit losses | (72) | | | (78) | | Allowance for credit losses | (74) | | | (72) | |
| Equipment installment plan receivables, net | Equipment installment plan receivables, net | $ | 943 | | | $ | 929 | | Equipment installment plan receivables, net | $ | 1,000 | | | $ | 1,013 | |
| | Net balance presented in the Consolidated Balance Sheet as: | Net balance presented in the Consolidated Balance Sheet as: | | Net balance presented in the Consolidated Balance Sheet as: | |
| Accounts receivable — Customers and agents (Current portion) | Accounts receivable — Customers and agents (Current portion) | $ | 598 | | | $ | 590 | | Accounts receivable — Customers and agents (Current portion) | $ | 631 | | | $ | 639 | |
| Other assets and deferred charges (Non-current portion) | Other assets and deferred charges (Non-current portion) | 345 | | | 339 | | Other assets and deferred charges (Non-current portion) | 369 | | | 374 | |
| Equipment installment plan receivables, net | Equipment installment plan receivables, net | $ | 943 | | | $ | 929 | | Equipment installment plan receivables, net | $ | 1,000 | | | $ | 1,013 | |
UScellular uses various inputs, including internal data, information from 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. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | Lowest Risk | | Lower Risk | | Slight Risk | | Higher Risk | | Total | | Lowest Risk | | Lower Risk | | Slight Risk | | Higher Risk | | Total | | Lowest Risk | | Lower Risk | | Slight Risk | | Higher Risk | | Total | | Lowest Risk | | Lower Risk | | Slight Risk | | Higher Risk | | Total |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Unbilled | Unbilled | $ | 836 | | | $ | 95 | | | $ | 24 | | | $ | 6 | | | $ | 961 | | | $ | 819 | | | $ | 98 | | | $ | 22 | | | $ | 9 | | | $ | 948 | | Unbilled | $ | 892 | | | $ | 91 | | | $ | 22 | | | $ | 5 | | | $ | 1,010 | | | $ | 896 | | | $ | 94 | | | $ | 24 | | | $ | 5 | | | $ | 1,019 | |
| Billed — current | Billed — current | 35 | | | 4 | | | 1 | | | 0 | | | 40 | | | 36 | | | 5 | | | 1 | | | 1 | | | 43 | | Billed — current | 38 | | | 5 | | | 1 | | | — | | | 44 | | | 40 | | | 5 | | | 1 | | | 1 | | | 47 | |
| Billed — past due | Billed — past due | 7 | | | 4 | | | 2 | | | 1 | | | 14 | | | 8 | | | 5 | | | 2 | | | 1 | | | 16 | | Billed — past due | 11 | | | 6 | | | 2 | | | 1 | | | 20 | | | 10 | | | 6 | | | 2 | | | 1 | | | 19 | |
| Total | Total | $ | 878 | | | $ | 103 | | | $ | 27 | | | $ | 7 | | | $ | 1,015 | | | $ | 863 | | | $ | 108 | | | $ | 25 | | | $ | 11 | | | $ | 1,007 | | Total | $ | 941 | | | $ | 102 | | | $ | 25 | | | $ | 6 | | | $ | 1,074 | | | $ | 946 | | | $ | 105 | | | $ | 27 | | | $ | 7 | | | $ | 1,085 | |
The balance of the equipment installment plan receivables as of June 30, 20212022 on a gross basis by year of origination were as follows:
| | | 2018 | | 2019 | | 2020 | | 2021 | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | Total |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Lowest Risk | Lowest Risk | $ | 2 | | | $ | 140 | | | $ | 415 | | | $ | 321 | | | $ | 878 | | Lowest Risk | $ | 3 | | | $ | 146 | | | $ | 462 | | | $ | 330 | | | $ | 941 | |
| Lower Risk | Lower Risk | 0 | | | 11 | | | 48 | | | 44 | | | 103 | | Lower Risk | — | | | 10 | | | 52 | | | 40 | | | 102 | |
| Slight Risk | Slight Risk | 0 | | | 2 | | | 8 | | | 17 | | | 27 | | Slight Risk | — | | | 1 | | | 8 | | | 16 | | | 25 | |
| Higher Risk | Higher Risk | 0 | | | 1 | | | 3 | | | 3 | | | 7 | | Higher Risk | — | | | — | | | 3 | | | 3 | | | 6 | |
| Total | Total | $ | 2 | | | $ | 154 | | | $ | 474 | | | $ | 385 | | | $ | 1,015 | | Total | $ | 3 | | | $ | 157 | | | $ | 525 | | | $ | 389 | | | $ | 1,074 | |
Activity for the six months ended June 30, 20212022 and 2020,2021, in the allowance for credit losses for equipment installment plan receivables was as follows:
| | | | June 30, 2021 | | June 30, 2020 | | June 30, 2022 | | June 30, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | $ | 78 | | | $ | 84 | | Allowance for credit losses, beginning of period | $ | 72 | | | $ | 78 | |
| Bad debts expense | Bad debts expense | 13 | | | 33 | | Bad debts expense | 37 | | | 13 | |
| Write-offs, net of recoveries | Write-offs, net of recoveries | (19) | | | (35) | | Write-offs, net of recoveries | (35) | | | (19) | |
| Allowance for credit losses, end of period | Allowance for credit losses, end of period | $ | 72 | | | $ | 82 | | Allowance for credit losses, end of period | $ | 74 | | | $ | 72 | |
Note 5 Income Taxes
The effective tax rate on Income before income taxes for the three and six months ended June 30, 2022 was 40.4% and 36.7%, respectively. These effective tax rates reflect a combined rate of federal and state taxes, adjusted for impacts of nondeductible compensation and interest expense.
The effective tax rate on Income before income taxes for the three and six months ended June 30, 2021 was (48.9)% and 15.5%, respectively. These effective tax rates were lower than normal due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.
The effective tax rate on Income before income taxes for the three and six months ended June 30, 2020 was 9.6% and 6.9%, respectively. These effective tax rates were lower than normal due primarily to the income tax benefits of the CARES Act.
Note 6 Earnings Per Share
Basic earnings per share attributable to TDS common shareholders is computed by dividing Net income attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share attributable to TDS common shareholders is computed by dividing Net income attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.
The amounts used in computing basic and diluted earnings per share attributable to TDS common shareholders were as follows:
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars and shares in millions, except per share amounts) | (Dollars and shares in millions, except per share amounts) | | | | | | | (Dollars and shares in millions, except per share amounts) | | | | | | |
| Net income attributable to TDS common shareholders used in basic earnings per share | Net income attributable to TDS common shareholders used in basic earnings per share | $ | 20 | | | $ | 65 | | | $ | 77 | | | $ | 135 | | Net income attributable to TDS common shareholders used in basic earnings per share | $ | 18 | | | $ | 20 | | | $ | 61 | | | $ | 77 | |
| Adjustments to compute diluted earnings: | Adjustments to compute diluted earnings: | | Adjustments to compute diluted earnings: | |
| Noncontrolling interest adjustment | Noncontrolling interest adjustment | 0 | | | 0 | | | (1) | | | (2) | | Noncontrolling interest adjustment | — | | | — | | | (1) | | | (1) | |
| Net income attributable to TDS common shareholders used in diluted earnings per share | Net income attributable to TDS common shareholders used in diluted earnings per share | $ | 20 | | | $ | 65 | | | $ | 76 | | | $ | 133 | | Net income attributable to TDS common shareholders used in diluted earnings per share | $ | 18 | | | $ | 20 | | | $ | 60 | | | $ | 76 | |
| | Weighted average number of shares used in basic earnings per share: | Weighted average number of shares used in basic earnings per share: | | Weighted average number of shares used in basic earnings per share: | |
| Common Shares | Common Shares | 108 | | | 107 | | | 108 | | | 108 | | Common Shares | 108 | | | 108 | | | 108 | | | 108 | |
| Series A Common Shares | Series A Common Shares | 7 | | | 7 | | | 7 | | | 7 | | Series A Common Shares | 7 | | | 7 | | | 7 | | | 7 | |
| Total | Total | 115 | | | 114 | | | 115 | | | 115 | | Total | 115 | | | 115 | | | 115 | | | 115 | |
| | Effects of dilutive securities | Effects of dilutive securities | 1 | | | 1 | | | 1 | | | 0 | | Effects of dilutive securities | 1 | | | 1 | | | 1 | | | 1 | |
| Weighted average number of shares used in diluted earnings per share | Weighted average number of shares used in diluted earnings per share | 116 | | | 115 | | | 116 | | | 115 | | Weighted average number of shares used in diluted earnings per share | 116 | | | 116 | | | 116 | | | 116 | |
| | Basic earnings per share attributable to TDS common shareholders | Basic earnings per share attributable to TDS common shareholders | $ | 0.18 | | | $ | 0.57 | | | $ | 0.67 | | | $ | 1.18 | | Basic earnings per share attributable to TDS common shareholders | $ | 0.15 | | | $ | 0.18 | | | $ | 0.53 | | | $ | 0.67 | |
| | Diluted earnings per share attributable to TDS common shareholders | Diluted earnings per share attributable to TDS common shareholders | $ | 0.17 | | | $ | 0.56 | | | $ | 0.65 | | | $ | 1.15 | | Diluted earnings per share attributable to TDS common shareholders | $ | 0.15 | | | $ | 0.17 | | | $ | 0.52 | | | $ | 0.65 | |
Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings per share attributable to TDS common shareholders because their effects were antidilutive. The number of such Common Shares excluded was 4 million for both the three and six months ended June 30, 2022, and 3 million for both the three and six months ended June 30, 2021 and 5 million and 4 million for the three and six months ended June 30, 2020, respectively.2021.
Note 7 Intangible Assets
Activity related to Licenses for the six months ended June 30, 2021,2022, is presented below:
| | | | | |
| Licenses |
| (Dollars in millions) | |
Balance at December 31, 20202021 | $ | 2,6384,097 | |
| Acquisitions | 1,283 587 | |
| Impairment | (3) | |
| Transferred to Assets held for sale | (1)1 | |
| |
| Exchanges - Licenses received | 1 | |
| |
| Capitalized interest | 63 | |
Balance at June 30, 20212022 | $ | 3,9264,686 | |
In February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $178$187 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, which occurred aftergranted. In October 2021, UScellular paid $36 million related to the period ended June 30, 2021.additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.
In January 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110) for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The advance payment was included in Other assets and deferred charges in the December 31, 2021 Consolidated Balance Sheet. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.
Note 8 Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest. TDS’ Investments in unconsolidated entities are accounted for using either the equity method, or measurement alternative method or net asset value practical expedient method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Equity method investments | Equity method investments | $ | 465 | | | $ | 456 | | Equity method investments | $ | 455 | | | $ | 457 | |
| Measurement alternative method investments | Measurement alternative method investments | 22 | | | 21 | | Measurement alternative method investments | 18 | | | 22 | |
| Investments recorded using the net asset value practical expedient | | Investments recorded using the net asset value practical expedient | 10 | | | — | |
| Total investments in unconsolidated entities | Total investments in unconsolidated entities | $ | 487 | | | $ | 477 | | Total investments in unconsolidated entities | $ | 483 | | | $ | 479 | |
The following table, which is based on unaudited information provided in part by third parties, summarizes the combined results of operations of TDS’ equity method investments.
| | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Revenues | Revenues | $ | 1,748 | | | $ | 1,586 | | | $ | 3,482 | | | $ | 3,249 | | Revenues | $ | 1,779 | | | $ | 1,748 | | | $ | 3,595 | | | $ | 3,482 | |
| Operating expenses | Operating expenses | 1,221 | | | 1,098 | | | 2,502 | | | 2,265 | | Operating expenses | 1,395 | | | 1,221 | | | 2,772 | | | 2,502 | |
| Operating income | Operating income | 527 | | | 488 | | | 980 | | | 984 | | Operating income | 384 | | | 527 | | | 823 | | | 980 | |
| Other income (expense), net | Other income (expense), net | (2) | | | (2) | | | 10 | | | 1 | | Other income (expense), net | (2) | | | (2) | | | (6) | | | 10 | |
| Net income | Net income | $ | 525 | | | $ | 486 | | | $ | 990 | | | $ | 985 | | Net income | $ | 382 | | | $ | 525 | | | $ | 817 | | | $ | 990 | |
Note 9 Debt
Revolving Credit Agreements
The following table summarizes the revolving credit agreements as of June 30, 2021:2022:
| | | TDS | | UScellular | | TDS | | UScellular |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Maximum borrowing capacity | Maximum borrowing capacity | $ | 400 | | | $ | 300 | | Maximum borrowing capacity | $ | 400 | | | $ | 300 | |
| Letters of credit outstanding | Letters of credit outstanding | $ | 1 | | | $ | 0 | | Letters of credit outstanding | $ | 1 | | | $ | — | |
| Amount borrowed | Amount borrowed | $ | 125 | | | $ | 0 | | Amount borrowed | $ | — | | | $ | — | |
| Amount available for use | Amount available for use | $ | 274 | | | $ | 300 | | Amount available for use | $ | 399 | | | $ | 300 | |
Borrowings under the TDS revolving credit agreement bear interest at a rate of London Inter-bank Offered Rate (LIBOR) plus 1.50%.
Borrowings under the UScellular revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus 1.60%.
During the six months ended June 30, 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement.
TDS and UScellular believe that they were in compliance with all of the financial and other covenants and other requirements set forth in their revolving credit agreements as of June 30, 2021.
In July 2021, TDS and UScellular amended and restated their revolving credit agreements. The maturity date of the agreements was extended to July 2026 and the consolidated leverage ratio, as defined in the agreements, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the revolving credit agreements.2022.
Term Loan Agreements
The following table summarizes the term loan credit agreements as of June 30, 2021:2022:
| | | TDS | | UScellular | | TDS | | UScellular |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Maximum borrowing capacity | Maximum borrowing capacity | $ | 200 | | | $ | 300 | | Maximum borrowing capacity | $ | 500 | | | $ | 800 | |
| Amount borrowed | $ | 200 | | | $ | 300 | | |
| Amount borrowed and outstanding | | Amount borrowed and outstanding | $ | 349 | | | $ | 698 | |
| Amount borrowed and repaid | | Amount borrowed and repaid | $ | 1 | | | $ | 2 | |
| Amount available for use | Amount available for use | $ | 0 | | | $ | 0 | | Amount available for use | $ | 150 | | | $ | 100 | |
As of June 30, 2021, borrowingsBorrowings under the TDS term loan agreements bear interest at a rate of LIBOR plus 2.0%2.00% or LIBOR plus 2.50%. The maturity dates of the TDS term loan agreements are July 2028 and principal reductions are due and payable in quarterly installments of $0.5 million beginning in June 2021.
July 2031. In July 2021,2022, TDS amended and restated itsborrowed the remaining $150 million under the term loan agreement to allow for an additional $300 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.5 million beginning in December 2021. Amounts borrowedagreement.
Borrowings under the existingUScellular term loan agreement willagreements bear interest at a rate of LIBORSOFR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $300 million borrowing capacity will bear interest at a rate1.60%, SOFR plus 2.10% or SOFR plus 2.60%. The maturity dates of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.
As of June 30, 2021, borrowings under the UScellular term loan bear interest at a rate of LIBOR plus 2.25%agreements are July 2026, July 2028 and principal reductions are due and payable in quarterly installments of $0.75 million beginning in September 2021.
July 2031. In July 2021,2022, UScellular amended and restated its term loan agreement to allow for an additional $200borrowed the remaining $100 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.75 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $200 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.
TDS and UScellular believe that they were in compliance with all of the financial and other covenants and other requirements set forth in their senior term loan credit agreements as of June 30, 2021.2022.
Export Credit Financing Agreement
In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) equipment imported from Canada, including equipment purchased prior to entering the term loan credit facility agreement. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable on the five-year anniversary of the first borrowing, which is in January 2027. During the six months ended June 30, 2022, UScellular borrowed $150 million, which is the full amount available under the agreement.
TDS believes that UScellular was in compliance with all of the financial and other covenants and requirements set forth in their export credit financing agreement as of June 30, 2022.
Receivables Securitization Agreement
At June 30, 2021, UScellular, hadthrough its subsidiaries, has a receivables securitization agreement for securitized borrowings using its equipment installment receivables for general corporate purposes.receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. There were no significant changes to other terms of the receivable securitization agreement. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until the maturity in December 2022,date, which may be extended from time to time as specified therein. The outstanding borrowings bear interest at floating rates. In March 2021,a rate that approximates SOFR plus 0.90%. During the six months ended June 30, 2022, UScellular borrowed $275repaid $150 million under its receivables securitizationthe agreement. In June 2021, UScellular repaid $200 million of the outstanding borrowing. In June 2021, UScellular increased the borrowing capacity under the receivables securitization agreement to $450 million. As of June 30, 2021,2022, the outstanding borrowings under the agreement were $100$300 million and the unused borrowing capacity under the agreement was $350$150 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. UScellular believes that it was in compliance with all of the financial covenants and other requirements set forth in its receivables securitization agreement as of June 30, 2021. As of June 30, 2021,2022, the USCC Master Note Trust held $382$426 million of assets available to be pledged as collateral for the receivables securitization agreement.
In July 2021,2022, UScellular amended therepaid $50 million under its receivables securitization agreement. The consolidated leverage ratio,
TDS believes that UScellular was in compliance with all of the financial and other covenants and requirements set forth in their receivables securitization agreement as defined inof June 30, 2022.
Repurchase Agreement
In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement may not be greater than 3.75of the lender. The transaction form involves the sale of receivables by the repo subsidiary and the commitment to 1.00 as ofrepurchase at the end of any fiscal quarter. There were no significant changesthe applicable repurchase term, which may extend up to other termsone month. The transaction is accounted for as a one-month secured borrowing. The outstanding borrowings bear interest at a rate of SOFR plus 1.25%. Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control and collection risk of the receivablereceivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing. UScellular will continue to report equipment installment plan receivables and any related balances on the Consolidated Balance Sheet. The expiration date of the repurchase agreement is in January 2023. During the six months ended June 30, 2022, the repo subsidiary borrowed $60 million under the repurchase agreement. As of June 30, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million. The outstanding borrowings are included in Other current liabilities in the June 30, 2022 Consolidated Balance Sheet. As of June 30, 2022, UScellular held $638 million of assets available for inclusion in the repurchase facility; these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement.
Other Long-Term Debt
In May 2021, TDS redeemedJuly 2022, UScellular repaid $50 million under its outstanding $225 million of 6.875% Senior Notes due 2059 and $300 million of 7.0% Senior Notes due 2060, and UScellular redeemed its outstanding $275 million of 7.25% Senior Notes due 2063. At time of redemption, $26 million of interest expense was recorded related to unamortized debt issuance costs related to the notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.
In May 2021, UScellular issued $500 million of 5.5% Senior Notes due in June 2070, and received cash proceeds of $484 million after payment of debt issuance costs of $16 million. These funds will be used for general corporate purposes. Interest on these notes is payable quarterly beginning in September 2021. UScellular may redeem these notes, in whole or in part, at any time after June 2026 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest.
In June 2021, UScellular redeemed its outstanding $300 million of 7.25% Senior Notes due 2064. At time of redemption, $10 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.
In August 2021, TDS announced that it will redeem its outstanding $116 million of 6.625% Senior Notes due 2045 and UScellular announced that it will redeem its outstanding $342 million of 6.95% Senior Notes due 2060. At time of redemption, $14 million of interest expense will be recorded related to unamortized debt issuance costs related to the notes. The notes are expected to be redeemed on September 1, 2021, at a redemption price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.repurchase agreement.
Note 10 Variable Interest Entities
Consolidated VIEs
TDS consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. TDS reviews the criteria for a controlling financial interest at the time it enters into agreements and subsequently when events warranting reconsideration occur. These VIEs have risks similar to those described in the “Risk Factors” in this Form 10-Q and TDS’ Form 10-K for the year ended December 31, 2020.2021.
UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs and, therefore, consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables.
The following VIEs were formed to participate in FCC auctions of wireless spectrum licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions:
▪Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and
▪King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.
These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect TDS subsidiary, to sell or lease certain wireless spectrum licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated.
TDS also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, UScellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships also are recognized as VIEs and are consolidated under the variable interest model.
The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in TDS’ Consolidated Balance Sheet.
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Assets | Assets | | | | Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 31 | | | $ | 18 | | Cash and cash equivalents | $ | 30 | | | $ | 22 | |
| Short-term investments | 0 | | | 3 | | |
| | Accounts receivable | Accounts receivable | 647 | | | 638 | | Accounts receivable | 686 | | | 692 | |
| Inventory, net | Inventory, net | 3 | | | 3 | | Inventory, net | 3 | | | 2 | |
| Other current assets | Other current assets | 31 | | | 21 | | Other current assets | 35 | | | 44 | |
| | Licenses | Licenses | 637 | | | 637 | | Licenses | 638 | | | 637 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 98 | | | 99 | | Property, plant and equipment, net | 110 | | | 108 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 39 | | | 37 | | Operating lease right-of-use assets | 41 | | | 42 | |
| Other assets and deferred charges | Other assets and deferred charges | 355 | | | 347 | | Other assets and deferred charges | 379 | | | 382 | |
| Total assets | Total assets | $ | 1,841 | | | $ | 1,803 | | Total assets | $ | 1,922 | | | $ | 1,929 | |
| | Liabilities | Liabilities | | Liabilities | |
| Current liabilities | Current liabilities | $ | 23 | | | $ | 26 | | Current liabilities | $ | 89 | | | $ | 28 | |
| Long-term operating lease liabilities | Long-term operating lease liabilities | 35 | | | 34 | | Long-term operating lease liabilities | 37 | | | 37 | |
| Other deferred liabilities and credits | Other deferred liabilities and credits | 20 | | | 19 | | Other deferred liabilities and credits | 26 | | | 23 | |
Total liabilities1 | Total liabilities1 | $ | 78 | | | $ | 79 | | Total liabilities1 | $ | 152 | | | $ | 88 | |
1 Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 9 – Debt for additional information.
Unconsolidated VIEs
TDS manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.
TDS’ total investment in these unconsolidated entities was $5 million and $4 million at both June 30, 20212022 and December 31, 2020,2021, respectively, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities.
Other Related Matters
TDS made contributions, loans or advances to its VIEs totaling $50$101 million and $88$50 million, during the six months ended June 30, 20212022 and 2020,2021, respectively, of which $80 million in 2022 and $21 million in 2021, and $67 million in 2020, 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 or receivables securitization agreements and/or other long-term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.
The limited partnership agreement of Advantage Spectrum also provides the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of UScellular, to purchase its interest in the limited partnership. TheIn June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage SpectrumSpectrum will now be exercisable in the third quarter of 2021,2023, and if not exercised at that time, will be exercisable in 2022.the third quarter of 2024. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to TDS, is recorded as Noncontrolling interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put option, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated Statement of Operations.
Note 11 Noncontrolling Interests
The following schedule discloses the effects of Net income attributable to TDS shareholders and changes in TDS’ ownership interest in UScellular on TDS’ equity:
| | | | | | | | | | | |
| Six Months Ended June 30, | 2021 | | 2020 |
| (Dollars in millions) | | | |
| Net income attributable to TDS shareholders | $ | 86 | | | $ | 135 | |
| Transfers (to) from noncontrolling interests | | | |
| Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares | (43) | | | (32) | |
| Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares | 1 | | | 14 | |
| | | |
| Net transfers (to) from noncontrolling interests | (42) | | | (18) | |
| Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests | $ | 44 | | | $ | 117 | |
Note 12 Shareholders' Equity
Preferred Stock
In March 2021, TDS issued 16,800 shares of TDS’ 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock (Preferred Shares) for $25,000 per Preferred Share, for total gross proceeds of $420 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 16,800,000 depositary shares (Depositary Shares), each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $406 million after payment of issuance costs of $14 million. The proceeds were for general corporate purposes, including but not limited to, the funding of capital expenditures associated with TDS Telecom's fiber program and retirement of existing debt.
Each holder of Depositary Shares is entitled to a proportional fractional interest in all rights and preferences of the Preferred Shares, including dividend, voting, redemption and liquidation rights. The Preferred Shares have no maturity or mandatory redemption date and are not redeemable at the option of the holders.
Dividends on the Preferred Shares, when declared, are payable quarterly at a rate equal to 6.625% per year. As of June 30, 2021, there were no dividends in arrears. The Preferred Shares rank senior to TDS’ Common Shares and junior to all of TDS’ existing and future indebtedness outstanding under the TDS’ credit facilities and unsecured senior notes. Upon voluntary or involuntary liquidation, holders of Preferred Shares are entitled to a liquidating distribution of $25,000 per Preferred Share after satisfaction of liabilities and obligations to creditors. The Preferred Shares do not have voting rights, except under limited conditions.
TDS may, at its option, redeem the Preferred shares (a) in whole or in part, on or after March 31, 2026 at a redemption price of $25,000 per Preferred Share, or (b) in whole but not in part, any time prior to March 31, 2026, within 120 days after a credit rating downgrade as specified in the offering prospectus, at a redemption price of $25,500 per Preferred Share, or (c) in whole or in part, within 120 days of the occurrence of a change in control as specified in the offering prospectus, at a redemption price of $25,000 per Preferred Share, plus, in each case, all accumulated and unpaid dividends (whether or not declared) up to the redemption date.
The Preferred Shares are convertible, at the option of the holder, to shares of TDS Common Shares upon a change of control as specified in the offering prospectus. The conversion right is the lesser of (a) Common Shares equal to $25,000 per Preferred Share plus any accumulated and unpaid dividends, divided by the TDS Common Stock price, or (b) 2,773.200 Common Shares for each Preferred Share, which represents one-half the conversion rate at the time of closing. In both cases, certain other adjustments and provisions may impact the conversion. | | | | | | | | | | | |
| Six Months Ended June 30, | 2022 | | 2021 |
| (Dollars in millions) | | | |
| Net income attributable to TDS shareholders | $ | 96 | | | $ | 86 | |
| Transfers (to) from noncontrolling interests | | | |
| Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares | (18) | | | (43) | |
| Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares | 13 | | | 1 | |
| | | |
| Net transfers (to) from noncontrolling interests | (5) | | | (42) | |
| Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests | $ | 91 | | | $ | 44 | |
Note 1312 Business Segment Information
UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, finance, and general management services. Such billings are based on expenses specifically identified to UScellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to UScellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if UScellular and TDS Telecom operated on a stand-alone basis. During the first quarter of 2021, TDS modified its reporting segment structure to combine its Wireline and Cable segments into a single reportable segment for TDS Telecom. TDS Telecom believes this presentation better articulates its progress and performance against its strategy, which includes a focus on overall broadband growth and future fiber deployment across its markets. This change also reflects TDS Telecom's progress in aligning its organizational, operational and support structures to leverage one cost base to better support its customers across all of its markets. Prior periods have been updated to conform to this revised presentation.
Financial data for TDS’ reportable segments for the three and six month periods ended, or as of June 30, 20212022 and 2020,2021, is as follows. See Note 1 — Basis of Presentation for additional information.
| | Three Months Ended or as of June 30, 2021 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total | |
| Three Months Ended or as of June 30, 2022 | | Three Months Ended or as of June 30, 2022 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Operating revenues | Operating revenues | | | | | | | | | Operating revenues | | | | | | | | |
| Service | Service | $ | 774 | | | | $ | 251 | | | $ | 24 | | | $ | 1,049 | | Service | $ | 783 | | | | $ | 256 | | | $ | 25 | | | $ | 1,064 | |
| Equipment and product sales | Equipment and product sales | 240 | | | | 0 | | | 22 | | | 262 | | Equipment and product sales | 244 | | | | — | | | 41 | | | 285 | |
| Total operating revenues | Total operating revenues | 1,014 | | | | 252 | | | 45 | | | 1,311 | | Total operating revenues | 1,027 | | | | 256 | | | 66 | | | 1,349 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 204 | | | | 101 | | | 19 | | | 324 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 192 | | | | 103 | | | 17 | | | 312 | |
| Cost of equipment and products | Cost of equipment and products | 258 | | | | 0 | | | 18 | | | 276 | | Cost of equipment and products | 275 | | | | — | | | 33 | | | 308 | |
| Selling, general and administrative | Selling, general and administrative | 334 | | | | 73 | | | 9 | | | 416 | | Selling, general and administrative | 339 | | | | 77 | | | 11 | | | 427 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 180 | | | | 49 | | | 5 | | | 234 | | Depreciation, amortization and accretion | 172 | | | | 52 | | | 5 | | | 229 | |
| Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | | — | | | — | | | 3 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 2 | | | | 1 | | | 0 | | | 3 | | (Gain) loss on asset disposals, net | 6 | | | | 1 | | | — | | | 7 | |
| | Operating income (loss) | 36 | | | | 28 | | | (6) | | | 58 | | |
| Operating income | | Operating income | 40 | | | | 23 | | | — | | | 63 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 47 | | | | 0 | | | 1 | | | 48 | | Equity in earnings of unconsolidated entities | 37 | | | | — | | | 1 | | | 38 | |
| Interest and dividend income | Interest and dividend income | 2 | | | | 0 | | | 1 | | | 3 | | Interest and dividend income | 3 | | | | — | | | 2 | | | 5 | |
| | Interest expense | Interest expense | (60) | | | | 1 | | | (27) | | | (86) | | Interest expense | (40) | | | | 2 | | | (2) | | | (40) | |
| | Income (loss) before income taxes | 25 | | | | 29 | | | (31) | | | 23 | | |
| Income tax expense (benefit) | (10) | | | | 7 | | | (8) | | | (11) | | |
| Income before income taxes | | Income before income taxes | 40 | | | | 25 | | | 1 | | | 66 | |
| Income tax expense | | Income tax expense | 18 | | | | 7 | | | 2 | | | 27 | |
| Net income (loss) | Net income (loss) | 35 | | | | 22 | | | (23) | | | 34 | | Net income (loss) | 22 | | | | 19 | | | (2) | | | 39 | |
| Add back: | Add back: | | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 180 | | | | 49 | | | 5 | | | 234 | | Depreciation, amortization and accretion | 172 | | | | 52 | | | 5 | | | 229 | |
| Loss on impairment of licenses | | Loss on impairment of licenses | 3 | | | | — | | | — | | | 3 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 2 | | | | 1 | | | 0 | | | 3 | | (Gain) loss on asset disposals, net | 6 | | | | 1 | | | — | | | 7 | |
| | Interest expense | Interest expense | 60 | | | | (1) | | | 27 | | | 86 | | Interest expense | 40 | | | | (2) | | | 2 | | | 40 | |
| Income tax expense (benefit) | (10) | | | | 7 | | | (8) | | | (11) | | |
| Income tax expense | | Income tax expense | 18 | | | | 7 | | | 2 | | | 27 | |
Adjusted EBITDA1 | Adjusted EBITDA1 | $ | 267 | | | | $ | 78 | | | $ | 1 | | | $ | 346 | | Adjusted EBITDA1 | $ | 261 | | | | $ | 76 | | | $ | 8 | | | $ | 345 | |
| | Investments in unconsolidated entities | Investments in unconsolidated entities | $ | 445 | | | | $ | 4 | | | $ | 38 | | | $ | 487 | | Investments in unconsolidated entities | $ | 441 | | | | $ | 4 | | | $ | 38 | | | $ | 483 | |
| Total assets | Total assets | $ | 9,920 | | | | $ | 2,433 | | | $ | 427 | | | $ | 12,780 | | Total assets | $ | 11,003 | | | | $ | 2,803 | | | $ | 436 | | | $ | 14,242 | |
| Capital expenditures | Capital expenditures | $ | 148 | | | | $ | 99 | | | $ | 3 | | | $ | 250 | | Capital expenditures | $ | 268 | | | | $ | 120 | | | $ | 3 | | | $ | 391 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended or as of June 30, 2021 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | |
| Service | $ | 774 | | | | | | | $ | 251 | | | $ | 24 | | | $ | 1,049 | |
| Equipment and product sales | 240 | | | | | | | — | | | 22 | | | 262 | |
| Total operating revenues | 1,014 | | | | | | | 252 | | | 45 | | | 1,311 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 204 | | | | | | | 101 | | | 19 | | | 324 | |
| Cost of equipment and products | 258 | | | | | | | — | | | 18 | | | 276 | |
| Selling, general and administrative | 334 | | | | | | | 73 | | | 9 | | | 416 | |
| Depreciation, amortization and accretion | 180 | | | | | | | 49 | | | 5 | | | 234 | |
| | | | | | | | | | | |
| (Gain) loss on asset disposals, net | 2 | | | | | | | 1 | | | — | | | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating income (loss) | 36 | | | | | | | 28 | | | (6) | | | 58 | |
| Equity in earnings of unconsolidated entities | 47 | | | | | | | — | | | 1 | | | 48 | |
| Interest and dividend income | 2 | | | | | | | — | | | 1 | | | 3 | |
| | | | | | | | | | | |
| Interest expense | (60) | | | | | | | 1 | | | (27) | | | (86) | |
| | | | | | | | | | | |
| Income (loss) before income taxes | 25 | | | | | | | 29 | | | (31) | | | 23 | |
| Income tax expense (benefit) | (10) | | | | | | | 7 | | | (8) | | | (11) | |
| Net income (loss) | 35 | | | | | | | 22 | | | (23) | | | 34 | |
| Add back: | | | | | | | | | | | |
| Depreciation, amortization and accretion | 180 | | | | | | | 49 | | | 5 | | | 234 | |
| | | | | | | | | | | |
| (Gain) loss on asset disposals, net | 2 | | | | | | | 1 | | | — | | | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Interest expense | 60 | | | | | | | (1) | | | 27 | | | 86 | |
| Income tax expense (benefit) | (10) | | | | | | | 7 | | | (8) | | | (11) | |
Adjusted EBITDA1 | $ | 267 | | | | | | | $ | 78 | | | $ | 1 | | | $ | 346 | |
| | | | | | | | | | | |
| Investments in unconsolidated entities | $ | 445 | | | | | | | $ | 4 | | | $ | 38 | | | $ | 487 | |
| Total assets | $ | 9,920 | | | | | | | $ | 2,433 | | | $ | 427 | | | $ | 12,780 | |
| Capital expenditures | $ | 148 | | | | | | | $ | 99 | | | $ | 3 | | | $ | 250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended or as of June 30, 2022 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | |
| Service | $ | 1,570 | | | | | | | $ | 507 | | | $ | 48 | | | $ | 2,125 | |
| Equipment and product sales | 467 | | | | | | | 1 | | | 71 | | | 539 | |
| Total operating revenues | 2,037 | | | | | | | 507 | | | 120 | | | 2,664 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 377 | | | | | | | 199 | | | 35 | | | 611 | |
| Cost of equipment and products | 533 | | | | | | | — | | | 57 | | | 590 | |
| Selling, general and administrative | 663 | | | | | | | 150 | | | 24 | | | 837 | |
| Depreciation, amortization and accretion | 342 | | | | | | | 106 | | | 8 | | | 456 | |
| Loss on impairment of licenses | 3 | | | | | | | — | | | — | | | 3 | |
| (Gain) loss on asset disposals, net | 8 | | | | | | | 1 | | | — | | | 9 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating income (loss) | 111 | | | | | | | 51 | | | (4) | | | 158 | |
| Equity in earnings of unconsolidated entities | 82 | | | | | | | — | | | 1 | | | 83 | |
| Interest and dividend income | 4 | | | | | | | — | | | 3 | | | 7 | |
| | | | | | | | | | | |
| Interest expense | (73) | | | | | | | 4 | | | (3) | | | (72) | |
| | | | | | | | | | | |
| Income (loss) before income taxes | 124 | | | | | | | 56 | | | (4) | | | 176 | |
| Income tax expense | 50 | | | | | | | 14 | | | 1 | | | 65 | |
| Net income (loss) | 74 | | | | | | | 41 | | | (4) | | | 111 | |
| Add back: | | | | | | | | | | | |
| Depreciation, amortization and accretion | 342 | | | | | | | 106 | | | 8 | | | 456 | |
| Loss on impairment of licenses | 3 | | | | | | | — | | | — | | | 3 | |
| (Gain) loss on asset disposals, net | 8 | | | | | | | 1 | | | — | | | 9 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Interest expense | 73 | | | | | | | (4) | | | 3 | | | 72 | |
| Income tax expense | 50 | | | | | | | 14 | | | 1 | | | 65 | |
Adjusted EBITDA1 | $ | 550 | | | | | | | $ | 159 | | | $ | 7 | | | $ | 716 | |
| | | | | | | | | | | |
| Capital expenditures | $ | 405 | | | | | | | $ | 225 | | | $ | 3 | | | $ | 633 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended or as of June 30, 2020 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | |
| Service | $ | 753 | | | | | | | $ | 240 | | | $ | 23 | | | $ | 1,016 | |
| Equipment and product sales | 220 | | | | | | | 0 | | | 27 | | | 247 | |
| Total operating revenues | 973 | | | | | | | 241 | | | 49 | | | 1,263 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 197 | | | | | | | 92 | | | 17 | | | 306 | |
| Cost of equipment and products | 218 | | | | | | | 0 | | | 23 | | | 241 | |
| Selling, general and administrative | 323 | | | | | | | 66 | | | 9 | | | 398 | |
| Depreciation, amortization and accretion | 178 | | | | | | | 51 | | | 7 | | | 236 | |
| | | | | | | | | | | |
| (Gain) loss on asset disposals, net | 4 | | | | | | | 0 | | | 0 | | | 4 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating income (loss) | 53 | | | | | | | 31 | | | (6) | | | 78 | |
| Equity in earnings of unconsolidated entities | 44 | | | | | | | 0 | | | 0 | | | 44 | |
| Interest and dividend income | 1 | | | | | | | 1 | | | 0 | | | 2 | |
| Interest expense | (25) | | | | | | | 1 | | | (14) | | | (38) | |
| | | | | | | | | | | |
| Income (loss) before income taxes | 73 | | | | | | | 33 | | | (20) | | | 86 | |
| Income tax expense (benefit) | 4 | | | | | | | 5 | | | (1) | | | 8 | |
| Net income (loss) | 69 | | | | | | | 28 | | | (19) | | | 78 | |
| Add back: | | | | | | | | | | | |
| Depreciation, amortization and accretion | 178 | | | | | | | 51 | | | 7 | | | 236 | |
| | | | | | | | | | | |
| (Gain) loss on asset disposals, net | 4 | | | | | | | 0 | | | 0 | | | 4 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Interest expense | 25 | | | | | | | (1) | | | 14 | | | 38 | |
| Income tax expense (benefit) | 4 | | | | | | | 5 | | | (1) | | | 8 | |
Adjusted EBITDA1 | $ | 280 | | | | | | | $ | 83 | | | $ | 1 | | | $ | 364 | |
| | | | | | | | | | | |
| Investments in unconsolidated entities | $ | 445 | | | | | | | $ | 4 | | | $ | 37 | | | $ | 486 | |
| Total assets | $ | 8,500 | | | | | | | $ | 2,210 | | | $ | 451 | | | $ | 11,161 | |
| Capital expenditures | $ | 168 | | | | | | | $ | 75 | | | $ | 4 | | | $ | 247 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended or as of June 30, 2021 | UScellular | | | | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | |
| Service | $ | 1,545 | | | | | | | $ | 500 | | | $ | 46 | | | $ | 2,091 | |
| Equipment and product sales | 492 | | | | | | | 1 | | | 45 | | | 538 | |
| Total operating revenues | 2,037 | | | | | | | 501 | | | 91 | | | 2,629 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 389 | | | | | | | 199 | | | 35 | | | 623 | |
| Cost of equipment and products | 533 | | | | | | | 0 | | | 37 | | | 570 | |
| Selling, general and administrative | 639 | | | | | | | 143 | | | 22 | | | 804 | |
| Depreciation, amortization and accretion | 350 | | | | | | | 98 | | | 9 | | | 457 | |
| (Gain) loss on asset disposals, net | 7 | | | | | | | 1 | | | 0 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (1) | | | | | | | 0 | | | 0 | | | (1) | |
| | | | | | | | | | | |
| Operating income (loss) | 120 | | | | | | | 60 | | | (12) | | | 168 | |
| Equity in earnings of unconsolidated entities | 88 | | | | | | | 0 | | | 2 | | | 90 | |
| Interest and dividend income | 3 | | | | | | | 0 | | | 3 | | | 6 | |
| | | | | | | | | | | |
| Interest expense | (97) | | | | | | | 2 | | | (43) | | | (138) | |
| Other, net | 0 | | | | | | | 0 | | | (1) | | | (1) | |
| Income (loss) before income taxes | 114 | | | | | | | 62 | | | (51) | | | 125 | |
Income tax expense (benefit)1 | 17 | | | | | | | 15 | | | (12) | | | 20 | |
| Net income (loss) | 97 | | | | | | | 46 | | | (38) | | | 105 | |
| Add back: | | | | | | | | | | | |
| Depreciation, amortization and accretion | 350 | | | | | | | 98 | | | 9 | | | 457 | |
| (Gain) loss on asset disposals, net | 7 | | | | | | | 1 | | | 0 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (1) | | | | | | | 0 | | | 0 | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Interest expense | 97 | | | | | | | (2) | | | 43 | | | 138 | |
Income tax expense (benefit)1 | 17 | | | | | | | 15 | | | (12) | | | 20 | |
Adjusted EBITDA2 | $ | 567 | | | | | | | $ | 158 | | | $ | 2 | | | $ | 727 | |
| | | | | | | | | | | |
| Capital expenditures | $ | 273 | | | | | | | $ | 169 | | | $ | 4 | | | $ | 446 | |
| | | Six Months Ended or as of June 30, 2020 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total | |
| Six Months Ended or as of June 30, 2021 | | Six Months Ended or as of June 30, 2021 | UScellular | | | TDS Telecom | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Operating revenues | Operating revenues | | | | Operating revenues | | | |
| Service | Service | $ | 1,515 | | | | $ | 480 | | | $ | 47 | | | $ | 2,042 | | Service | $ | 1,545 | | | | $ | 500 | | | $ | 46 | | | $ | 2,091 | |
| Equipment and product sales | Equipment and product sales | 422 | | | | 1 | | | 59 | | | 482 | | Equipment and product sales | 492 | | | | 1 | | | 45 | | | 538 | |
| Total operating revenues | Total operating revenues | 1,937 | | | | 481 | | | 106 | | | 2,524 | | Total operating revenues | 2,037 | | | | 501 | | | 91 | | | 2,629 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 377 | | | | 188 | | | 34 | | | 599 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 389 | | | | 199 | | | 35 | | | 623 | |
| Cost of equipment and products | Cost of equipment and products | 435 | | | | 0 | | | 52 | | | 487 | | Cost of equipment and products | 533 | | | | — | | | 37 | | | 570 | |
| Selling, general and administrative | Selling, general and administrative | 659 | | | | 130 | | | 20 | | | 809 | | Selling, general and administrative | 639 | | | | 143 | | | 22 | | | 804 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 354 | | | | 103 | | | 13 | | | 470 | | Depreciation, amortization and accretion | 350 | | | | 98 | | | 9 | | | 457 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 8 | | | | 0 | | | 0 | | | 8 | | (Gain) loss on asset disposals, net | 7 | | | | 1 | | | — | | | 8 | |
| | (Gain) loss on sale of business and other exit costs, net | | (Gain) loss on sale of business and other exit costs, net | (1) | | | | — | | | — | | | (1) | |
| | Operating income (loss) | Operating income (loss) | 104 | | | | 59 | | | (12) | | | 151 | | Operating income (loss) | 120 | | | | 60 | | | (12) | | | 168 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 89 | | | | 0 | | | 1 | | | 90 | | Equity in earnings of unconsolidated entities | 88 | | | | — | | | 2 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 5 | | | | 4 | | | (1) | | | 8 | | Interest and dividend income | 3 | | | | — | | | 3 | | | 6 | |
| | Interest expense | Interest expense | (49) | | | | 2 | | | (28) | | | (75) | | Interest expense | (97) | | | | 2 | | | (43) | | | (138) | |
| Other, net | Other, net | 0 | | | | (1) | | | 0 | | | (1) | | Other, net | — | | | | — | | | (1) | | | (1) | |
| Income (loss) before income taxes | Income (loss) before income taxes | 149 | | | | 64 | | | (40) | | | 173 | | Income (loss) before income taxes | 114 | | | | 62 | | | (51) | | | 125 | |
Income tax expense (benefit)1 | 8 | | | | 8 | | | (4) | | | 12 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 17 | | | | 15 | | | (12) | | | 20 | |
| Net income (loss) | Net income (loss) | 141 | | | | 56 | | | (36) | | | 161 | | Net income (loss) | 97 | | | | 46 | | | (38) | | | 105 | |
| Add back: | Add back: | | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 354 | | | | 103 | | | 13 | | | 470 | | Depreciation, amortization and accretion | 350 | | | | 98 | | | 9 | | | 457 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 8 | | | | 0 | | | 0 | | | 8 | | (Gain) loss on asset disposals, net | 7 | | | | 1 | | | — | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | | (Gain) loss on sale of business and other exit costs, net | (1) | | | | — | | | — | | | (1) | |
| | Interest expense | Interest expense | 49 | | | | (2) | | | 28 | | | 75 | | Interest expense | 97 | | | | (2) | | | 43 | | | 138 | |
Income tax expense (benefit)1 | 8 | | | | 8 | | | (4) | | | 12 | | |
Adjusted EBITDA2 | $ | 560 | | | | $ | 165 | | | $ | 1 | | | $ | 726 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 17 | | | | 15 | | | (12) | | | 20 | |
Adjusted EBITDA1 | | Adjusted EBITDA1 | $ | 567�� | | | | $ | 158 | | | $ | 2 | | | $ | 727 | |
| | Capital expenditures | Capital expenditures | $ | 405 | | | | $ | 128 | | | $ | 6 | | | $ | 539 | | Capital expenditures | $ | 273 | | | | $ | 169 | | | $ | 4 | | | $ | 446 | |
Numbers may not foot due to rounding.
1Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of assessing theirsegments' 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.
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, 2021,2022, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal controls over financial reporting that have occurred during the three months ended June 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting.
Legal Proceedings
In April 2018, the United States Department of Justice (DOJ) notified TDS that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is/was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed TDS and UScellular that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. TDS and UScellular believe that UScellular’s arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, TDS cannot predict the outcome of any proceeding.
Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2020,2021, for additional information. There have been no material changes to such information since December 31, 2020.2021.
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 2021.2022.
The maximum dollar value of shares that may yet be purchased under this program was $182 million as of June 30, 2021. There were nofollowing table provides certain information with respect to all purchases made by or on behalf of TDS, and noany open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.
Other Information
In July 2021, TDS amended and restated its term loan agreement to allow for an additional $300 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.5 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $300 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.
In July 2021, UScellular amended and restated its term loan agreement to allow for an additional $200 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.75 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $200 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement. | | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| April 1 - 30, 2022 | 59,100 | $ | 18.97 | | 59,100 | $ | 171,613,870 | |
| May 1 - 31, 2022 | 171,315 | $ | 17.93 | | 171,315 | $ | 168,541,695 | |
| June 1 - 30, 2022 | 735,709 | $ | 15.64 | | 735,709 | $ | 157,033,260 | |
| Total for or as of the end of the quarter ended June 30, 2022 | 966,124 | $ | 16.25 | | 966,124 | $ | 157,033,260 | |
Exhibits
| | | | | |
| Exhibit Number | Description of Documents |
| |
Exhibit 4.110.1 | Form of Eleventh Supplemental Indenture dated as of May 17, 2021, between UScellularTelephone and The Bank of New York Mellon Trust Company, N.A., related to $500,000,000 of UScellular's 5.5% Senior Notes due 2070Data Systems, Inc. 2022 Long-Term Incentive Plan, is hereby incorporated by reference from Exhibit A to Exhibit 2 to UScellular's Registration Statementthe TDS definitive proxy statement dated April 6, 2022, which was filed with the SEC on Form 8-A dated May 17, 2021. |
| |
Exhibit 4.2 | |
| |
Exhibit 4.3 | |
| |
Exhibit 4.4 | |
| |
Exhibit 4.5 | |
| |
Exhibit 4.6 | |
| |
Exhibit 10.1 | |
| |
| Exhibit 10.2 | |
| |
| Exhibit 10.3 | |
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Exhibit 10.3 | |
| |
| Exhibit 10.4 | |
| |
| Exhibit 10.5 | |
| |
| Exhibit 10.6 | |
| |
| Exhibit 10.7 | |
| |
Exhibit 10.3 from UScellular's 10.8 | |
| |
| Exhibit 31.1 | |
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| Exhibit 31.2 | |
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| Exhibit 32.1 | |
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| Exhibit 32.2 | |
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| |
| 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 |
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| Exhibit 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document |
| |
| Exhibit 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document |
| |
| Exhibit 101.LAB | Inline XBRL Taxonomy Label Linkbase Document |
| |
| Exhibit 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| |
| Exhibit 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the inline document. |
Form 10-Q Cross Reference Index
| | Item Number | Item Number | Page No. | Item Number | Page No. |
| Part I. | Part I. | Financial Information | | | Part I. | Financial Information | | |
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| Part II. | Part II. | Other Information | | | Part II. | Other Information | | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | TELEPHONE AND DATA SYSTEMS, INC. | | |
| | | (Registrant) | | |
| | | | | |
| Date: | August 6, 20214, 2022 | | /s/ LeRoy T. Carlson, Jr. | |
| | | | | LeRoy T. Carlson, Jr.
President and Chief Executive Officer
(principal executive officer)
|
| | | | | | |
| Date: | August 6, 20214, 2022 | | /s/ PeterVicki L. SeredaVillacrez | |
| | | | PeterVicki L. Sereda
Villacrez
Executive Vice President and Chief Financial Officer
(principal financial officer)
|
| | | | | |
Date: | August 6, 2021 | | /s/ Anita J. Kroll | |
| | | Anita J. Kroll
Vice President - Controller and Chief Accounting Officer
(principal accounting officer)
|
