UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
| (Mark One) |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
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% Senior Notes due 2045Series UU Cumulative Redeemable Perpetual Preferred Stock, $.01 par value | | TDITDSPrU | | New York Stock Exchange |
6.875%6.625% Senior Notes due 20592045 | | TDE | | New York Stock Exchange |
7.000% Senior Notes due 2060 | | TDJTDI | | 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 | ☐ |
| | | | | | | |
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes | ☒ | No | ☐ |
| | | | | | | |
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
| | | | | | | |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | No | ☒ |
The number of shares outstanding of each of the issuer's classes of common stock, as of SeptemberJune 30, 2020,2021, is 107,051,300107,441,800 Common Shares, $.01 par value, and 7,273,8007,303,600 Series A Common Shares, $.01 par value.
Telephone and Data Systems, Inc.
Quarterly Report on Form 10-Q
For the Period Ended SeptemberJune 30, 20202021
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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 ninesix months ended SeptemberJune 30, 2020,2021, to the three and ninesix months ended SeptemberJune 30, 2019.2020. 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, 2019.2020. 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 reason 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%-owned subsidiary, United States Cellular Corporation (UScellular). TDS also provides wirelinebroadband, video and cablevoice services through its wholly-owned subsidiary,subsidiaries, TDS Telecommunications LLC (TDSand TDS Broadband LLC (collectively, TDS Telecom). TDS' segments operateTDS 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 1213 — 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 the global spread of coronavirus (COVID-19)COVID-19 on TDS' future operationsfinancial results is uncertain.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 are expected tocould negatively impact TDS.
See the following areas within this MD&A for additional discussion of the impacts of COVID-19:
•Results of Operations — Income tax expense
•Business Overview — UScellular
•Operational Overview — UScellular
•Business Overview — TDS Telecom
•Liquidity and Capital Resources
•Risk Factors
TDS Mission and Strategy
TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, and employees, 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’ 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 home internet. In addition, UScellular is focused on expanding its solutions available to business and government customers.
▪UScellular continues to devote efforts to enhance its network capabilities. UScellular will complete its deployment of VoLTEcapabilities, including by deploying 5G technology. 5G technology in the fourth quarter of 2020. VoLTE technology allows customers to utilize a 4G LTE networkhelps address customers’ growing demand for both voice and data services and offers enhancedcreates opportunities for new services suchrequiring high speed and reliability as high definition voicewell 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 simultaneous voice and data sessions.
▪is in the process of acquiring mid-band spectrum, which it will deploy in the future to further enable the delivery of 5G services. UScellular has launched commercial 5G services in portions of Iowa, Maine, Maryland, North Carolina, Oregon, Virginia, Washington, West Virginia and Wisconsinsubstantially all of UScellular’s markets and will continue to launch in additional areas throughout 2020 and beyond. 5G technology is expected to help address customers' growing demand for data services as well as create opportunities for new services requiring high speed, reliability and low latency.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 such as Auctions 103, 105 and 107.auctions.
▪TDS Telecom’s Wireline business continuesTelecom strives to focusbe 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 in its broadband and video services by investing in fiber deployment in new out-of-territoryits expansion markets, and in existing markets. Construction concurrent with sales launches is underway in out-of-territory market clusters in Wisconsinits incumbent markets that have historically utilized copper and the Pacific Northwest. With support from the FCC's A-CAM program and state broadband grants, Wireline is also deploying higher speed broadband to unserved and under-served service addresses in rural areas within its current markets.coaxial cable technologies.
▪TDS Telecom’s Cable business continuesTelecom may also seek to increasegrow its broadband penetrationoperations through the acquisition of businesses that support and complement its existing markets or by making network capacity investments, including upgradingcreating entirely new clusters of markets in advantageous locations. TDS Telecom intends to DOCSIS 3.1, andavoid markets served by offering more advanced services in its markets.
▪TDS Telecom's Wireline and Cable businesses continueother fiber overbuilders or municipalities which have constructed their own networks with fiber to invest in and roll out a next generation video platform called TDS TV+ to enhance video services.the home.
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 is expected to helphelps address customers’ growing demand for data services as well as createand 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-return carriers, which provides revenue support through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations.
▪Auctions 103, 105, 107 and 107110 – Auction 103 is an FCC auction of 37, 39, and 47 GHz wireless spectrum licenses that started in December 2019 and concluded in March 2020. Auction 105 iswas an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 iswas an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that is scheduled to beginstarted in December 2020.2020 and concluded in February 2021. Auction 110 is an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that is expected to start in October 2021.
▪Broadband Connections – refers to the number of Wirelineindividual customers provided high-capacity data circuits viahigh-speed internet access through various transmission technologies, including fiber, DSL, and dedicated internet circuit technologies or the Cable billable number of lines into a building for high-speed data services.cable modem service.
▪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.
▪DOCSIS – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates.
▪EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪FCC Keep Americans Connected PledgeExpansion Markets – voluntary FCC initiativemarkets utilizing fiber networks in response toareas where TDS does not serve as the COVID-19 pandemic to ensure that Americans do not lose their broadband or telephone connectivity as a result of the exceptional circumstance.
▪Fiber Out-of-Territory Builds – represents construction of facilities-based market expansions outside of TDS' incumbent local exchange carrier (ILEC) and competitive local exchange carrier (CLEC) footprint.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.
▪ManagedIP Connections – refers to the number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.
▪Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.
▪OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪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 – the sum of UScellular postpaid connections and UScellular prepaid connections.
▪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 number of Wirelineindividual customers provided video services. For Cable, generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or a hotel, connections are counted based on the number of units/rooms within the building receiving service.
▪Voice Connections – refers to the individual circuits connecting a customer to Wireline’sTDS' central office facilities that provide voice services or the Cable billable number of lines into a building for voice services.
▪VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.
▪Wireline Residential Revenue per Connection – metric which is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period.
Results of Operations — TDS Consolidated
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Operating revenues | Operating revenues | | Operating revenues | |
| UScellular | UScellular | $ | 1,027 | | | $ | 1,031 | | | – | | $ | 2,964 | | | $ | 2,970 | | | – | UScellular | $ | 1,014 | | | $ | 973 | | | 4 | % | | $ | 2,037 | | | $ | 1,937 | | | 5 | % |
| TDS Telecom | TDS Telecom | 247 | | | 231 | | | 7 | % | | 728 | | | 695 | | | 5 | % | TDS Telecom | 252 | | | 241 | | | 5 | % | | 501 | | | 481 | | | 4 | % |
All other1 | All other1 | 50 | | | 59 | | | (16) | % | | 157 | | | 175 | | | (10) | % | All other1 | 45 | | | 49 | | | (8) | % | | 91 | | | 106 | | | (15) | % |
| Total operating revenues | Total operating revenues | 1,324 | | | 1,321 | | | – | | 3,849 | | | 3,840 | | | – | Total operating revenues | 1,311 | | | 1,263 | | | 4 | % | | 2,629 | | | 2,524 | | | 4 | % |
| Operating expenses | Operating expenses | | Operating expenses | |
| UScellular | UScellular | 962 | | | 1,011 | | | (5) | % | | 2,796 | | | 2,855 | | | (2) | % | UScellular | 978 | | | 920 | | | 6 | % | | 1,917 | | | 1,833 | | | 5 | % |
| TDS Telecom | TDS Telecom | 219 | | | 212 | | | 3 | % | | 641 | | | 609 | | | 5 | % | TDS Telecom | 224 | | | 210 | | | 7 | % | | 441 | | | 422 | | | 5 | % |
All other1 | All other1 | 56 | | | 69 | | | (20) | % | | 174 | | | 205 | | | (14) | % | All other1 | 51 | | | 55 | | | (7) | % | | 103 | | | 118 | | | (14) | % |
| Total operating expenses | Total operating expenses | 1,237 | | | 1,292 | | | (4) | % | | 3,611 | | | 3,669 | | | (2) | % | Total operating expenses | 1,253 | | | 1,185 | | | 6 | % | | 2,461 | | | 2,373 | | | 4 | % |
| Operating income (loss) | Operating income (loss) | | | | | | | Operating income (loss) | | | | | | |
| UScellular | UScellular | 65 | | | 20 | | | N/M | | 168 | | | 115 | | | 46 | % | UScellular | 36 | | | 53 | | | (32) | % | | 120 | | | 104 | | | 16 | % |
| TDS Telecom | TDS Telecom | 28 | | | 20 | | | 44 | % | | 87 | | | 86 | | | 2 | % | TDS Telecom | 28 | | | 31 | | | (10) | % | | 60 | | | 59 | | | 1 | % |
All other1 | All other1 | (6) | | | (11) | | | 45 | % | | (17) | | | (30) | | | 39 | % | All other1 | (6) | | | (6) | | | – | | (12) | | | (12) | | | 2 | % |
| Total operating income | Total operating income | 87 | | | 29 | | | N/M | | 238 | | | 171 | | | 39 | % | Total operating income | 58 | | | 78 | | | (26) | % | | 168 | | | 151 | | | 12 | % |
| 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 | | | 10 | % | | 138 | | | 129 | | | 7 | % | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 7 | % | | 90 | | | 90 | | | – |
| Interest and dividend income | Interest and dividend income | 4 | | | 7 | | | (49) | % | | 12 | | | 24 | | | (52) | % | Interest and dividend income | 3 | | | 2 | | | 40 | % | | 6 | | | 8 | | | (22) | % |
| Gain (loss) on investments | 3 | | | — | | | N/M | | 3 | | | — | | | N/M | |
| | Interest expense | Interest expense | (43) | | | (42) | | | (1) | % | | (119) | | | (128) | | | 8 | % | Interest expense | (86) | | | (38) | | | N/M | | (138) | | | (75) | | | (85) | % |
| Other, net | Other, net | — | | | — | | | (60) | % | | (1) | | | — | | | (58) | % | Other, net | — | | | — | | | (11) | % | | (1) | | | (1) | | | 10 | % |
| Total investment and other income | 12 | | | 9 | | | 38 | % | | 33 | | | 25 | | | 35 | % | |
| Total investment and other income (expense) | | Total investment and other income (expense) | (35) | | | 8 | | | N/M | | (43) | | | 22 | | | N/M |
| | Income before income taxes | Income before income taxes | 99 | | | 38 | | | N/M | | 271 | | | 196 | | | 38 | % | Income before income taxes | 23 | | | 86 | | | (73) | % | | 125 | | | 173 | | | (28) | % |
| Income tax expense | 6 | | | 15 | | | (61) | % | | 17 | | | 64 | | | (73) | % | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (11) | | | 8 | | | N/M | | 20 | | | 12 | | | 62 | % |
| | Net income | Net income | 93 | | | 23 | | | N/M | | 254 | | | 132 | | | 92 | % | Net income | 34 | | | 78 | | | (56) | % | | 105 | | | 161 | | | (35) | % |
| Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax | 15 | | | 5 | | | N/M | | 42 | | | 22 | | | 87 | % | Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | (44) | % | | 19 | | | 26 | | | (26) | % |
| Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | $ | 78 | | | $ | 18 | | | N/M | | $ | 212 | | | $ | 110 | | | 93 | % | Net income attributable to TDS shareholders | 27 | | | 65 | | | (59) | % | | 86 | | | 135 | | | (36) | % |
| TDS Preferred Share dividends | | TDS Preferred Share dividends | 7 | | | — | | | N/M | | 9 | | | — | | | N/M |
| Net income attributable to TDS common shareholders | | Net income attributable to TDS common shareholders | $ | 20 | | | $ | 65 | | | (69) | % | | $ | 77 | | | $ | 135 | | | (43) | % |
| Adjusted OIBDA (Non-GAAP)2 | Adjusted OIBDA (Non-GAAP)2 | $ | 310 | | | $ | 274 | | | 13 | % | | $ | 938 | | | $ | 872 | | | 8 | % | Adjusted OIBDA (Non-GAAP)2 | $ | 295 | | | $ | 318 | | | (7) | % | | $ | 632 | | | $ | 629 | | | 1 | % |
Adjusted EBITDA (Non-GAAP)2 | Adjusted EBITDA (Non-GAAP)2 | $ | 362 | | | $ | 325 | | | 11 | % | | $ | 1,087 | | | $ | 1,025 | | | 6 | % | Adjusted EBITDA (Non-GAAP)2 | $ | 346 | | | $ | 364 | | | (5) | % | | $ | 727 | | | $ | 726 | | | – |
Capital expenditures3 | Capital expenditures3 | $ | 310 | | | $ | 253 | | | 23 | % | | $ | 849 | | | $ | 664 | | | 28 | % | Capital expenditures3 | $ | 250 | | | $ | 247 | | | 1 | % | | $ | 446 | | | $ | 539 | | | (17) | % |
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. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pretax income of $22 million and $20 million for both the three months ended SeptemberJune 30, 2021 and 2020, respectively and 2019, and $63$41 million and $60$42 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Interest expense
Interest expense increased for the three and six months ended June 30, 2021, primarily as a result of (i) the write off of $36 million 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 — 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 SeptemberJune 30, 2021 and 2020 was (48.9)% and 2019, was 5.8% and 39.1%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 ninesix months ended SeptemberJune 30, 2021 and 2020, was 15.5% and 2019, was 6.5% and 32.8%6.9%, respectively. The lower effective tax rate in 2020 as compared to 2019 isfor the six months ended June 30, 2021 was higher due primarily to the income tax benefits of the CARES Act enacted on March 27, 2020.
The CARES Act provides retroactive eligibility of bonus depreciation on qualified improvement property put into service after December 31, 2017 and a 5-year carryback of net operating losses generatedincluded in years 2018-2020. As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in a reduction of income tax expense. TDS projects that the income tax effects of the CARES Act will result in a reduction of income tax expense recognized throughout the 2020 tax yearrate, which do not recur as partbenefits in the 2021 tax rate. The increase was partially offset by the reduction of the estimated annual effective tax rate, and a cash refund in 2021accruals resulting from expirations of taxes paid instate statute of limitations for prior tax years.
Net income attributable to noncontrolling interests, net of tax
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | | | | | | |
| UScellular noncontrolling public shareholders’ | $ | 15 | | | $ | 4 | | | $ | 39 | | | $ | 20 | |
| Noncontrolling shareholders’ or partners’ | — | | | 1 | | | 3 | | | 2 | |
| Net income attributable to noncontrolling interests, net of tax | $ | 15 | | | $ | 5 | | | $ | 42 | | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | | | | | | | |
| UScellular noncontrolling public shareholders’ | $ | 6 | | | $ | 12 | | | $ | 17 | | | $ | 24 | |
| Noncontrolling shareholders’ or partners’ | 1 | | | 1 | | | 2 | | | 2 | |
| Net income attributable to noncontrolling interests, net of tax | $ | 7 | | | $ | 13 | | | $ | 19 | | | $ | 26 | |
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.
Earnings
(Dollars in millions)
Three and Nine Months Ended
Net income increaseddecreased due primarily to lowerhigher interest and operating expenses, partially offset by higher operating revenues and the impact of the CARES Act reducinglower income taxes. Adjusted EBITDA decreased due primarily to higher operating expenses, partially offset by higher operating revenues.
Six Months Ended
Net income decreased due primarily to higher interest, operating, and income tax expense.expenses, partially offset by higher operating revenues. Adjusted EBITDA increased due primarily to lowerhigher 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%-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.
COVID-19 considerations
COVID-19 impacts on UScellular's business for the nine months ended September 30, 2020 include a reduction in certain components of service revenues and equipment sales, a reduction in sales promotion costs and a reduction in handset subscriber gross additions and defections. The impacts of COVID-19 on this and future periods are expected to negatively affect UScellular’s results of operations, cash flows and financial position. The extent and duration of these impacts are uncertain due to many factors and could be material. Certain impacts on and actions by UScellular related to COVID-19 include, but are not limited to, the following:
•Taking action to keep associates safe, including implementing a work-from-home strategy for employees whose jobs can be performed remotely. In addition, to keep associates, customers, and communities safe, UScellular temporarily closes retail stores for enhanced cleanings, continues to operate with reduced store hours, and provides associates with personal protective equipment to be worn during customer interactions. UScellular has also implemented a daily health check process for associates and requires social distancing and mask wearing in all company facilities, including stores. Throughout this period of change, UScellular has continued serving its customers and ensuring its wireless network remains fully operational.
•Participation in the FCC Keep Americans Connected Pledge, through June 30, 2020, to not turn-off service or charge late fees due to a customer’s inability to pay their bill due to circumstances related to COVID-19. This resulted in a reduction in non-pay defections, as well as reduced service revenues, for the nine months ended September 30, 2020. During the third quarter of 2020, certain accounts that were part of the Pledge were terminated due to non-payment. Many of the remaining accounts that were on the Pledge are on payment arrangements of varying durations, and UScellular expects additional terminations due to non-payment in future periods.
•Waiving overage charges and certain other charges. This resulted in reduced service revenues during the three and nine months ended September 30, 2020.
•Supporting the communities in which UScellular operates. Through UScellular’s partnership with the Boys & Girls Clubs, UScellular has contributed to the Boys & Girls Clubs’ COVID-19 Relief Fund to support children, families and communities. These funds are dispersed directly to more than 50 clubs in UScellular’s service regions to support the most immediate needs of youth in areas of importance such as providing food for children who rely on their Boys & Girls Clubs for their dinner, care for children of essential workers and first responders, and digital learning resources. In addition to monetary donations, in-person volunteerism has been replaced by virtual volunteerism, with associates participating in events such as reading for the visually impaired and mentoring for students.
•Recognizing income tax benefits associated with the enactment of the CARES Act. This legislation resulted in a reduction to income tax expense for the three and nine months ended September 30, 2020 and is projected to result in a reduction of income tax expense recognized for the remainder of 2020 as part of the estimated annual effective tax rate, and a cash refund in 2021 of taxes paid in prior years.
•Monitoring its supply chain to assess impacts to availability and costs of device inventory and network equipment and services, including monitoring the dependency on third parties to continue network related projects. At this time, UScellular expects to be able to meet customer demand for devices and services and to be able to continue its 4G LTE network modernization and 5G deployment with no significant disruptions.
•Tracking increased customer usage. At this time, UScellular believes its network capacity is sufficient to accommodate expected increased usage.
•Monitoring roaming behaviors. Both inbound and outbound roaming traffic have been dampened by COVID-19 as wireless customers are reducing travel. The extent to which roaming traffic will be impacted by the pandemic in the future will depend upon governmental mandates and customer behavior in response to the outbreak.
OPERATIONS
▪Serves customers with 5.0 million connections including 4.4 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections
▪Operates in 21 states
▪Employs approximately 5,3005,000 associates
▪4,2464,278 owned towers
▪6,7586,819 cell sites in service
Operational Overview
| | | As of September 30, | | 2020 | | 2019 | |
| As of June 30, | | As of June 30, | | 2021 | | 2020 |
| Retail Connections – End of Period | Retail Connections – End of Period | | Retail Connections – End of Period | |
| | | Postpaid | | 4,401,000 | | | 4,395,000 | | Postpaid | | 4,399,000 | | | 4,372,000 |
| | | Prepaid | | 506,000 | | | 510,000 | | Prepaid | | 507,000 | | | 496,000 |
| | | Total | | 4,907,000 | | | 4,905,000 | | Total | | 4,906,000 | | | 4,868,000 |
| | | | | | | | | | | | | |
|
| | | Q3 2020 | | Q3 2019 | | Q3 2020 vs. Q3 2019 | | YTD 2020 | | YTD 2019 | YTD 2020 vs. YTD 2019 | | Q2 2021 | | Q2 2020 | | Q2 2021 vs. Q2 2020 | | YTD 2021 | | YTD 2020 | YTD 2021 vs. YTD 2020 |
| Postpaid Activity and Churn | Postpaid Activity and Churn | | Postpaid Activity and Churn | |
| Gross Additions | Gross Additions | | Gross Additions | |
| Handsets | Handsets | 102,000 | | | 124,000 | | | (18) | % | | 277,000 | | | 328,000 | | (16) | % | Handsets | 101,000 | | | 85,000 | | | 19 | % | | 204,000 | | | 175,000 | | 17 | % |
| Connected Devices | Connected Devices | 66,000 | | | 39,000 | | | 69 | % | | 152,000 | | | 108,000 | | 41 | % | Connected Devices | 40,000 | | | 44,000 | | | (9) | % | | 79,000 | | | 86,000 | | (8) | % |
| Total Gross Additions | Total Gross Additions | 168,000 | | | 163,000 | | | 3 | % | | 429,000 | | | 436,000 | | (2) | % | Total Gross Additions | 141,000 | | | 129,000 | | | 9 | % | | 283,000 | | | 261,000 | | 8 | % |
| Net Additions (Losses) | Net Additions (Losses) | | | | | | | | | Net Additions (Losses) | | | | | | | | |
| Handsets | Handsets | — | | | (2,000) | | | N/M | | (17,000) | | | (26,000) | | 35 | % | Handsets | (1,000) | | | 3,000 | | | N/M | | (4,000) | | | (17,000) | | 76 | % |
| Connected Devices | Connected Devices | 28,000 | | | (17,000) | | | N/M | | 32,000 | | | (51,000) | | N/M | Connected Devices | (5,000) | | | 9,000 | | | N/M | | (8,000) | | | 3,000 | | N/M |
| Total Net Additions (Losses) | Total Net Additions (Losses) | 28,000 | | | (19,000) | | | N/M | | 15,000 | | | (77,000) | | N/M | Total Net Additions (Losses) | (6,000) | | | 12,000 | | | N/M | | (12,000) | | | (14,000) | | 14 | % |
| Churn | Churn | | | | | | | | | Churn | | | | | | | | |
| Handsets | Handsets | 0.88 | % | | 1.09 | % | | 0.85 | % | | 1.02 | % | | Handsets | 0.88 | % | | 0.71 | % | | 0.90 | % | | 0.83 | % | |
| Connected Devices | Connected Devices | 2.35 | % | | 3.44 | % | | 2.56 | % | | 3.17 | % | | Connected Devices | 2.69 | % | | 2.24 | % | | 2.61 | % | | 2.67 | % | |
| Total Churn | Total Churn | 1.06 | % | | 1.38 | % | | 1.05 | % | | 1.29 | % | | Total Churn | 1.11 | % | | 0.89 | % | | 1.12 | % | | 1.05 | % | |
N/M - Percentage change not meaningful
Total postpaid handset net additions increaseddecreased for the three and nine months ended SeptemberJune 30, 2020,2021, when compared to the same period last year. Handsetyear 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 gross additions.
Total postpaid handset net losses decreased for the six months ended June 30, 2021, when compared to the same period last year due primarily to an increase in gross additions as a result of lowerhigher consumer switching activity related to COVID-19,in 2021, as well as a reductiondecrease in non-pay defections. Partially offsetting the decrease was an increase in defections were lower gross additions resulting from lower consumer switching activity.voluntary defections.
Total postpaid connected device net additions increaseddecreased for the three and ninesix months ended SeptemberJune 30, 2020,2021, when compared to the same period last year. The increase isyear, in substantial part, due to (i) an increase in gross additions due to increasedlower demand for internet related products givenas a need for remote connectivity relatedresult of a reduction in COVID-related funding vehicles, many of which are connected to COVID-19 and (ii) a decrease in tablet defections.government subsidies.
Postpaid Revenue
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 |
| Average Revenue Per User (ARPU) | Average Revenue Per User (ARPU) | $ | 47.10 | | | $ | 46.16 | | | 2 | % | | $ | 46.84 | | | $ | 45.82 | | | 2 | % | Average Revenue Per User (ARPU) | $ | 47.74 | | | $ | 46.24 | | | 3 | % | | $ | 47.70 | | | $ | 46.72 | | | 2 | % |
| | Average Revenue Per Account (ARPA) | Average Revenue Per Account (ARPA) | $ | 123.27 | | | $ | 119.87 | | | 3 | % | | $ | 122.28 | | | $ | 119.39 | | | 2 | % | Average Revenue Per Account (ARPA) | $ | 125.25 | | | $ | 120.70 | | | 4 | % | | $ | 125.25 | | | $ | 121.80 | | | 3 | % |
|
Postpaid ARPU and Postpaid ARPA increased for the three and ninesix months ended SeptemberJune 30, 2020,2021, when compared to the same period last year, due primarily to (i) an increase in regulatory recovery revenues, (ii) favorable plan and product offering mix, (iii) an increase in device protection plan revenues, (ii)and (iv) an increase in regulatory recovery revenues, and (iii) having proportionately fewer tablet connections,overage fees which on a per-unit basis contribute less revenue than other connected devices and smartphones. In addition, an increasewere waived in average connections per account forQ2 2020 to assist customers during the three and nine months ended September 30, 2020, when compared to the same periods last year, contributed to the increase in Postpaid ARPA.COVID-19 pandemic. These increases were partially offset by the impact of waiving overage charges and late payment and related fees, measures UScellular took to assist customers during the COVID-19 pandemic.an increase in promotional discounts.
Financial Overview - UScellular
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | (Dollars in millions) | | | | | | |
| Retail service | Retail service | $ | 674 | | | $ | 663 | | | 2 | % | | $ | 2,004 | | | $ | 1,984 | | | 1 | % | Retail service | $ | 686 | | | $ | 658 | | | 4 | % | | $ | 1,371 | | | $ | 1,329 | | | 3 | % |
| Inbound roaming | Inbound roaming | 42 | | | 54 | | | (23) | % | | 119 | | | 132 | | | (10) | % | Inbound roaming | 28 | | | 41 | | | (31) | % | | 56 | | | 77 | | | (27) | % |
| Other | Other | 59 | | | 57 | | | 3 | % | | 167 | | | 156 | | | 7 | % | Other | 60 | | | 54 | | | 10 | % | | 118 | | | 109 | | | 8 | % |
| Service revenues | Service revenues | 775 | | | 774 | | | – | | 2,290 | | | 2,272 | | | 1 | % | Service revenues | 774 | | | 753 | | | 3 | % | | 1,545 | | | 1,515 | | | 2 | % |
| Equipment sales | Equipment sales | 252 | | | 257 | | | (2) | % | | 674 | | | 698 | | | (3) | % | Equipment sales | 240 | | | 220 | | | 9 | % | | 492 | | | 422 | | | 17 | % |
| Total operating revenues | Total operating revenues | 1,027 | | | 1,031 | | | – | | 2,964 | | | 2,970 | | | – | Total operating revenues | 1,014 | | | 973 | | | 4 | % | | 2,037 | | | 1,937 | | | 5 | % |
| | System operations (excluding Depreciation, amortization and accretion reported below) | System operations (excluding Depreciation, amortization and accretion reported below) | 203 | | | 199 | | | 2 | % | | 580 | | | 568 | | | 2 | % | System operations (excluding Depreciation, amortization and accretion reported below) | 204 | | | 197 | | | 4 | % | | 389 | | | 377 | | | 3 | % |
| Cost of equipment sold | Cost of equipment sold | 257 | | | 266 | | | (4) | % | | 692 | | | 724 | | | (4) | % | Cost of equipment sold | 258 | | | 218 | | | 19 | % | | 533 | | | 435 | | | 23 | % |
| Selling, general and administrative | Selling, general and administrative | 335 | | | 358 | | | (6) | % | | 994 | | | 1,027 | | | (3) | % | Selling, general and administrative | 334 | | | 323 | | | 3 | % | | 639 | | | 659 | | | (3) | % |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 161 | | | 181 | | | (11) | % | | 516 | | | 524 | | | (2) | % | Depreciation, amortization and accretion | 180 | | | 178 | | | 1 | % | | 350 | | | 354 | | | (2) | % |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 5 | | | 15 | % | | 14 | | | 13 | | | 10 | % | (Gain) loss on asset disposals, net | 2 | | | 4 | | | (50) | % | | 7 | | | 8 | | | (9) | % |
| (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) | | | — | | | N/M |
| (Gain) loss on license sales and exchanges, net | — | | | 2 | | | N/M | | — | | | — | | | N/M | |
| | Total operating expenses | Total operating expenses | 962 | | | 1,011 | | | (5) | % | | 2,796 | | | 2,855 | | | (2) | % | Total operating expenses | 978 | | | 920 | | | 6 | % | | 1,917 | | | 1,833 | | | 5 | % |
| | Operating income | Operating income | $ | 65 | | | $ | 20 | | | N/M | | $ | 168 | | | $ | 115 | | | 46 | % | Operating income | $ | 36 | | | $ | 53 | | | (32) | % | | $ | 120 | | | $ | 104 | | | 16 | % |
| | Net income | Net income | $ | 85 | | | $ | 24 | | | N/M | | $ | 227 | | | $ | 115 | | | 98 | % | Net income | $ | 35 | | | $ | 69 | | | (49) | % | | $ | 97 | | | $ | 141 | | | (31) | % |
Adjusted OIBDA (Non-GAAP)1 | Adjusted OIBDA (Non-GAAP)1 | $ | 232 | | | $ | 208 | | | 12 | % | | $ | 698 | | | $ | 651 | | | 7 | % | Adjusted OIBDA (Non-GAAP)1 | $ | 218 | | | $ | 235 | | | (7) | % | | $ | 476 | | | $ | 466 | | | 2 | % |
Adjusted EBITDA (Non-GAAP)1 | Adjusted EBITDA (Non-GAAP)1 | $ | 282 | | | $ | 256 | | | 10 | % | | $ | 841 | | | $ | 793 | | | 6 | % | Adjusted EBITDA (Non-GAAP)1 | $ | 267 | | | $ | 280 | | | (5) | % | | $ | 567 | | | $ | 560 | | | 1 | % |
Capital expenditures2 | Capital expenditures2 | $ | 216 | | | $ | 170 | | | 27 | % | | $ | 621 | | | $ | 467 | | | 33 | % | Capital expenditures2 | $ | 148 | | | $ | 168 | | | (12) | % | | $ | 273 | | | $ | 405 | | | (33) | % |
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 SeptemberJune 30, 20202021 and 20192020
(Dollars in millions)
Operating Revenues
NineSix Months Ended SeptemberJune 30, 20202021 and 20192020
(Dollars in millions)
Service revenues consist of:
▪Retail Service - Charges for voice, data and value-added services and recovery of regulatory costs
▪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, 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 ninesix months ended SeptemberJune 30, 2020,2021, primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section partially offset by a declineas well as an increase in the average number of postpaid subscribers.
Inbound roaming revenues decreased for the three and six months ended SeptemberJune 30, 2020,2021, primarily driven by lower data revenues resulting from lower rates. Inbound roaming revenues decreased for the nine months ended September 30, 2020, primarily driven byusage and lower data revenues, with lower rates partially offset by higher usage.rates. UScellular expects inbound roaming revenues to continue to decline as a result of a decrease in rates, and the merger of Sprint and T-Mobile.during 2021 relative to prior year levels.
Other service revenues increased for the ninethree and six months ended SeptemberJune 30, 2020,2021, resulting from increases in tower rental revenues and miscellaneous other service revenues.
Equipment sales revenues decreasedincreased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to a decreasean increase in newthe volume of smartphone and accessory sales, partially offset by an increase in used smartphone sales.promotional activity.
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 need to offer increased promotional discounts to new and existing customers.
System operations expenses
System operations expenses increased for the three and six months ended SeptemberJune 30, 2020,2021, due to an increase in roaming expensehigher circuit costs as a result of higher data roaming usage, partially offset by lower data rates, andwell as an increase in cell site rent expense. System operations expenses increased for the nine months ended September 30, 2020 due to increased cell site rent expense, non-capitalizable costs to add network capacity and costs to decommission network assets, partially offset by a decrease in roaming expense as a result of lower data rates, partially offset by higher data usage.
Cost of equipment sold decreasedincreased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to a decreasean increase in newthe volume of smartphone and accessory sales, partially offset by an increase in used smartphone sales.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased for the three and nine months ended September 30, 2020, driven primarily by a decrease in bad debts expense.
Depreciation, amortization and accretion
Depreciation, amortization, and accretion decreasedincreased for the three months ended SeptemberJune 30, 2020,2021, due primarily to certain billingincreases in system assets reaching their end of lifedevelopment costs and lower accelerated depreciation of certain assets due to changes in network technology. Depreciation, amortization,Federal USF expense.
Selling, general and accretionadministrative expenses decreased for the ninesix months ended SeptemberJune 30, 2020,2021, due primarily to certain billing system assets reaching their endreductions in (i) bad debts expense driven by fewer non-pay customers as a result of life,better credit mix and improved customer payment behavior, and (ii) advertising expenses. This was partially offset by accelerated depreciation of certain assets due to changesincreases in network technology.system development costs and Federal USF expense.
TDS Telecom owns, operates and invests in communications services in a mix of rural and metropolitan 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 commercialwholesale customers. TDS Telecom's strategy is to grow its customer base through market expansions and offering state-of-the-art services. The company invests in high-quality networks and provides excellent customer service, a key tenet of its long-standing mission.
OPERATIONS
▪Serves 1.2 million connections in 32 states
▪Employs approximately 2,900 associates
Operational Overview
Total Service Addresses
As of June 30,
TDS Telecom operates in two segments: Wireline, which includes fiber deployments into new markets, and Cable.
On December 31, 2019, TDS acquired substantially all of the assets of MI Connection Communications System, dba Continuum. Continuum is a cable company that passes approximately 40,000grew its service addresses in North Carolina6% through network expansion and now offers complementary broadband, video and voice services.1Gig service to 56% of its total footprint.
COVID-19 considerations
The future impacts
Wireline Service Addresses
As of COVID-19 are uncertainJune 30,
TDS Telecom serves 39% of its wireline service addresses with fiber-to-the-home as of June 30, 2021, compared to 33% a year ago. Expansion markets have increased to 11% of wireline service addresses, up from 6% a year ago.
| | | | | | | | | | | | | | | | | |
| As of June 30, | 2021 | | 2020 | | 2021 vs. 2020 |
| Residential connections | | | | | |
| Broadband | | | | | |
| Wireline, Incumbent | 249,200 | | | 240,400 | | | 4 | % |
| Wireline, Expansion | 28,300 | | | 14,700 | | | 92 | % |
| Cable | 201,200 | | | 191,000 | | | 5 | % |
| Total Broadband | 478,700 | | | 446,000 | | | 7 | % |
| Video | 143,200 | | | 144,600 | | | (1) | % |
| Voice | 308,100 | | | 317,100 | | | (3) | % |
| Total Residential Connections | 930,100 | | | 907,800 | | | 2 | % |
| Commercial connections | 274,400 | | | 297,200 | | | (8) | % |
| Total connections | 1,204,500 | | | 1,205,000 | | | – |
Numbers may not foot due to many factorsrounding.
Total connections decreased slightly despite strong broadband connection growth due primarily to a decrease in legacy voice connections and could be material tocompetitive local exchange carrier (CLEC) commercial connections.
A majority of TDS Telecom's resultsresidential customers take advantage of operations, cash flows and financial position. Certain impacts on and actions by TDS Telecom relatedbundling options as 64% of customers subscribe to COVID-19 include, but are not limited to, the following:
•Taking action to keep employees safe, including implementing a work-from-home policy for employees whose jobs can be performed remotely. In addition, to keep employees, customers, and communities safe, TDS Telecom closed certain retail stores and temporarily ceased door-to-door selling. Retail stores that remain open have implemented social distancing and enhanced cleaning measures. In addition, TDS Telecom has expanded safety protocols for front line workers, such as field service technicians and direct salesforce employees as they returned to door-to-door selling in the second quarter. Throughout this period of change, TDS Telecom has continued serving its customers and ensuring its network remains fully operational.
•Participation in the FCC Keep Americans Connected Pledge, through June 30, 2020, to not turn-off service or charge late fees due to a customer's inability to pay their bill due to circumstances related to COVID-19. TDS Telecom is complying with certain states that have extended no-disconnect orders past the expiration of the FCC Pledge. These actions have not had a significant year-to-date financial impact.
•Supporting the communities in which TDS Telecom operates. TDS Telecom has donated to food pantries that serve its regional areas. Food banks across the country are seeing huge increases in demand as a result of the COVID-19 pandemic. TDS Telecom is also helping other organizations that are serving the needs of the communities in which it operates.
•Offering 60 days of free broadband service to new customers who are low-income and/or families with children or college age students through April 2020, with free services ending in June 2020. A total of 2,700 customers signed up for the free service during the promotion and the majority have remained customers.
•Recognizing income tax benefits associated with the enactment of the CARES Act. This legislation resulted in a reduction to income tax expense for the three and nine months ended September 30, 2020 and is projected to result in a reduction of income tax expense recognized for the remainder of 2020 as part of the estimated annual effective tax rate, and a cash refund of taxes paid in prior years.
•Tracking increased customer demand for broadband services. The demand may fluctuate depending on the severity and duration of the pandemic. At this time, TDS Telecom's network capacity has been sufficient for increased usage.
•Door-to-door sales activities in out-of-territory markets were initially impacted by the pandemic leading to a broadened approach that uses increasing online sales and marketing activities. A significant reduction in pre-sales activity could result in a slowing of construction activity.
•Monitoring its supply chain to assess impacts to availability of network equipment. At this time, TDS Telecom expects to be able to meet customer demand for on-premise equipment, and to maintain its expected investment levels in fiber and other broadband deployments.
•Monitoring the dependency on third parties to continue work on out-of-territory market construction. Various state municipal and vendor restrictions related to COVID-19 could cause delays in municipal permitting, pole access, and other contractor work that could slow down construction plans.more than one service.
OPERATIONS
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.
As of June 30,
Residential broadband customers continue to choose higher speeds with 63% taking speeds of 100 Mbps or greater and 7% choosing 1Gig.
Broadband Penetration
As of June 30,
▪Serves 1.2 million connections in 32 states.
▪Employs approximately 2,900 employees.Broadband penetration has stayed steady due primarily to broadband connection growth as service addresses have grown 6%.
Financial Overview —- TDS Telecom
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 |
| (Dollars in millions) | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | |
| Wireline | $ | 173 | | | $ | 169 | | | 2 | % | | $ | 512 | | | $ | 512 | | | – |
| Cable | 74 | | | 62 | | | 19 | % | | 216 | | | 184 | | | 18 | % |
TDS Telecom operating revenues1 | 247 | | | 231 | | | 7 | % | | 728 | | | 695 | | | 5 | % |
| Operating expenses | | | | | | | | | | | |
| Wireline | 150 | | | 153 | | | (2) | % | | 439 | | | 435 | | | 1 | % |
| Cable | 69 | | | 59 | | | 17 | % | | 202 | | | 175 | | | 15 | % |
TDS Telecom operating expenses1 | 219 | | | 212 | | | 3 | % | | 641 | | | 609 | | | 5 | % |
| | | | | | | | | | | |
| TDS Telecom operating income | $ | 28 | | | $ | 20 | | | 44 | % | | $ | 87 | | | $ | 86 | | | 2 | % |
| | | | | | | | | | | |
| Net income | $ | 25 | | | $ | 18 | | | 37 | % | | $ | 81 | | | $ | 74 | | | 9 | % |
Adjusted OIBDA (Non-GAAP)2 | $ | 78 | | | $ | 69 | | | 12 | % | | $ | 240 | | | $ | 228 | | | 5 | % |
Adjusted EBITDA (Non-GAAP)2 | $ | 78 | | | $ | 73 | | | 8 | % | | $ | 243 | | | $ | 238 | | | 2 | % |
Capital expenditures3 | $ | 92 | | | $ | 81 | | | 14 | % | | $ | 221 | | | $ | 193 | | | 14 | % |
Numbers may not foot due to rounding.
1Includes eliminations between the Wireline and Cable segments.
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.
Operating Revenues
(Dollars in millions)
Total operating revenues
Operating revenues increased for the three and nine months ended September 30, 2020, due primarily to the acquisition of Continuum, Wireline and Cable broadband growth and Wireline video growth which were partially offset by declines in Wireline residential voice and CLEC commercial revenues.
Total operating expenses
Operating expenses increased for the three and nine months ended September 30, 2020, due primarily to expenses related to the addition of Continuum, higher employee expenses and increased plant maintenance and building expenses, as well as a gain on the sale of assets in the first quarter of 2019.
Business Overview
TDS Telecom’s Wireline business provides broadband, video and voice services. These services are provided to residential, commercial, and wholesale customers in a mix of rural, small town and suburban markets, with the largest concentration of its customers in the Upper Midwest and the Southeast. TDS Telecom’s residential strategy is to focus on broadband bundled with video and voice services. In its commercial business, TDS Telecom’s focus is on small- to medium-sized businesses and its sales efforts emphasize providing broadband with voice and video collaboration services.
Operational Overview
Residential Connections
As of September 30,
Total residential connections grew 3% as broadband and video connections grew 8% and 9%, respectively, partially offset by a 2% decline in voice connections.
Residential Broadband Connections by Speeds1
As of September 30,
Residential broadband customers are increasingly choosing higher speeds in Wireline markets with 73% choosing speeds of 10 Mbps or greater and 38% choosing speeds of 100 Mbps or greater.
1Includes ILEC and out-of-territory
Residential Revenue per Connection
Residential revenue per connection increased 5% and 4% for the three and nine months ended September 30, 2020, respectively, due to video and broadband connection growth as well as an increase in broadband speeds and price increases.
Commercial Connections
As of September 30,
Total commercial connections decreased by 8% due primarily to declines in connections in CLEC markets.
Financial Overview — Wireline
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | 2021 vs. 2020 | | 2021 | | 2020 | | 2021 vs. 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Residential | Residential | $ | 90 | | | $ | 83 | | | 8 | % | | $ | 260 | | | $ | 245 | | | 6 | % | Residential | | | | | | | | | | | |
| Wireline, Incumbent | | Wireline, Incumbent | $ | 86 | | | $ | 81 | | | 7 | % | | $ | 171 | | | $ | 162 | | | 6 | % |
| Wireline, Expansion | | Wireline, Expansion | 8 | | | 4 | | | 81 | % | | 15 | | | 8 | | | 80 | % |
| Cable | | Cable | 66 | | | 60 | | | 10 | % | | 131 | | | 119 | | | 9 | % |
| Total residential | | Total residential | 160 | | | 145 | | | 10 | % | | 317 | | | 289 | | | 10 | % |
| Commercial | Commercial | 38 | | | 41 | | | (8) | % | | 115 | | | 127 | | | (9) | % | Commercial | 46 | | | 48 | | | (4) | % | | 93 | | | 98 | | | (5) | % |
| Wholesale | Wholesale | 45 | | | 45 | | | 1 | % | | 136 | | | 139 | | | (2) | % | Wholesale | 45 | | | 47 | | | (3) | % | | 91 | | | 94 | | | (3) | % |
| Service revenues | 173 | | | 169 | | | 2 | % | | 511 | | | 512 | | | – | |
| Equipment and product sales | — | | | — | | | 4 | % | | 1 | | | 1 | | | (30) | % | |
| Total service revenues | | Total service revenues | 251 | | | 240 | | | 5 | % | | 500 | | | 480 | | | 4 | % |
| Equipment revenues | | Equipment revenues | — | | | — | | | 5 | % | | 1 | | | 1 | | | 7 | % |
| Total operating revenues | Total operating revenues | 173 | | | 169 | | | 2 | % | | 512 | | | 512 | | | – | Total operating revenues | 252 | | | 241 | | | 5 | % | | 501 | | | 481 | | | 4 | % |
| | Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 69 | | | 68 | | | 2 | % | | 197 | | | 195 | | | 1 | % | Cost of services (excluding Depreciation, amortization and accretion reported below) | 101 | | | 92 | | | 10 | % | | 199 | | | 188 | | | 6 | % |
| Cost of equipment and products | Cost of equipment and products | — | | | — | | | (25) | % | | 1 | | | 1 | | | (30) | % | Cost of equipment and products | — | | | — | | | (12) | % | | — | | | — | | | (7) | % |
| Selling, general and administrative | Selling, general and administrative | 51 | | | 52 | | | (3) | % | | 148 | | | 148 | | | (1) | % | Selling, general and administrative | 73 | | | 66 | | | 11 | % | | 143 | | | 130 | | | 10 | % |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 30 | | | 33 | | | (8) | % | | 94 | | | 99 | | | (5) | % | Depreciation, amortization and accretion | 49 | | | 51 | | | (5) | % | | 98 | | | 103 | | | (5) | % |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | — | | | — | | | (70) | % | | — | | | (8) | | | N/M | (Gain) loss on asset disposals, net | 1 | | | — | | | N/M | | 1 | | | — | | | N/M |
| | Total operating expenses | Total operating expenses | 150 | | | 153 | | | (2) | % | | 439 | | | 435 | | | 1 | % | Total operating expenses | 224 | | | 210 | | | 7 | % | | 441 | | | 422 | | | 5 | % |
| | Operating income | Operating income | $ | 23 | | | $ | 16 | | | 42 | % | | $ | 73 | | | $ | 78 | | | (6) | % | Operating income | $ | 28 | | | $ | 31 | | | (10) | % | | $ | 60 | | | 59 | | | 1 | % |
| | Income before income taxes | $ | 24 | | | $ | 20 | | | 23 | % | | $ | 79 | | | $ | 88 | | | (10) | % | |
| Net income | | Net income | $ | 22 | | | $ | 28 | | | (22) | % | | $ | 46 | | | 56 | | | (17) | % |
Adjusted OIBDA (Non-GAAP)1 | Adjusted OIBDA (Non-GAAP)1 | $ | 53 | | | $ | 49 | | | 8 | % | | $ | 167 | | | $ | 168 | | | (1) | % | Adjusted OIBDA (Non-GAAP)1 | $ | 78 | | | $ | 82 | | | (6) | % | | $ | 159 | | | 162 | | | (2) | % |
Adjusted EBITDA (Non-GAAP)1 | Adjusted EBITDA (Non-GAAP)1 | $ | 53 | | | $ | 52 | | | 3 | % | | $ | 169 | | | $ | 177 | | | (4) | % | Adjusted EBITDA (Non-GAAP)1 | $ | 78 | | | $ | 83 | | | (7) | % | | $ | 158 | | | 165 | | | (4) | % |
Capital expenditures2 | Capital expenditures2 | $ | 74 | | | $ | 61 | | | 22 | % | | $ | 171 | | | $ | 145 | | | 18 | % | Capital expenditures2 | $ | 99 | | | $ | 75 | | | 33 | % | | $ | 169 | | | 128 | | | 32 | % |
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, 2021 and 2020
(Dollars in millions)
Residential revenues consist of:
▪•Broadband services, including fiber- and copper-based high-speed 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
▪•Voice and videoVideo services
Wholesale revenues consist of:
▪•Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s networkTelecom's networks
▪•Federal and state USF 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 ninesix months ended SeptemberJune 30, 2020,2021, due primarily to growth in broadband and video connections, as well as price increases and federal universal service surcharges, partially offset by a decline in voice connections.
Commercial revenues decreased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to declining connections in CLEC markets.
Wholesale revenues remained relatively flat for the three months ended September 30, 2020, due primarily to the timing of certain state USF support partially offset by decreased access revenues.
Wholesale revenues decreased for the ninethree and six months ended SeptemberJune 30, 2020,2021, due primarily to decreased access revenues, partially offset by the timing of certain state USF support.revenues.
Cost of services
Cost of services increased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to increases in buildinghigher employee expenses to support current and future growth, plant and maintenance costs, and higherincreases in video programming costs, partially offset by a decrease in expenses relatedcosts to the capitalization of new modemsprovide legacy services and lower employee-relatedbuilding expenses. Effective January 1, 2020, the cost of most modems, along with associated installation costs, is being capitalized.
Selling, general and administrative
Selling, general and administrative expenses decreased for the three and nine months ended September 30, 2020, due primarily to lower legal and consulting costs, partially offset by increases in advertising costs in the out-of-territory markets.
Depreciation, amortization and accretion
Depreciation, amortization and accretion decreased for the three and nine months ended September 30, 2020, due primarily to certain assets becoming fully depreciated and extended useful lives assumptions, partially offset by depreciation on new fiber assets.
(Gain) loss on asset disposals, net
Gain on asset disposals decreased for the nine months ended September 30, 2020, due to the sale of fiber assets in certain CLEC markets during the first quarter of 2019.
Business Overview
TDS Telecom’s Cable strategy is to expand its broadband services and leverage that growth by bundling with video and voice services. TDS Telecom seeks to be the leading provider of broadband services in its targeted markets by leveraging its core competencies in marketing and network management.
Operational Overview
Cable Connections
As of September 30,
Cable connections grew 12% due to an increase in broadband connections and the acquisition of Continuum, which included 15,800 broadband connections, 9,400 video connections and 5,800 voice connections as of December 31, 2019.
Financial Overview — Cable
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 |
| (Dollars in millions) | | | | | | | | | | | |
| Residential | $ | 62 | | | $ | 52 | | | 21 | % | | $ | 182 | | | $ | 152 | | | 20 | % |
| Commercial | 12 | | | 10 | | | 13 | % | | 34 | | | 32 | | | 9 | % |
| Total operating revenues | 74 | | | 62 | | | 19 | % | | 216 | | | 184 | | | 18 | % |
| | | | | | | | | | | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 31 | | | 27 | | | 15 | % | | 91 | | | 79 | | | 15 | % |
| | | | | | | | | | | |
| Selling, general and administrative | 18 | | | 15 | | | 23 | % | | 52 | | | 44 | | | 18 | % |
| Depreciation, amortization and accretion | 20 | | | 17 | | | 15 | % | | 59 | | | 51 | | | 15 | % |
| | | | | | | | | | | |
| (Gain) loss on asset disposals, net | — | | | — | | | N/M | | 1 | | | 1 | | | (14) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total operating expenses | 69 | | | 59 | | | 17 | % | | 202 | | | 175 | | | 15 | % |
| | | | | | | | | | | |
| Operating income | $ | 5 | | | $ | 3 | | | 55 | % | | $ | 14 | | | $ | 8 | | | 76 | % |
| | | | | | | | | | | |
| Income before income taxes | $ | 5 | | | $ | 4 | | | 36 | % | | $ | 15 | | | $ | 9 | | | 56 | % |
Adjusted OIBDA (Non-GAAP)1 | $ | 25 | | | $ | 20 | | | 22 | % | | $ | 73 | | | $ | 60 | | | 23 | % |
Adjusted EBITDA (Non-GAAP)1 | $ | 25 | | | $ | 21 | | | 20 | % | | $ | 74 | | | $ | 61 | | | 21 | % |
Capital expenditures2 | $ | 18 | | | $ | 20 | | | (8) | % | | $ | 49 | | | $ | 48 | | | 4 | % |
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
(Dollars in millions)
Residential and Commercial revenues consist of:
▪Broadband services, including high-speed internet, security and support services
▪Video services, including traditional cable programming and related services as well as CloudTV
▪Voice services
Key components of changes in the statement of operations items were as follows:
Total operating revenues
Residential and commercial revenues increased for the three and nine months ended September 30, 2020, due primarily to the acquisition of Continuum ($6 million and $17 million, respectively), as well as growth in broadband connections and price increases.
Cost of services
Cost of services increased for the three and nine months ended September 30, 2020, due primarily to the acquisition of Continuum ($3 million and $9 million, respectively) and employee-related expense.
Selling, general and administrative
Selling, general and administrative expenses increased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to the acquisition of Continuum ($1 millionhigher employee and $2 million, respectively)call center expenses to support current and future growth, increases to charges for federal universal service support, increased project costs associated with a new customer management system, and increased advertising expenses in employee-related expenses.TDS Telecom's expansion markets.
Depreciation, amortization and accretion
Depreciation, amortization and accretion increaseddecreased for the three and ninesix months ended SeptemberJune 30, 2020,2021, due primarily to the acquisition of Continuum ($3 millioncertain assets becoming fully depreciated partially offset by higher depreciation due to increased capital expenditures on new fiber assets throughout 2020 and $8 million, respectively).
Liquidity and Capital Resources
Sources of Liquidity
TDS and its subsidiaries operate capital-intensive businesses. Historically, TDS has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes. In the past, TDS’ existing cash and investment balances, funds available under its revolving credit and receivables securitization agreements, funds from other financing sources, including term loans, and 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, and forecasting future cash flow is more challenging with the various risks and uncertainties related to COVID-19.future. However, TDS believes that existing cash and investment balances, funds available under its revolving credit, term loan and receivables securitization 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 year.years. 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 cable, wireless or wireline telecommunications services, IT services or other businesses, wireless spectrum license or system acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments, including new technologies and out-of-territoryfiber builds. It may be necessary from time to time to increase the size of the existing revolving credit agreements, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures. TDS, through UScellular, made payments related to wireless spectrum auctions in 2020 (see Regulatory Matters - Spectrum Auctions). TDS also expects annual capital expenditures in 2020 to be higher than in 2019, due primarily to investments at UScellular to enhance network speed and capacity and to continue deploying VoLTE and 5G technology in its network, and at TDS Telecom to increase levels of fiber investment. TDS’ liquidity would be adversely affected if, among other things, TDS is unable to obtain financing on acceptable terms, TDS makes significant wireless spectrum license purchases, TDS makes significant business acquisitions, distributions from unconsolidated entities are discontinued or significantly reduced compared to historical levels, or Federal USF and/or other regulatory support payments decline.
TDS’ credit rating currently is sub-investment grade. There can be no assurance that sufficient funds will continue to be available to TDS or its subsidiaries on terms or at prices acceptable to TDS. Insufficient cash flows from operating activities, changes in TDS' credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of TDS or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of wireless spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends. Any of the foregoing developments would have an adverse impact on TDS' businesses, financial condition or results of operations. TDS cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. Cash held by UScellular is for use in its operations and acquisition, capital expenditure and business development programs including the purchase of wireless spectrum licenses. TDS does not have direct access to UScellular cash unless UScellular pays a dividend on its common stock.cash.
Cash and Cash Equivalents
(Dollars in millions)
At September 30, 2020, TDS' consolidated Cash and cash equivalents totaled $1,076 million compared to $465 million at December 31, 2019.
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.
Financing
Revolving Credit Agreements
In March 2020, TDS entered into a new $400 million unsecured revolving credit agreement with certain lenders and other parties and UScellular entered into a new $300 million unsecured revolving credit agreement with certain lenders and other parties. Amounts under the new revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in March 2025. As a result ofDuring the new agreements, TDS' and UScellular's previousthree months ended June 30, 2021, TDS borrowed $125 million under its revolving credit agreements due to expire in May 2023 were terminated.agreement. As of SeptemberJune 30, 2020,2021, there were no outstanding borrowings under the UScellular revolving credit agreements, except for lettersagreement. As of credit, andJune 30, 2021, TDS’ and UScellular’s unused borrowing capacity was $399$274 million and $298$300 million, respectively.
In March 2020,July 2021, TDS and UScellular amended their senior term loan credit agreements in order to conform the agreements withand 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 key terms of the senior term loanrevolving credit agreements.
Term Loan Agreements
In March 2020,January 2021, TDS borrowed $50$75 million under its senior term loan credit agreement. In June 2020,February 2021, UScellular amended and restatedborrowed $217 million under its senior term loan agreement and increased its borrowing capacity to $300 million. There were no significant changes to other key terms of the UScellular senior term loan credit agreement. As of SeptemberJune 30, 2020, TDS'2021, TDS and UScellular's unusedUScellular have both borrowed the full amounts available under the senior term loan credit agreements of $200 million and $300 million, respectively.
In July 2021, TDS and UScellular amended and restated their term loan agreements to allow for additional borrowing capacity was $150of $300 million and $217$200 million, respectively.
See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information related to the senior term loan agreements.
Receivables Securitization Agreement
UScellular, through its subsidiaries, also has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In April 2020,March 2021, UScellular borrowed $125an additional $275 million under its receivables securitization agreement. TheIn 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, the outstanding borrowings under the agreement were $100 million and the unused capacity under thisthe agreement was $75$350 million, as of September 30, 2020, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In October 2020, UScellular amended and restated itsAmounts under the receivables securitization agreement may be repaid and reborrowed from time to increase its total borrowing capacitytime until December 2022, which may be extended from time to $300 million and extendtime as specified therein. See Note 9 — Debt in the expiration dateNotes to Consolidated Financial Statements for additional information related to the receivables securitization agreement.
In July 2021, 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 agreement to December 2022.end of any fiscal quarter. There were no significant changes to other key terms of the receivablesreceivable securitization 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 and receivables securitization agreement as of SeptemberJune 30, 2020.2021.
Other Long-Term Financing
In August 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.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 912 — DebtShareholders' Equity in the Notes to Consolidated Financial Statements for additional information related to TDS' senior term loan, UScellular's receivables securitization agreementPreferred Shares.
In May 2021, TDS redeemed its outstanding $225 million of 6.875% Senior Notes due 2059 and UScellular's 6.25%$300 million of 7.0% Senior Notes.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 rating for UScellular’s senior unsecured notes from Ba1 to Ba2. This downgrade is due primarily to the impact of the financing activities noted above that increase the capacity of debt securities.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 ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, were as follows:
Capital Expenditures
(Dollars in millions)
UScellular’s capital expenditures for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, were $621$273 million and $467$405 million, respectively.
Capital expenditures for the full year 20202021 are expected to be between $850$775 million and $950$875 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 deploying VoLTE technology and providing additional speed and capacity to accommodate increased data usage by current customers;
▪Continue deploying 5G technology in its network; and
▪Invest in information technology to support existing and new services and products.
TDS Telecom’s capital expenditures for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, were $221$169 million and $193$128 million, respectively.
Capital expenditures for the full year 20202021 are expected to be between $300$425 million and $350$475 million. These expenditures are expected to be used principally for the following purposes:
▪Continue to expand fiber deployment inside and outside of current footprint;deployment;
▪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; and
▪Deploy TDS TV+, a cloud-based video platform.growth.
TDS intends to finance its capital expenditures for 20202021 using primarily Cash flows from operating activities, existing cash balances and, if required, additional debt financing from its receivables securitization agreement, seniorrevolving credit, term loan credit agreements, revolving creditand receivables securitization 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; 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 ninesix months ended SeptemberJune 30, 2020,2021, TDS repurchased 879,409162,500 Common Shares for $14$3 million at an average cost per share of $15.53.$18.50. As of SeptemberJune 30, 2020,2021, the maximum dollar value of TDS Common Shares that may yet be repurchased under TDS’ program was $185$182 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.
During the ninesix months ended SeptemberJune 30, 2020,2021, UScellular repurchased 803,83654,900 Common Shares for $23$2 million at an average cost per share of $29.00.$29.52. As of SeptemberJune 30, 2020,2021, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 4,507,000.
Contractual and Other Obligations
There were no material changes outside the ordinary course of business between December 31, 2019 and September 30, 2020, to the Contractual and Other Obligations disclosed in MD&A included in TDS’ Form 10-K for the year ended December 31, 2019, except for the following items. In March 2020, TDS borrowed $50 million under its senior term loan credit agreement. In April 2020, UScellular borrowed $125 million under its receivables securitization agreement. In August 2020, UScellular issued $500 million of 6.25% Senior Notes due in 2069.4,452,000.
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.
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 ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
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 timing of annual associate bonus payments.
Cash flows used for investing activities were $1,715 million. Cash paid for additions to property, plant and equipment totaled $457 million. Cash payments for wireless spectrum license acquisitions were $1,253 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 $622$112 million. Net cash provided by operating activities was $1,166$806 million due to net income of $254$161 million adjusted for non-cash items of $871$612 million and distributions received from unconsolidated entities of $118$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 $77$58 million. The working capital changes were primarily influenced by tax impacts from the CARES Act and annual employeeassociate bonus payments, partially offset by the timing of vendor payments and collections of customer and agent receivables.
Cash flows used for investing activities were $1,078$769 million. Cash paid for additions to property, plant and equipment totaled $914$610 million. Cash payments for wireless spectrum license acquisitions were $169$144 million.
Cash flows provided by financing activities were $534$75 million, reflecting the issuance of $500 million of 6.25% UScellular Senior Notes, $125 million borrowed underdue primarily to cash received from the UScellular receivables securitization agreement and $50 million borrowed under the TDS term loan. These wereloan borrowing, partially offset by the repurchase of TDS and UScellular Common Shares the payment of dividends, and the payment of debt issuance costs.
2019 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $66 million. Net cash provided by operating activities was $874 million due to net income of $132 million plus non-cash items of $726 million and distributions received from unconsolidated entities of $100 million, including $33 million in distributions from the LA Partnership. This was offset by changes in working capital items which decreased net cash by $84 million. The more significant working capital changes were increases in accounts receivables and equipment installment plan receivables, offset by an increase to accrued taxes.
Cash flows used for investing activities were $837 million. Cash paid for additions to property, plant and equipment totaled $631 million. Cash payments for wireless spectrum license acquisitions were $257 million. These were partially offset by Cash received from divestitures and exchanges of $32 million and cash received from the redemption of short-term Treasury bills of $29 million.
Cash flows used for financing activities were $103 million, reflecting the repurchase of $21 million of UScellular Common Shares and ordinary activity such as the payment of dividends and the scheduled repayments of debt.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. Changes in financial conditionNotable balance sheet changes during 20202021 were as follows:
Income taxes receivable
Income taxes receivable increased $190 million primarily reflecting future tax refunds attributable to the expected carryback of 2020 net operating losses, as allowed under the CARES Act which was enacted in March 2020.
Deferred income tax liability,Inventory, net
Deferred income tax liability,Inventory, net increased $217$35 million due primarily to full deductibilityan increase in the volume of inventory at UScellular.
Licenses
Licenses increased $1,288 million due primarily to wireless spectrum license rights acquired through Auction 107. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for tax purposes of qualified property placedadditional information.
Accounts payable
Accounts payable decreased $134 million due primarily to vendor payment timing differences.
Accrued compensation
Accrued compensation decreased $40 million due primarily to associate bonus payments in service during the current year.March 2021.
Long-term debt, net
The following table presents the components of the $89 million decrease in Long-term debt, net:
| | | | | |
| Long-term debt, net |
| (Dollars in millions) | |
| Balance at December 31, 2020 | $ | 3,424 | |
| Borrowings under Revolving Credit Agreements | 125 | |
| Borrowings under Term Loan Agreements | 292 | |
| Borrowings under Receivables Securitization Agreement | 275 | |
| Issuance of Senior Notes | 500 | |
| Payment of debt issuance costs | (16) | |
| Repayments under Receivables Securitization Agreement | (200) | |
| Redemptions of Senior Notes | (1,100) | |
| Debt issuance costs charged to interest expense | 37 | |
| Other | (2) | |
| Balance at June 30, 2021 | $ | 3,335 | |
Preferred Shares
Preferred Shares increased $654$406 million due primarily to $500the issuance of $420 million of 6.25% UScellular Senior Notes issued in August 2020, $125 million borrowed under UScellular's receivables securitization agreement in April 2020 and $50 million borrowed under TDS' senior term loan credit agreement in March 2020.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 theirthe segments' performance. See Note 1213 — 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 or Income before income taxes and Operating income. Income tax expense is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense (benefit) for TDS Telecom in total.
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| TDS - CONSOLIDATED | TDS - CONSOLIDATED | 2020 | | 2019 | | 2020 | | 2019 | TDS - CONSOLIDATED | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | | | (Dollars in millions) | | | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 93 | | | $ | 23 | | | $ | 254 | | | $ | 132 | | Net income (GAAP) | $ | 34 | | | $ | 78 | | | $ | 105 | | | $ | 161 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense | 6 | | | 15 | | | 17 | | | 64 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (11) | | | 8 | | | 20 | | | 12 | |
| Interest expense | Interest expense | 43 | | | 42 | | | 119 | | | 128 | | Interest expense | 86 | | | 38 | | | 138 | | | 75 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 217 | | | 237 | | | 685 | | | 697 | | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 359 | | | 317 | | | 1,075 | | | 1,021 | | EBITDA (Non-GAAP) | 343 | | | 360 | | | 720 | | | 718 | |
| Add back or deduct: | Add back or deduct: | | Add back or deduct: | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 6 | | | 15 | | | 5 | | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 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) | | | — | |
| (Gain) loss on license sales and exchanges, net | — | | | 2 | | | — | | | — | | |
| (Gain) loss on investments | (3) | | | — | | | (3) | | | — | | |
| | Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 362 | | | 325 | | | 1,087 | | | 1,025 | | Adjusted EBITDA (Non-GAAP) | 346 | | | 364 | | | 727 | | | 726 | |
| Deduct: | Deduct: | | Deduct: | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 138 | | | 129 | | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 90 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 4 | | | 7 | | | 12 | | | 24 | | Interest and dividend income | 3 | | | 2 | | | 6 | | | 8 | |
| Other, net | Other, net | — | | | — | | | (1) | | | — | | Other, net | — | | | — | | | (1) | | | (1) | |
| Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 310 | | | 274 | | | 938 | | | 872 | | Adjusted OIBDA (Non-GAAP) | 295 | | | 318 | | | 632 | | | 629 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 217 | | | 237 | | | 685 | | | 697 | | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 6 | | | 15 | | | 5 | | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 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) | | | — | |
| (Gain) loss on license sales and exchanges, net | — | | | 2 | | | — | | | — | | |
| | Operating income (GAAP) | Operating income (GAAP) | $ | 87 | | | $ | 29 | | | $ | 238 | | | $ | 171 | | Operating income (GAAP) | $ | 58 | | | $ | 78 | | | $ | 168 | | | $ | 151 | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| UScellular | UScellular | 2020 | | 2019 | | 2020 | | 2019 | UScellular | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 85 | | | $ | 24 | | | $ | 227 | | | $ | 115 | | Net income (GAAP) | $ | 35 | | | $ | 69 | | | $ | 97 | | | $ | 141 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense | 4 | | | 15 | | | 11 | | | 55 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (10) | | | 4 | | | 17 | | | 8 | |
| Interest expense | Interest expense | 29 | | | 29 | | | 76 | | | 87 | | Interest expense | 60 | | | 25 | | | 97 | | | 49 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 161 | | | 181 | | | 516 | | | 524 | | Depreciation, amortization and accretion | 180 | | | 178 | | | 350 | | | 354 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 279 | | | 249 | | | 830 | | | 781 | | EBITDA (Non-GAAP) | 265 | | | 276 | | | 561 | | | 552 | |
| Add back or deduct: | Add back or deduct: | | Add back or deduct: | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 5 | | | 14 | | | 13 | | (Gain) loss on asset disposals, net | 2 | | | 4 | | | 7 | | | 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) | | | — | |
| (Gain) loss on license sales and exchanges, net | — | | | 2 | | | — | | | — | | |
| (Gain) loss on investments | (3) | | | — | | | (3) | | | — | | |
| | Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 282 | | | 256 | | | 841 | | | 793 | | Adjusted EBITDA (Non-GAAP) | 267 | | | 280 | | | 567 | | | 560 | |
| Deduct: | Deduct: | | Deduct: | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 137 | | | 128 | | Equity in earnings of unconsolidated entities | 47 | | | 44 | | | 88 | | | 89 | |
| Interest and dividend income | Interest and dividend income | 2 | | | 4 | | | 6 | | | 14 | | Interest and dividend income | 2 | | | 1 | | | 3 | | | 5 | |
| | Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 232 | | | 208 | | | 698 | | | 651 | | Adjusted OIBDA (Non-GAAP) | 218 | | | 235 | | | 476 | | | 466 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 161 | | | 181 | | | 516 | | | 524 | | Depreciation, amortization and accretion | 180 | | | 178 | | | 350 | | | 354 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 5 | | | 14 | | | 13 | | (Gain) loss on asset disposals, net | 2 | | | 4 | | | 7 | | | 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) | | | — | |
| (Gain) loss on license sales and exchanges, net | — | | | 2 | | | — | | | — | | |
| | Operating income (GAAP) | Operating income (GAAP) | $ | 65 | | | $ | 20 | | | $ | 168 | | | $ | 115 | | Operating income (GAAP) | $ | 36 | | | $ | 53 | | | $ | 120 | | | $ | 104 | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| TDS TELECOM | TDS TELECOM | 2020 | | 2019 | | 2020 | | 2019 | TDS TELECOM | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Net income (GAAP) | Net income (GAAP) | $ | 25 | | | $ | 18 | | | $ | 81 | | | $ | 74 | | Net income (GAAP) | $ | 22 | | | $ | 28 | | | $ | 46 | | | $ | 56 | |
| Add back: | Add back: | | Add back: | |
| Income tax expense | Income tax expense | 4 | | | 5 | | | 13 | | | 23 | | Income tax expense | 7 | | | 5 | | | 15 | | | 8 | |
| Interest expense | Interest expense | (1) | | | (1) | | | (3) | | | (2) | | Interest expense | (1) | | | (1) | | | (2) | | | (2) | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 49 | | | 50 | | | 152 | | | 150 | | Depreciation, amortization and accretion | 49 | | | 51 | | | 98 | | | 103 | |
| EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | 78 | | | 72 | | | 243 | | | 245 | | EBITDA (Non-GAAP) | 77 | | | 83 | | | 157 | | | 165 | |
| 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 | | | (7) | | (Gain) loss on asset disposals, net | 1 | | | — | | | 1 | | | — | |
| Adjusted EBITDA (Non-GAAP) | Adjusted EBITDA (Non-GAAP) | 78 | | | 73 | | | 243 | | | 238 | | Adjusted EBITDA (Non-GAAP) | 78 | | | 83 | | | 158 | | | 165 | |
| Deduct: | Deduct: | | Deduct: | |
| Interest and dividend income | Interest and dividend income | 1 | | | 3 | | | 4 | | | 9 | | Interest and dividend income | — | | | 1 | | | — | | | 4 | |
| Other, net | Other, net | — | | | — | | | (1) | | | — | | Other, net | — | | | — | | | — | | | (1) | |
| Adjusted OIBDA (Non-GAAP) | Adjusted OIBDA (Non-GAAP) | 78 | | | 69 | | | 240 | | | 228 | | Adjusted OIBDA (Non-GAAP) | 78 | | | 82 | | | 159 | | | 162 | |
| Deduct: | Deduct: | | Deduct: | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 49 | | | 50 | | | 152 | | | 150 | | Depreciation, amortization and accretion | 49 | | | 51 | | | 98 | | | 103 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | — | | | — | | | 1 | | | (7) | | (Gain) loss on asset disposals, net | 1 | | | — | | | 1 | | | — | |
| Operating income (GAAP) | Operating income (GAAP) | $ | 28 | | | $ | 20 | | | $ | 87 | | | $ | 86 | | Operating income (GAAP) | $ | 28 | | | $ | 31 | | | $ | 60 | | | $ | 59 | |
Numbers may not foot due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| WIRELINE | 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | | | | | | |
| Income before income taxes (GAAP) | $ | 24 | | | $ | 20 | | | $ | 79 | | | $ | 88 | |
| Add back: | | | | | | | |
| Interest expense | (1) | | | (1) | | | (3) | | | (2) | |
| Depreciation, amortization and accretion | 30 | | | 33 | | | 94 | | | 99 | |
| EBITDA (Non-GAAP) | 53 | | | 52 | | | 169 | | | 185 | |
| Add back or deduct: | | | | | | | |
| (Gain) loss on asset disposals, net | — | | | — | | | — | | | (8) | |
| Adjusted EBITDA (Non-GAAP) | 53 | | | 52 | | | 169 | | | 177 | |
| Deduct: | | | | | | | |
| Interest and dividend income | 1 | | | 3 | | | 4 | | | 8 | |
| Other, net | — | | | — | | | (1) | | | — | |
| Adjusted OIBDA (Non-GAAP) | 53 | | | 49 | | | 167 | | | 168 | |
| Deduct: | | | | | | | |
| Depreciation, amortization and accretion | 30 | | | 33 | | | 94 | | | 99 | |
| (Gain) loss on asset disposals, net | — | | | — | | | — | | | (8) | |
| Operating income (GAAP) | $ | 23 | | | $ | 16 | | | $ | 73 | | | $ | 78 | |
Numbers may not foot due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| CABLE | 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in millions) | | | | | | | |
| Income before income taxes (GAAP) | $ | 5 | | | $ | 4 | | | $ | 15 | | | $ | 9 | |
| Add back: | | | | | | | |
| Depreciation, amortization and accretion | 20 | | | 17 | | | 59 | | | 51 | |
| EBITDA (Non-GAAP) | 25 | | | 21 | | | 73 | | | 61 | |
| Add back or deduct: | | | | | | | |
| (Gain) loss on asset disposals, net | — | | | — | | | 1 | | | 1 | |
| Adjusted EBITDA (Non-GAAP) | 25 | | | 21 | | | 74 | | | 61 | |
| Deduct: | | | | | | | |
| Interest and dividend income | — | | | — | | | 1 | | | 1 | |
| Adjusted OIBDA (Non-GAAP) | 25 | | | 20 | | | 73 | | | 60 | |
| Deduct: | | | | | | | |
| Depreciation, amortization and accretion | 20 | | | 17 | | | 59 | | | 51 | |
| (Gain) loss on asset disposals, net | — | | | — | | | 1 | | | 1 | |
| Operating income (GAAP) | $ | 5 | | | $ | 3 | | | $ | 14 | | | $ | 8 | |
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.
| | | | Nine Months Ended
September 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Cash flows from operating activities (GAAP) | Cash flows from operating activities (GAAP) | $ | 1,166 | | | $ | 874 | | Cash flows from operating activities (GAAP) | $ | 481 | | | $ | 806 | |
| Less: Cash paid for additions to property, plant and equipment | Less: Cash paid for additions to property, plant and equipment | 914 | | | 631 | | Less: Cash paid for additions to property, plant and equipment | 457 | | | 610 | |
| Free cash flow (Non-GAAP) | Free cash flow (Non-GAAP) | $ | 252 | | | $ | 243 | | Free cash flow (Non-GAAP) | $ | 24 | | | $ | 196 | |
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 1110 — 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, 2019.
Recent Accounting Pronouncements
See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.2020.
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 July 11, 2019, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 37, 39 and 47 GHz bands (Auction 103). On March 12, 2020, the FCC announced by public notice that UScellular was the provisional winning bidder for 237 wireless spectrum licenses for a purchase price of $146 million. In June 2020, the wireless spectrum licenses from Auction 103 were granted by the FCC.
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 public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million. The wireless spectrum licenses are expected to behave not yet been granted by the FCC in the fourth quarter of 2020.FCC.
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 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 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 after the period ended June 30, 2021. 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). UScellular filed an application to participate in Auction 107110 on July 19, 2021. Upfront payments are due on September 21, 2020. Bidding in Auction 107 is scheduled to begin on December 8, 2020.
Rural Digital Opportunity Fund
On January 30, 2020, the FCC adopted the Rural Digital Opportunity Fund Report2, 2021 and Order, which establishes the framework for the Rural Digital Opportunity Fund (Auction 904). Auction 904 is a two phase reverse auction to provide funding for high speed fixed broadband service in underserved rural areas. On July 15, 2020, UScellular filed an application to participate in Auction 904. Phase I beganbidding will commence on October 29, 2020.5, 2021.
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, 20192020 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, 2019,2020, 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.
▪The impact of the COVID-19 pandemic on TDS' business is uncertain, but depending on its duration and severity it could have a material adverse effect on TDS' business, financial condition or results of operations.Operational Risk Factors
▪Intense competition in the markets in which TDS operatesinvolving products, services, pricing, and network speed and technologies could adversely affect TDS’ revenues or increase its costs to compete.
▪A failure by TDS to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, fiber builds, divestitures and exchanges) or allocate resources or capital effectively could have an adverse effect on TDS’ business, financial condition or results of operations.
▪Uncertainty in TDS’ future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development or acquisition programs, reduce the amount of 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.
▪Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.
▪A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on TDS’ business, financial condition or results of operations.
▪To the extent conducted by the FCC, TDS may participate in FCC auctions for additional spectrum or for funding in certain Universal Service programs in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on TDS.
▪Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.
▪An inability to attract people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.
▪TDS’ assets and revenue are concentrated primarily in the U.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
▪TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
▪Changes in various business factors, including changes in demand, 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.
▪TDS receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on TDS’ business, financial condition or results of operations.
▪Changes in TDS’ enterprise value, changes in the market supply or demand for wireless spectrum licenses, wireline or cable markets or IT service providers, adverse developments in the businesses or the industries in which TDS is involved and/or other factors could require TDS to recognize impairments in the carrying value of its wireless spectrum licenses, goodwill, franchise rights and/or physical assets or require re-evaluation of the indefinite-lived nature of such assets.
▪Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or 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 of key suppliers or independent agents and third party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.
▪TDS has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.
▪A failure by TDS to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
Financial Risk Factors
▪Uncertainty in TDS’ future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, and/or reduce or cease share repurchases and/or the payment of dividends.
▪TDS has experienced,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 future expectsU.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to experience, cyber-attacks or other breachesconditions in this industry.
▪TDS has significant investments in entities that it does not control. Losses in the value of network or information technology security of varying degrees on a regular basis, whichsuch investments could have an adverse effect on TDS' business,TDS’ financial condition or results of operations.
Regulatory, Legal and Governance Risk Factors
▪Changes in facts or circumstances, including new or additional information, could requireFailure by TDS to record adjustments to amounts reflected in the financial statements, whichtimely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could have an adverse effect onadversely affect TDS’ business, financial condition or results of operations.
▪Disruption in credit or other financial markets, a deteriorationTDS 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 U.S. or global economic conditions or other eventsthe support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could among other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or results of operations.
▪Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.
▪The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on TDS’ wireless business, financial condition or results of operations.
▪Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.
▪Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of TDS or have other consequences.
General Risk Factors
▪The market priceTDS has experienced, and in the future expects to experience, cyber-attacks or other breaches of TDS’ Common Shares is subject to fluctuations due tonetwork or information technology security of varying degrees on a varietyregular basis, which could have an adverse effect on TDS' business, financial condition or results of factors.operations.
▪AnyDisruption in credit or other financial markets, a deterioration of the foregoing eventsU.S. or global economic conditions or other events could, causeamong other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues earnings, capital expenditures and/and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or any other financial or statistical information to vary from TDS’ forward-looking estimates byresults 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 amount.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, 2019,2020, 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, 2019,2020, 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, and other than the risk factor set forth below, 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, 2019.
The impact of the COVID-19 pandemic on TDS' business is uncertain, but depending on its duration and severity it could have a material adverse effect on TDS' business, financial condition or results of operations.
The impact of the global spread of COVID-19 on TDS' future operations is uncertain. Public health emergencies, such as COVID-19, pose the risk that TDS or its associates, agents, partners and suppliers may be unable to conduct business activities for an extended period of time and/or provide the level of service expected. TDS' ability to attract customers, maintain an adequate supply chain and execute on its business strategies and initiatives could be negatively impacted by this outbreak. Additionally, COVID-19 has caused and could continue to cause increased unemployment, economic downturn and credit market deterioration, all of which could negatively impact TDS. The extent of the impact of COVID-19 on TDS' business, financial condition and results of operations will depend on future circumstances, including the severity of the disease, the duration of the outbreak, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted.2020.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Refer toThe following table presents the disclosure under Market Risk in TDS’ Form 10-K for the year ended December 31, 2019, for additional information, including information regarding requiredscheduled principal payments on long-term debt, finance lease obligations, and the related weighted average interest rates by maturity dates at June 30, 2021.
| | | | | | | | | | | |
| Principal Payments Due by Period |
| Long-Term Debt Obligations1 | | Weighted-Avg. Interest Rates on Long-Term Debt Obligations2 |
| (Dollars in millions) | | | |
| Remainder of 2021 | $ | 4 | | | 2.7 | % |
| 2022 | 105 | | | 1.3 | % |
| 2023 | 5 | | | 2.4 | % |
| 2024 | 5 | | | 2.4 | % |
| 2025 | 130 | | | 1.6 | % |
| Thereafter | 3,181 | | | 5.6 | % |
| Total | $ | 3,430 | | | 5.3 | % |
1 The 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 TDS’ Long-term debt. There have been no material changes to such information since December 31, 2019 except the following: in March 2020 TDS borrowed $50 million under its senior term loan credit agreement, in April 2020 UScellular borrowed $125 million under its receivables securitization agreement and in August 2020 UScellular issued $500 million of 6.25%UScellular's 6.7% Senior Notes due in 2069. Such transactions changedNotes.
2 Represents the weighted average stated interest rate on long-termrates at June 30, 2021, for debt obligations to 6.3% at September 30, 2020 from 6.7% at December 31, 2019.maturing in the respective periods
See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of SeptemberJune 30, 2020.2021.
Financial Statements
Telephone and Data Systems, Inc.
Consolidated Statement of Operations
(Unaudited)
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| (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 | $ | 1,046 | | | $ | 1,030 | | | $ | 3,088 | | | $ | 3,038 | | Service | $ | 1,049 | | | $ | 1,016 | | | $ | 2,091 | | | $ | 2,042 | |
| Equipment and product sales | Equipment and product sales | 278 | | | 291 | | | 761 | | | 802 | | Equipment and product sales | 262 | | | 247 | | | 538 | | | 482 | |
| Total operating revenues | Total operating revenues | 1,324 | | | 1,321 | | | 3,849 | | | 3,840 | | Total operating revenues | 1,311 | | | 1,263 | | | 2,629 | | | 2,524 | |
| | 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) | 321 | | | 313 | | | 919 | | | 900 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 324 | | | 306 | | | 623 | | | 599 | |
| Cost of equipment and products | Cost of equipment and products | 278 | | | 295 | | | 765 | | | 808 | | Cost of equipment and products | 276 | | | 241 | | | 570 | | | 487 | |
| Selling, general and administrative | Selling, general and administrative | 415 | | | 439 | | | 1,227 | | | 1,260 | | Selling, general and administrative | 416 | | | 398 | | | 804 | | | 809 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 217 | | | 237 | | | 685 | | | 697 | | Depreciation, amortization and accretion | 234 | | | 236 | | | 457 | | | 470 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 6 | | | 15 | | | 5 | | (Gain) loss on asset disposals, net | 3 | | | 4 | | | 8 | | | 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 | | | 0 | | | (1) | | (Gain) loss on sale of business and other exit costs, net | 0 | | | 0 | | | (1) | | | 0 | |
| (Gain) loss on license sales and exchanges, net | 0 | | | 2 | | | 0 | | | 0 | | |
| | Total operating expenses | Total operating expenses | 1,237 | | | 1,292 | | | 3,611 | | | 3,669 | | Total operating expenses | 1,253 | | | 1,185 | | | 2,461 | | | 2,373 | |
| | Operating income | Operating income | 87 | | | 29 | | | 238 | | | 171 | | Operating income | 58 | | | 78 | | | 168 | | | 151 | |
| | 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 | | | 138 | | | 129 | | Equity in earnings of unconsolidated entities | 48 | | | 44 | | | 90 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 4 | | | 7 | | | 12 | | | 24 | | Interest and dividend income | 3 | | | 2 | | | 6 | | | 8 | |
| Gain (loss) on investments | 3 | | | 0 | | | 3 | | | 0 | | |
| | Interest expense | Interest expense | (43) | | | (42) | | | (119) | | | (128) | | Interest expense | (86) | | | (38) | | | (138) | | | (75) | |
| Other, net | Other, net | 0 | | | 0 | | | (1) | | | 0 | | Other, net | 0 | | | 0 | | | (1) | | | (1) | |
| Total investment and other income | 12 | | | 9 | | | 33 | | | 25 | | |
| Total investment and other income (expense) | | Total investment and other income (expense) | (35) | | | 8 | | | (43) | | | 22 | |
| | Income before income taxes | Income before income taxes | 99 | | | 38 | | | 271 | | | 196 | | Income before income taxes | 23 | | | 86 | | | 125 | | | 173 | |
| Income tax expense | 6 | | | 15 | | | 17 | | | 64 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (11) | | | 8 | | | 20 | | | 12 | |
| Net income | Net income | 93 | | | 23 | | | 254 | | | 132 | | Net income | 34 | | | 78 | | | 105 | | | 161 | |
| Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax | 15 | | | 5 | | | 42 | | | 22 | | Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | 19 | | | 26 | |
| Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | $ | 78 | | | $ | 18 | | | $ | 212 | | | $ | 110 | | Net income attributable to TDS shareholders | 27 | | | 65 | | | 86 | | | 135 | |
| TDS Preferred Share dividends | | TDS Preferred Share dividends | 7 | | | 0 | | | 9 | | | 0 | |
| Net income attributable to TDS common shareholders | | Net income attributable to TDS common shareholders | $ | 20 | | | $ | 65 | | | $ | 77 | | | $ | 135 | |
| | Basic weighted average shares outstanding | Basic weighted average shares outstanding | 114 | | | 115 | | | 114 | | | 114 | | Basic weighted average shares outstanding | 115 | | | 114 | | | 115 | | | 115 | |
| Basic earnings per share attributable to TDS shareholders | $ | 0.68 | | | $ | 0.15 | | | $ | 1.85 | | | $ | 0.96 | | |
| 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 | |
| | Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 115 | | | 116 | | | 115 | | | 116 | | Diluted weighted average shares outstanding | 116 | | | 115 | | | 116 | | | 115 | |
| Diluted earnings per share attributable to TDS shareholders | $ | 0.66 | | | $ | 0.15 | | | $ | 1.81 | | | $ | 0.93 | | |
| 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 | |
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
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Net income | Net income | $ | 93 | | | $ | 23 | | | $ | 254 | | | $ | 132 | | Net income | $ | 34 | | | $ | 78 | | | $ | 105 | | | $ | 161 | |
| Net change in accumulated other comprehensive income | Net change in accumulated other comprehensive income | | Net change in accumulated other comprehensive income | |
| Change related to retirement plan | Change related to retirement plan | | Change related to retirement plan | |
| Amounts included in net periodic benefit cost for the period | Amounts included in net periodic benefit cost for the period | | Amounts included in net periodic benefit cost for the period | |
| Amortization of prior service cost | Amortization of prior service cost | 1 | | | 0 | | | 2 | | | 1 | | Amortization of prior service cost | 1 | | | 1 | | | 1 | | | 2 | |
| Comprehensive income | Comprehensive income | 94 | | | 23 | | | 256 | | | 133 | | Comprehensive income | 35 | | | 79 | | | 106 | | | 163 | |
| Less: Net income attributable to noncontrolling interests, net of tax | Less: Net income attributable to noncontrolling interests, net of tax | 15 | | | 5 | | | 42 | | | 22 | | Less: Net income attributable to noncontrolling interests, net of tax | 7 | | | 13 | | | 19 | | | 26 | |
| Comprehensive income attributable to TDS shareholders | Comprehensive income attributable to TDS shareholders | $ | 79 | | | $ | 18 | | | $ | 214 | | | $ | 111 | | Comprehensive income attributable to TDS shareholders | $ | 28 | | | $ | 66 | | | $ | 87 | | | $ | 137 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2020 | | 2019 |
| (Dollars in millions) | | | |
| Cash flows from operating activities | | | |
| Net income | $ | 254 | | | $ | 132 | |
| Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | | | |
| Depreciation, amortization and accretion | 685 | | | 697 | |
| Bad debts expense | 55 | | | 80 | |
| Stock-based compensation expense | 39 | | | 47 | |
| Deferred income taxes, net | 217 | | | 23 | |
| Equity in earnings of unconsolidated entities | (138) | | | (129) | |
| Distributions from unconsolidated entities | 118 | | | 100 | |
| | | |
| (Gain) loss on asset disposals, net | 15 | | | 5 | |
| (Gain) loss on sale of business and other exit costs, net | 0 | | | (1) | |
| | | |
| (Gain) loss on investments | (3) | | | 0 | |
| Other operating activities | 1 | | | 4 | |
| Changes in assets and liabilities from operations | | | |
| Accounts receivable | 26 | | | (42) | |
| Equipment installment plans receivable | 13 | | | (42) | |
| Inventory | 2 | | | 3 | |
| Accounts payable | 95 | | | (4) | |
| Customer deposits and deferred revenues | (21) | | | (2) | |
| Accrued taxes | (156) | | | 37 | |
| Accrued interest | 14 | | | 9 | |
| Other assets and liabilities | (50) | | | (43) | |
| Net cash provided by operating activities | 1,166 | | | 874 | |
| | | |
| Cash flows from investing activities | | | |
| Cash paid for additions to property, plant and equipment | (914) | | | (631) | |
| Cash paid for licenses | (169) | | | (257) | |
| Cash received from investments | 1 | | | 29 | |
| Cash paid for investments | (1) | | | (11) | |
| Cash received from divestitures and exchanges | 1 | | | 32 | |
| | | |
| Other investing activities | 4 | | | 1 | |
| Net cash used in investing activities | (1,078) | | | (837) | |
| | | |
| Cash flows from financing activities | | | |
| Issuance of long-term debt | 675 | | | 0 | |
| Repayment of long-term debt | (8) | | | (16) | |
| TDS Common Shares reissued for benefit plans, net of tax payments | (3) | | | (6) | |
| UScellular Common Shares reissued for benefit plans, net of tax payments | (11) | | | (8) | |
| Repurchase of TDS Common Shares | (14) | | | 0 | |
| Repurchase of UScellular Common Shares | (23) | | | (21) | |
| Dividends paid to TDS shareholders | (58) | | | (57) | |
| Payment of debt issuance costs | (23) | | | (1) | |
| Distributions to noncontrolling interests | (2) | | | (3) | |
| Other financing activities | 1 | | | 9 | |
| Net cash provided by (used in) financing activities | 534 | | | (103) | |
| | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 622 | | | (66) | |
| | | |
| Cash, cash equivalents and restricted cash | | | |
| Beginning of period | 474 | | | 927 | |
| End of period | $ | 1,096 | | | $ | 861 | |
| | | | | | | | | | | |
| 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 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — Assets
(Unaudited)
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Current assets | Current assets | | Current assets | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,076 | | | $ | 465 | | Cash and cash equivalents | $ | 385 | | | $ | 1,429 | |
| | Short-term investments | | Short-term investments | 0 | | | 3 | |
| Accounts receivable | Accounts receivable | | Accounts receivable | |
| Customers and agents, less allowances of $69 and $74, respectively | 949 | | | 1,005 | | |
| Other, less allowances of $2 and $2, respectively | 107 | | | 119 | | |
| Customers and agents, less allowances of $59 and $67, respectively | | Customers and agents, less allowances of $59 and $67, respectively | 976 | | | 1,004 | |
| Other, less allowances of $3 and $2, respectively | | Other, less allowances of $3 and $2, respectively | 96 | | | 108 | |
| Inventory, net | Inventory, net | 164 | | | 169 | | Inventory, net | 189 | | | 154 | |
| Prepaid expenses | Prepaid expenses | 109 | | | 98 | | Prepaid expenses | 108 | | | 105 | |
| Income taxes receivable | Income taxes receivable | 226 | | | 36 | | Income taxes receivable | 187 | | | 187 | |
| Other current assets | Other current assets | 39 | | | 29 | | Other current assets | 50 | | | 36 | |
| Total current assets | Total current assets | 2,670 | | | 1,921 | | Total current assets | 1,991 | | | 3,026 | |
| | Assets held for sale | Assets held for sale | 19 | | | 0 | | Assets held for sale | 3 | | | 2 | |
| | Licenses | Licenses | 2,637 | | | 2,480 | | Licenses | 3,926 | | | 2,638 | |
| | Goodwill | Goodwill | 547 | | | 547 | | Goodwill | 547 | | | 547 | |
| | Other intangible assets, net of accumulated amortization of $183 and $167, respectively | 219 | | | 239 | | |
| Other intangible assets, net of accumulated amortization of $81 and $71, respectively | | Other intangible assets, net of accumulated amortization of $81 and $71, respectively | 207 | | | 213 | |
| | Investments in unconsolidated entities | Investments in unconsolidated entities | 508 | | | 488 | | Investments in unconsolidated entities | 487 | | | 477 | |
| | Property, plant and equipment | Property, plant and equipment | | Property, plant and equipment | |
| In service and under construction | In service and under construction | 13,375 | | | 12,864 | | In service and under construction | 13,857 | | | 13,659 | |
| Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | 9,648 | | | 9,337 | | Less: Accumulated depreciation and amortization | 9,885 | | | 9,687 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 3,727 | | | 3,527 | | Property, plant and equipment, net | 3,972 | | | 3,972 | |
| | Operating lease right-of-use assets | Operating lease right-of-use assets | 988 | | | 972 | | Operating lease right-of-use assets | 1,021 | | | 998 | |
| | Other assets and deferred charges | Other assets and deferred charges | 580 | | | 607 | | Other assets and deferred charges | 626 | | | 652 | |
| Total assets1 | Total assets1 | $ | 11,895 | | | $ | 10,781 | | Total assets1 | $ | 12,780 | | | $ | 12,525 | |
The accompanying notes are an integral part of these consolidated financial statements.
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — Liabilities and Equity
(Unaudited)
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (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) | | | |
| Current liabilities | Current liabilities | | | | Current liabilities | | | |
| Current portion of long-term debt | Current portion of long-term debt | $ | 3 | | | $ | 10 | | Current portion of long-term debt | $ | 6 | | | $ | 5 | |
| Accounts payable | Accounts payable | 399 | | | 374 | | Accounts payable | 374 | | | 508 | |
| Customer deposits and deferred revenues | Customer deposits and deferred revenues | 168 | | | 189 | | Customer deposits and deferred revenues | 199 | | | 193 | |
| Accrued interest | Accrued interest | 24 | | | 11 | | Accrued interest | 13 | | | 16 | |
| Accrued taxes | Accrued taxes | 63 | | | 41 | | Accrued taxes | 66 | | | 69 | |
| Accrued compensation | Accrued compensation | 107 | | | 121 | | Accrued compensation | 92 | | | 132 | |
| Short-term operating lease liabilities | Short-term operating lease liabilities | 125 | | | 116 | | Short-term operating lease liabilities | 138 | | | 129 | |
| Other current liabilities | Other current liabilities | 76 | | | 100 | | Other current liabilities | 98 | | | 101 | |
| Total current liabilities | Total current liabilities | 965 | | | 962 | | Total current liabilities | 986 | | | 1,153 | |
| | | | | |
| | Liabilities held for sale | | Liabilities held for sale | 0 | | | 1 | |
| | Deferred liabilities and credits | Deferred liabilities and credits | | Deferred liabilities and credits | |
| Deferred income tax liability, net | Deferred income tax liability, net | 893 | | | 676 | | Deferred income tax liability, net | 903 | | | 863 | |
| Long-term operating lease liabilities | Long-term operating lease liabilities | 938 | | | 931 | | Long-term operating lease liabilities | 951 | | | 940 | |
| Other deferred liabilities and credits | Other deferred liabilities and credits | 530 | | | 481 | | Other deferred liabilities and credits | 538 | | | 541 | |
| | | | | |
| Long-term debt, net | Long-term debt, net | 2,970 | | | 2,316 | | Long-term debt, net | 3,335 | | | 3,424 | |
| | | | | |
| Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | 0 | | 0 |
| | | | | |
| Noncontrolling interests with redemption features | Noncontrolling interests with redemption features | 10 | | | 11 | | Noncontrolling interests with redemption features | 10 | | | 10 | |
| | | | | |
| Equity | Equity | | Equity | |
| TDS shareholders’ equity | TDS shareholders’ equity | | TDS shareholders’ equity | |
| Series A Common and Common Shares | Series A Common and Common Shares | | Series A Common and Common Shares | |
| Authorized 290 shares (25 Series A Common and 265 Common Shares) | Authorized 290 shares (25 Series A Common and 265 Common Shares) | | Authorized 290 shares (25 Series A Common and 265 Common Shares) | |
| Issued 133 shares (7 Series A Common and 126 Common Shares) | Issued 133 shares (7 Series A Common and 126 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 | | |
| Outstanding 115 shares (7 Series A Common and 108 Common Shares) and 114 shares (7 Series A Common and 107 Common Shares), respectively | | 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) | Par Value ($0.01 per share) | 1 | | | 1 | | Par Value ($0.01 per share) | 1 | | | 1 | |
| Capital in excess of par value | Capital in excess of par value | 2,479 | | | 2,468 | | Capital in excess of par value | 2,462 | | | 2,482 | |
| Treasury shares, at cost, 19 and 18 Common Shares, respectively | (478) | | | (479) | | |
| Preferred Shares, par value $0.01 per share, $25,000 liquidation preference per share, .017 shares outstanding | | 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 | | Treasury shares, at cost, 18 and 19 Common Shares, respectively | (458) | | | (477) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (7) | | | (9) | | Accumulated other comprehensive loss | (2) | | | (4) | |
| Retained earnings | Retained earnings | 2,809 | | | 2,672 | | Retained earnings | 2,812 | | | 2,802 | |
| Total TDS shareholders' equity | Total TDS shareholders' equity | 4,804 | | | 4,653 | | Total TDS shareholders' equity | 5,221 | | | 4,804 | |
| | | | | |
| Noncontrolling interests | Noncontrolling interests | 785 | | | 751 | | Noncontrolling interests | 836 | | | 789 | |
| | | | | | | | | |
| Total equity | Total equity | 5,589 | | | 5,404 | | Total equity | 6,057 | | | 5,593 | |
| | | | | |
Total liabilities and equity1 | Total liabilities and equity1 | $ | 11,895 | | | $ | 10,781 | | Total liabilities and equity1 | $ | 12,780 | | | $ | 12,525 | |
The accompanying notes are an integral part of these consolidated financial statements.
1The consolidated total assets as of SeptemberJune 30, 20202021 and December 31, 2019,2020, include assets held by consolidated variable interest entities (VIEs) of $1,070$1,240 million and $915$1,042 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of SeptemberJune 30, 20202021 and December 31, 2019,2020, include certain liabilities of consolidated VIEs of $19$17 million and $20$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 | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions) | | | | | | | | | | | | | | | |
| June 30, 2020 | $ | 1 | | | $ | 2,472 | | | $ | (479) | | | $ | (7) | | | $ | 2,751 | | | $ | 4,738 | | | $ | 765 | | | $ | 5,503 | |
| Cumulative effect of accounting change | — | | | — | | | — | | | — | | | 1 | | | 1 | | | — | | | 1 | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 78 | | | 78 | | | — | | | 78 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 16 | | | 16 | |
| | | | | | | | | | | | | | | |
| TDS Common and Series A Common share dividends ($0.170 per share) | — | | | — | | | — | | | — | | | (19) | | | (19) | | | — | | | (19) | |
| | | | | | | | | | | | | | | |
| Dividend reinvestment plan | — | | | 1 | | | 1 | | | — | | | (2) | | | 0 | | | — | | | 0 | |
| | | | | | | | | | | | | | | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | 1 | | | — | | | — | | | — | | | 1 | | | 4 | | | 5 | |
| Stock-based compensation awards | — | | | 5 | | | — | | | — | | | — | | | 5 | | | — | | | 5 | |
| | | | | | | | | | | | | | | |
| September 30, 2020 | $ | 1 | | | $ | 2,479 | | | $ | (478) | | | $ | (7) | | | $ | 2,809 | | | $ | 4,804 | | | $ | 785 | | | $ | 5,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | | | | | | | | | | | | | | | | | |
| 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 | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | 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 ($552.0833 per 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.
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) | | | | | | | | | | | | | | | |
| June 30, 2019 | $ | 1 | | | $ | 2,438 | | | $ | (488) | | | $ | (10) | | | $ | 2,684 | | | $ | 4,625 | | | $ | 768 | | | $ | 5,393 | |
| | | | | | | | | | | | | | | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 18 | | | 18 | | | — | | | 18 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 5 | | | 5 | |
| | | | | | | | | | | | | | | |
| TDS Common and Series A Common share dividends ($0.165 per share) | — | | | — | | | — | | | — | | | (19) | | | (19) | | | — | | | (19) | |
| Dividend reinvestment plan | — | | | — | | | 7 | | | — | | | (3) | | | 4 | | | — | | | 4 | |
| | | | | | | | | | | | | | | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | 12 | | | — | | | — | | | — | | | 12 | | | (25) | | | (13) | |
| Stock-based compensation awards | — | | | 6 | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 0 | | | (1) | | | (1) | |
| September 30, 2019 | $ | 1 | | | $ | 2,456 | | | $ | (481) | | | $ | (10) | | | $ | 2,680 | | | $ | 4,646 | | | $ | 747 | | | $ | 5,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TDS Shareholders | | | | |
| | Series A Common and Common shares | | Capital in excess of par value | | Treasury shares | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total TDS shareholders' equity | | Noncontrolling interests | | Total equity |
| (Dollars in millions) | | | | | | | | | | | | | | | |
| March 31, 2020 | $ | 1 | | | $ | 2,489 | | | $ | (480) | | | $ | (8) | | | $ | 2,718 | | | $ | 4,720 | | | $ | 729 | | | $ | 5,449 | |
| Cumulative effect of accounting changes | — | | | — | | | — | | | | | (1) | | | (1) | | | — | | | (1) | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 65 | | | 65 | | | — | | | 65 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 13 | | | 13 | |
| Other comprehensive income | — | | | — | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
| TDS Common and Series A Common share dividends ($0.170 per share) | — | | | — | | | — | | | — | | | (20) | | | (20) | | | — | | | (20) | |
| Repurchase of Common Shares | — | | | — | | | (8) | | | — | | | — | | | (8) | | | — | | | (8) | |
| | | | | | | | | | | | | | | |
| Incentive and compensation plans | — | | | 5 | | | 9 | | | — | | | (11) | | | 3 | | | — | | | 3 | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (22) | | | — | | | — | | | — | | | (22) | | | 23 | | | 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.
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 | |
| | | | | | | | | | | | | | | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 212 | | | 212 | | | — | | | 212 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 43 | | | 43 | |
| Other comprehensive income | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
| TDS Common and Series A Common share dividends ($0.510 per share) | — | | | — | | | — | | | — | | | (58) | | | (58) | | | — | | | (58) | |
| Repurchase of Common Shares | — | | | — | | | (14) | | | — | | | — | | | (14) | | | — | | | (14) | |
| Dividend reinvestment plan | — | | | 1 | | | 2 | | | — | | | (1) | | | 2 | | | — | | | 2 | |
| Incentive and compensation plans | — | | | — | | | 13 | | | — | | | (16) | | | (3) | | | — | | | (3) | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | (4) | | | — | | | — | | | — | | | (4) | | | (7) | | | (11) | |
| Stock-based compensation awards | — | | | 14 | | | — | | | — | | | — | | | 14 | | | — | | | 14 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 0 | | | (2) | | | (2) | |
| September 30, 2020 | $ | 1 | | | $ | 2,479 | | | $ | (478) | | | $ | (7) | | | $ | 2,809 | | | $ | 4,804 | | | $ | 785 | | | $ | 5,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | 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, 2018 | $ | 1 | | | $ | 2,432 | | | $ | (519) | | | $ | (10) | | | $ | 2,656 | | | $ | 4,560 | | | $ | 733 | | | $ | 5,293 | |
| Cumulative effect of accounting changes | — | | | — | | | — | | | — | | | 2 | | | 2 | | | — | | | 2 | |
| Net income attributable to TDS shareholders | — | | | — | | | — | | | — | | | 110 | | | 110 | | | — | | | 110 | |
| Net income attributable to noncontrolling interests classified as equity | — | | | — | | | — | | | — | | | — | | | 0 | | | 21 | | | 21 | |
| | | | | | | | | | | | | | | |
| TDS Common and Series A Common share dividends ($0.495 per share) | — | | | — | | | — | | | — | | | (57) | | | (57) | | | — | | | (57) | |
| Dividend reinvestment plan | — | | | — | | | 18 | | | — | | | (5) | | | 13 | | | — | | | 13 | |
| Incentive and compensation plans | — | | | — | | | 20 | | | — | | | (26) | | | (6) | | | — | | | (6) | |
| Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | | | 10 | | | — | | | — | | | — | | | 10 | | | (5) | | | 5 | |
| Stock-based compensation awards | — | | | 14 | | | — | | | — | | | — | | | 14 | | | — | | | 14 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 0 | | | (2) | | | (2) | |
| September 30, 2019 | $ | 1 | | | $ | 2,456 | | | $ | (481) | | | $ | (10) | | | $ | 2,680 | | | $ | 4,646 | | | $ | 747 | | | $ | 5,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | 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%-owned subsidiary, United States Cellular Corporation (UScellular) and TDS’ wholly-owned subsidiary,subsidiaries, TDS Telecommunications LLC (TDSand TDS Broadband LLC (collectively, 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 SeptemberJune 30, 2020,2021, are UScellular Wireline, and Cable.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 1213 — 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, 2019.2020.
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 SeptemberJune 30, 20202021 and December 31, 20192020 and its results of operations, comprehensive income and changes in equity for the three and ninesix months ended SeptemberJune 30, 20202021 and September 30, 2019,2020, and its cash flows for the ninesix months ended SeptemberJune 30, 20202021 and September 30, 2019.2020. 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, 2019 except as noted below2020.
Change in Reportable Segments
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 the estimationTDS 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 credit losses.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.
Restricted Cash
TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows as of September 30, 2020 and December 31, 2019.Flows.
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (Dollars in millions) | | | |
| Cash and cash equivalents | $ | 1,076 | | | $ | 465 | |
| Restricted cash included in Other current assets | 20 | | | 9 | |
| Cash, cash equivalents and restricted cash in the statement of cash flows | $ | 1,096 | | | $ | 474 | |
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments and subsequently amended the standard with additional Accounting Standards Updates, collectively referred to as ASC 326. This standard requires entities to use a new forward-looking, expected loss model to estimate credit losses and requires additional disclosures relating to the credit quality of trade and other receivables. TDS adopted the provisions of ASC 326 on January 1, 2020, using a modified retrospective method. Under this method, TDS applied the new accounting standard only to the most recent period presented, recognizing the cumulative effect of the accounting change, if any, as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard. The cumulative effect of applying the provisions of ASC 326 had no material impact on retained earnings.
UScellular’s accounts receivable consist primarily of amounts owed by customers for wireless services and equipment sales, including sales of certain devices and accessories under installment plans, by agents and third-party distributors for sales of equipment to them, by third party vendors and by other wireless carriers whose customers have used UScellular’s wireless systems. | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | | | |
| Cash and cash equivalents | $ | 385 | | | $ | 1,429 | |
| Restricted cash included in Other current assets | 34 | | | 23 | |
| Cash, cash equivalents and restricted cash in the statement of cash flows | $ | 419 | | | $ | 1,452 | |
TDS Telecom’s accounts receivable primarily consist of amounts owed by customers for services and products provided, by state and federal governments for grants and support funds, and by interexchange carriers for long-distance and data traffic, which TDS Telecom carries on its network.
TDS estimates expected credit losses related to accounts receivable balances based on a review of available and relevant information including current economic conditions, projected economic conditions, historical loss experience, account aging, and other factors that could affect collectability. Expected credit losses are determined for each pool of accounts receivable balances that share similar risk characteristics. The allowance for doubtful accounts is the best estimate of the amount of expected credit losses related to existing accounts receivable. TDS does not have any off-balance sheet credit exposure related to its customers.
In August 2018, the FASB issued Accounting Standards Update 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the existing guidance for capitalizing implementation costs for an arrangement that has a software license. The service element of a hosting arrangement will continue to be expensed as incurred. Any capitalized implementation costs will be amortized over the period of the service contract. TDS' hosting arrangements that are service contracts consist primarily of software used to perform administrative functions. TDS adopted ASU 2018-15 on January 1, 2020, using the prospective method. The adoption of ASU 2018-15 did not have a significant impact on TDS' financial position or results of operations.
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.
| | | | | TDS Telecom | | | | | |
| Three Months Ended September 30, 2020 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | 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 | $ | 674 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 674 | | Retail service | $ | 686 | | | | $ | 0 | | | $ | 0 | | | $ | 686 | |
| Inbound roaming | Inbound roaming | 42 | | | 0 | | | 0 | | | 0 | | | 0 | | | 42 | | Inbound roaming | 28 | | | | 0 | | | 0 | | | 28 | |
| Residential | Residential | 0 | | | 90 | | | 62 | | | 152 | | | 0 | | | 152 | | Residential | 0 | | | | 160 | | | 0 | | | 160 | |
| Commercial | Commercial | 0 | | | 38 | | | 11 | | | 49 | | | 0 | | | 49 | | Commercial | 0 | | | | 46 | | | 0 | | | 46 | |
| Wholesale | Wholesale | 0 | | | 45 | | | 0 | | | 45 | | | 0 | | | 45 | | Wholesale | 0 | | | | 44 | | | 0 | | | 44 | |
| Other service | Other service | 39 | | | 0 | | | 0 | | | 0 | | | 18 | | | 57 | | Other service | 40 | | | | 0 | | | 18 | | | 58 | |
| Service revenues from contracts with customers | Service revenues from contracts with customers | 755 | | | 172 | | | 74 | | | 246 | | | 18 | | | 1,019 | | Service revenues from contracts with customers | 754 | | | | 251 | | | 18 | | | 1,022 | |
| Equipment and product sales | Equipment and product sales | 252 | | | 0 | | | 0 | | | 0 | | | 26 | | | 278 | | Equipment and product sales | 240 | | | | 0 | | | 22 | | | 262 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | 1,007 | | | 173 | | | 74 | | | 246 | | | 44 | | | 1,297 | | Total revenues from contracts with customers | 994 | | | | 251 | | | 39 | | | 1,284 | |
| Operating lease income | Operating lease income | 20 | | | 0 | | | 0 | | | 1 | | | 6 | | | 27 | | Operating lease income | 20 | | | | 1 | | | 6 | | | 27 | |
| Total operating revenues | Total operating revenues | $ | 1,027 | | | $ | 173 | | | $ | 74 | | | $ | 247 | | | $ | 50 | | | $ | 1,324 | | Total operating revenues | $ | 1,014 | | | | $ | 252 | | | $ | 45 | | | $ | 1,311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | TDS Telecom | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | 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 | $ | 663 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 663 | | Retail service | $ | 1,371 | | | | $ | 0 | | | $ | 0 | | | $ | 1,371 | |
| Inbound roaming | Inbound roaming | 54 | | | 0 | | | 0 | | | 0 | | | 0 | | | 54 | | Inbound roaming | 56 | | | | 0 | | | 0 | | | 56 | |
| Residential | Residential | 0 | | | 83 | | | 52 | | | 135 | | | 0 | | | 135 | | Residential | 0 | | | | 317 | | | 0 | | | 317 | |
| Commercial | Commercial | 0 | | | 41 | | | 10 | | | 52 | | | 0 | | | 52 | | Commercial | 0 | | | | 93 | | | 0 | | | 93 | |
| Wholesale | Wholesale | 0 | | | 44 | | | 0 | | | 44 | | | 0 | | | 44 | | Wholesale | 0 | | | | 89 | | | 0 | | | 89 | |
| Other service | Other service | 34 | | | 0 | | | 0 | | | 0 | | | 19 | | | 53 | | Other service | 77 | | | | 0 | | | 34 | | | 111 | |
| Service revenues from contracts with customers | Service revenues from contracts with customers | 751 | | | 168 | | | 62 | | | 230 | | | 19 | | | 1,001 | | Service revenues from contracts with customers | 1,504 | | | | 499 | | | 34 | | | 2,037 | |
| Equipment and product sales | Equipment and product sales | 257 | | | 0 | | | 0 | | | 0 | | | 34 | | | 291 | | Equipment and product sales | 492 | | | | 1 | | | 45 | | | 538 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | 1,008 | | | 168 | | | 62 | | | 230 | | | 53 | | | 1,292 | | Total revenues from contracts with customers | 1,996 | | | | 499 | | | 79 | | | 2,575 | |
| Operating lease income | Operating lease income | 23 | | | 1 | | | 1 | | | 1 | | | 5 | | | 29 | | Operating lease income | 41 | | | | 1 | | | 12 | | | 54 | |
| Total operating revenues | Total operating revenues | $ | 1,031 | | | $ | 169 | | | $ | 62 | | | $ | 231 | | | $ | 59 | | | $ | 1,321 | | Total operating revenues | $ | 2,037 | | | | $ | 501 | | | $ | 91 | | | $ | 2,629 | |
| | | | | | TDS Telecom | | | | | | | | |
| Nine Months Ended September 30, 2020 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | 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 | $ | 2,004 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,004 | | Retail service | $ | 1,329 | | | | $ | 0 | | | $ | 0 | | | $ | 1,329 | |
| Inbound roaming | Inbound roaming | 119 | | | 0 | | | 0 | | | 0 | | | 0 | | | 119 | | Inbound roaming | 77 | | | | 0 | | | 0 | | | 77 | |
| Residential | Residential | 0 | | | 260 | | | 182 | | | 441 | | | 0 | | | 441 | | Residential | 0 | | | | 289 | | | 0 | | | 289 | |
| Commercial | Commercial | 0 | | | 115 | | | 33 | | | 149 | | | 0 | | | 149 | | Commercial | 0 | | | | 98 | | | 0 | | | 98 | |
| Wholesale | Wholesale | 0 | | | 135 | | | 0 | | | 135 | | | 0 | | | 135 | | Wholesale | 0 | | | | 92 | | | 0 | | | 92 | |
| Other service | Other service | 110 | | | 0 | | | 0 | | | 0 | | | 51 | | | 161 | | Other service | 71 | | | | 0 | | | 35 | | | 106 | |
| Service revenues from contracts with customers | Service revenues from contracts with customers | 2,233 | | | 510 | | | 215 | | | 725 | | | 51 | | | 3,009 | | Service revenues from contracts with customers | 1,477 | | | | 479 | | | 35 | | | 1,990 | |
| Equipment and product sales | Equipment and product sales | 674 | | | 1 | | | 0 | | | 1 | | | 86 | | | 761 | | Equipment and product sales | 422 | | | | 1 | | | 59 | | | 482 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | 2,907 | | | 511 | | | 215 | | | 726 | | | 137 | | | 3,770 | | Total revenues from contracts with customers | 1,899 | | | | 479 | | | 94 | | | 2,472 | |
| Operating lease income | Operating lease income | 57 | | | 1 | | | 1 | | | 2 | | | 20 | | | 79 | | Operating lease income | 38 | | | | 2 | | | 12 | | | 52 | |
| Total operating revenues | Total operating revenues | $ | 2,964 | | | $ | 512 | | | $ | 216 | | | $ | 728 | | | $ | 157 | | | $ | 3,849 | | Total operating revenues | $ | 1,937 | | | | $ | 481 | | | $ | 106 | | | $ | 2,524 | |
| Numbers may not foot due to rounding. | | Numbers may not foot due to rounding. | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TDS Telecom | | | | |
| Nine Months Ended September 30, 2019 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total |
| (Dollars in millions) | | | | | | | | | | | |
| Revenues from contracts with customers: | | | | | | | | | | | |
| Type of service: | | | | | | | | | | | |
| Retail service | $ | 1,984 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,984 | |
| Inbound roaming | 132 | | | 0 | | | 0 | | | 0 | | | 0 | | | 132 | |
| Residential | 0 | | | 245 | | | 152 | | | 397 | | | 0 | | | 397 | |
| Commercial | 0 | | | 127 | | | 32 | | | 159 | | | 0 | | | 159 | |
| Wholesale | 0 | | | 137 | | | 0 | | | 137 | | | 0 | | | 137 | |
| Other service | 101 | | | 0 | | | 0 | | | (1) | | | 54 | | | 154 | |
| Service revenues from contracts with customers | 2,217 | | | 510 | | | 183 | | | 692 | | | 54 | | | 2,963 | |
| Equipment and product sales | 698 | | | 1 | | | 0 | | | 1 | | | 103 | | | 802 | |
| Total revenues from contracts with customers | 2,915 | | | 511 | | | 184 | | | 693 | | | 157 | | | 3,765 | |
| Operating lease income | 55 | | | 1 | | | 1 | | | 2 | | | 18 | | | 75 | |
| Total operating revenues | $ | 2,970 | | | $ | 512 | | | $ | 184 | | | $ | 695 | | | $ | 175 | | | $ | 3,840 | |
Numbers may not foot due to rounding.
1TDS Telecom Total includes eliminations between the Wireline and Cable segments.
Contract Balances
The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.
| | | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | (Dollars in millions) | | | (Dollars in millions) | | |
| Contract assets | Contract assets | $ | 13 | | | $ | 10 | | Contract assets | $ | 13 | | | $ | 13 | |
| Contract liabilities | Contract liabilities | $ | 189 | | | $ | 197 | | Contract liabilities | $ | 229 | | | $ | 216 | |
Revenue recognized related to contract liabilities existing at January 1, 20202021 was $159$146 million for the ninesix months ended SeptemberJune 30, 2020.2021.
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 SeptemberJune 30, 20202021 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.
| | | | | |
| | Service Revenues |
| (Dollars in millions) | |
| Remainder of 2020 | $ | 194 | |
| 2021 | 230 | |
| Thereafter | 272 | |
| Total | $ | 696 | |
| | | | | |
| | Service Revenues |
| (Dollars in millions) | |
| Remainder of 2021 | $ | 262 | |
| 2022 | 200 | |
| Thereafter | 207 | |
| Total | $ | 669 | |
Contract Cost Assets
TDS expects that commission fees paid as a result of obtaining contracts are recoverable and therefore TDS defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Deferred commission fees and fulfillment costs are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows:
| | | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (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 | $ | 137 | | | $ | 146 | | Sales commissions | $ | 136 | | | $ | 139 | |
| Fulfillment costs | Fulfillment costs | | Fulfillment costs | |
| Installation costs | Installation costs | 11 | | | 11 | | Installation costs | 10 | | | 10 | |
| | Total contract cost assets | Total contract cost assets | $ | 148 | | | $ | 157 | | Total contract cost assets | $ | 146 | | | $ | 149 | |
Amortization of contract cost assets was $30$29 million and $91$59 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $31$30 million and $95$61 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.
Note 3 Fair Value Measurements
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, TDS did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.
The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.
TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.
| | | | Level within the Fair Value Hierarchy | | September 30, 2020 | | December 31, 2019 | | Level within the Fair Value Hierarchy | | June 30, 2021 | | December 31, 2020 |
| | | 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) | | | | | | | | | |
| Cash and cash equivalents | 1 | | $ | 1,076 | | | $ | 1,076 | | | $ | 465 | | | $ | 465 | | |
| | Long-term debt | Long-term debt | | Long-term debt | |
| Retail | Retail | 2 | | 2,253 | | | 2,334 | | | 1,753 | | | 1,796 | | Retail | 2 | | $ | 2,153 | | | $ | 2,276 | | | $ | 2,753 | | | $ | 2,809 | |
| Institutional | Institutional | 2 | | 535 | | | 709 | | | 534 | | | 594 | | Institutional | 2 | | 535 | | | 670 | | | 535 | | | 707 | |
| Other | Other | 2 | | 259 | | | 259 | | | 84 | | | 84 | | Other | 2 | | 720 | | | 720 | | | 230 | | | 230 | |
The fair values of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. Long-term debt excludes lease obligations, other installment arrangements, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for TDS’ 7.0%TDS and UScellular Senior Notes, 6.875% Senior Notes, 6.625% Senior Notes and 5.875% Senior Notes, and UScellular’s 7.25% 2063 Senior Notes, 7.25% 2064 Senior Notes, 6.25% Senior Notes issued in August 2020 and 6.95% 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 credit agreement and receivables securitization agreement and other borrowings with financial institutions.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 1.25%1.26% to 4.50%4.34% and 3.55%1.35% to 6.25%3.75% at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
The fair values of Cash and cash equivalents, restricted cash and Short-term investments 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 as of September 30, 2020 and December 31, 2019.receivables.
| | | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Equipment installment plan receivables, gross | Equipment installment plan receivables, gross | $ | 951 | | | $ | 1,008 | | Equipment installment plan receivables, gross | $ | 1,015 | | | $ | 1,007 | |
| | Allowance for credit losses | Allowance for credit losses | (75) | | | (84) | | Allowance for credit losses | (72) | | | (78) | |
| Equipment installment plan receivables, net | Equipment installment plan receivables, net | $ | 876 | | | $ | 924 | | Equipment installment plan receivables, net | $ | 943 | | | $ | 929 | |
| | 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) | $ | 568 | | | $ | 587 | | Accounts receivable — Customers and agents (Current portion) | $ | 598 | | | $ | 590 | |
| Other assets and deferred charges (Non-current portion) | Other assets and deferred charges (Non-current portion) | 308 | | | 337 | | Other assets and deferred charges (Non-current portion) | 345 | | | 339 | |
| Equipment installment plan receivables, net | Equipment installment plan receivables, net | $ | 876 | | | $ | 924 | | Equipment installment plan receivables, net | $ | 943 | | | $ | 929 | |
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:
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | 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 | $ | 767 | | | $ | 95 | | | $ | 22 | | | $ | 10 | | | $ | 894 | | | $ | 812 | | | $ | 99 | | | $ | 23 | | | $ | 8 | | | $ | 942 | | Unbilled | $ | 836 | | | $ | 95 | | | $ | 24 | | | $ | 6 | | | $ | 961 | | | $ | 819 | | | $ | 98 | | | $ | 22 | | | $ | 9 | | | $ | 948 | |
| Billed — current | Billed — current | 34 | | | 4 | | | 1 | | | 1 | | | 40 | | | 37 | | | 5 | | | 2 | | | 1 | | | 45 | | Billed — current | 35 | | | 4 | | | 1 | | | 0 | | | 40 | | | 36 | | | 5 | | | 1 | | | 1 | | | 43 | |
| Billed — past due | Billed — past due | 8 | | | 5 | | | 2 | | | 2 | | | 17 | | | 11 | | | 6 | | | 3 | | | 1 | | | 21 | | Billed — past due | 7 | | | 4 | | | 2 | | | 1 | | | 14 | | | 8 | | | 5 | | | 2 | | | 1 | | | 16 | |
| Total | Total | $ | 809 | | | $ | 104 | | | $ | 25 | | | $ | 13 | | | $ | 951 | | | $ | 860 | | | $ | 110 | | | $ | 28 | | | $ | 10 | | | $ | 1,008 | | Total | $ | 878 | | | $ | 103 | | | $ | 27 | | | $ | 7 | | | $ | 1,015 | | | $ | 863 | | | $ | 108 | | | $ | 25 | | | $ | 11 | | | $ | 1,007 | |
The balance of the equipment installment plan receivables as of SeptemberJune 30, 20202021 on a gross basis by year of origination were as follows:
| | | 2017 | | 2018 | | 2019 | | 2020 | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | Total |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| Lowest Risk | Lowest Risk | $ | 1 | | | $ | 84 | | | $ | 337 | | | $ | 387 | | | $ | 809 | | Lowest Risk | $ | 2 | | | $ | 140 | | | $ | 415 | | | $ | 321 | | | $ | 878 | |
| Lower Risk | Lower Risk | 0 | | | 7 | | | 39 | | | 58 | | | 104 | | Lower Risk | 0 | | | 11 | | | 48 | | | 44 | | | 103 | |
| Slight Risk | Slight Risk | 0 | | | 2 | | | 9 | | | 14 | | | 25 | | Slight Risk | 0 | | | 2 | | | 8 | | | 17 | | | 27 | |
| Higher Risk | Higher Risk | 0 | | | 0 | | | 4 | | | 9 | | | 13 | | Higher Risk | 0 | | | 1 | | | 3 | | | 3 | | | 7 | |
| Total | Total | $ | 1 | | | $ | 93 | | | $ | 389 | | | $ | 468 | | | $ | 951 | | Total | $ | 2 | | | $ | 154 | | | $ | 474 | | | $ | 385 | | | $ | 1,015 | |
Activity for the ninesix months ended SeptemberJune 30, 20202021 and September 30, 2019,2020, in the allowance for credit losses for equipment installment plan receivables was as follows:
| | | | September 30, 2020 | | September 30, 2019 | | June 30, 2021 | | June 30, 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | $ | 84 | | | $ | 77 | | Allowance for credit losses, beginning of period | $ | 78 | | | $ | 84 | |
| Bad debts expense | Bad debts expense | 34 | | | 60 | | Bad debts expense | 13 | | | 33 | |
| Write-offs, net of recoveries | Write-offs, net of recoveries | (43) | | | (55) | | Write-offs, net of recoveries | (19) | | | (35) | |
| Allowance for credit losses, end of period | Allowance for credit losses, end of period | $ | 75 | | | $ | 82 | | Allowance for credit losses, end of period | $ | 72 | | | $ | 82 | |
Note 5 Income Taxes
The effective tax rate on Income before income taxes was 5.8% and 6.5% for the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021 was (48.9)% and 39.1% and 32.8%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 ninesix months ended SeptemberJune 30, 2019,2020 was 9.6% and 6.9%, respectively. The lowerThese effective tax rate in 2020 as compared to 2019 isrates were lower than normal due primarily to the income tax benefits of the CARES Act enacted on March 27, 2020.
The CARES Act provides retroactive eligibility of bonus depreciation on qualified improvement property put into service after December 31, 2017 and a 5-year carryback of net operating losses generated in years 2018-2020. As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in a reduction of income tax expense.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
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| (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 shareholders used in basic earnings per share | $ | 78 | | | $ | 18 | | | $ | 212 | | | $ | 110 | | |
| 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 | |
| Adjustments to compute diluted earnings: | Adjustments to compute diluted earnings: | | Adjustments to compute diluted earnings: | |
| Noncontrolling interest adjustment | Noncontrolling interest adjustment | (2) | | | (1) | | | (3) | | | (2) | | Noncontrolling interest adjustment | 0 | | | 0 | | | (1) | | | (2) | |
| Net income attributable to TDS shareholders used in diluted earnings per share | $ | 76 | | | $ | 17 | | | $ | 209 | | | $ | 108 | | |
| 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 | |
| | 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 | 107 | | | 108 | | | 107 | | | 107 | | Common Shares | 108 | | | 107 | | | 108 | | | 108 | |
| Series A Common Shares | Series A Common Shares | 7 | | | 7 | | | 7 | | | 7 | | Series A Common Shares | 7 | | | 7 | | | 7 | | | 7 | |
| Total | Total | 114 | | | 115 | | | 114 | | | 114 | | Total | 115 | | | 114 | | | 115 | | | 115 | |
| | Effects of dilutive securities | Effects of dilutive securities | 1 | | | 1 | | | 1 | | | 2 | | Effects of dilutive securities | 1 | | | 1 | | | 1 | | | 0 | |
| Weighted average number of shares used in diluted earnings per share | Weighted average number of shares used in diluted earnings per share | 115 | | | 116 | | | 115 | | | 116 | | Weighted average number of shares used in diluted earnings per share | 116 | | | 115 | | | 116 | | | 115 | |
| | Basic earnings per share attributable to TDS shareholders | $ | 0.68 | | | $ | 0.15 | | | $ | 1.85 | | | $ | 0.96 | | |
| 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 | |
| | Diluted earnings per share attributable to TDS shareholders | $ | 0.66 | | | $ | 0.15 | | | $ | 1.81 | | | $ | 0.93 | | |
| 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 | |
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 shareholders because their effects were antidilutive. The number of such Common Shares excluded was 43 million for both the three and ninesix months ended SeptemberJune 30, 2020,2021 and 35 million and less than 14 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
Note 7 Intangible Assets
Activity related to Licenses for the ninesix months ended SeptemberJune 30, 2020,2021, is presented below:
| | | | | |
| Licenses |
| (Dollars in millions) | |
Balance at December 31, 20192020 | $ | 2,4802,638 | |
| Acquisitions | 1711,283 | |
| Transferred to Assets held for sale | (18)(1) | |
| |
| |
| |
| Capitalized interest | 46 | |
Balance at SeptemberJune 30, 20202021 | $ | 2,6373,926 | |
In March 2020,February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 237254 wireless spectrum licenses in the 37, 39 and 473.7-3.98 GHz bands (Auction 103)107) for $146$1,283 million. In JuneUScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 103107 were granted by the FCC.FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $178 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 after the period ended June 30, 2021. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.
Note 8 Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest. TDS’ Investments in unconsolidated entities are accounted for using either the equity method or measurement alternative method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Equity method investments | Equity method investments | $ | 487 | | | $ | 467 | | Equity method investments | $ | 465 | | | $ | 456 | |
| Measurement alternative method investments | Measurement alternative method investments | 21 | | | 21 | | Measurement alternative method investments | 22 | | | 21 | |
| Total investments in unconsolidated entities | Total investments in unconsolidated entities | $ | 508 | | | $ | 488 | | Total investments in unconsolidated entities | $ | 487 | | | $ | 477 | |
The following table, which is based on unaudited information provided in part by third parties, summarizes the combined results of operations of TDS’ equity method investments.
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | | (Dollars in millions) | | | | |
| Revenues | Revenues | $ | 1,640 | | | $ | 1,721 | | | $ | 4,889 | | | $ | 5,077 | | Revenues | $ | 1,748 | | | $ | 1,586 | | | $ | 3,482 | | | $ | 3,249 | |
| Operating expenses | Operating expenses | 1,142 | | | 1,247 | | | 3,407 | | | 3,660 | | Operating expenses | 1,221 | | | 1,098 | | | 2,502 | | | 2,265 | |
| Operating income | Operating income | 498 | | | 474 | | | 1,482 | | | 1,417 | | Operating income | 527 | | | 488 | | | 980 | | | 984 | |
| Other income (expense), net | Other income (expense), net | (3) | | | (2) | | | (2) | | | (4) | | Other income (expense), net | (2) | | | (2) | | | 10 | | | 1 | |
| Net income | Net income | $ | 495 | | | $ | 472 | | | $ | 1,480 | | | $ | 1,413 | | Net income | $ | 525 | | | $ | 486 | | | $ | 990 | | | $ | 985 | |
Note 9 Debt
Term LoanRevolving Credit Agreements
The following table summarizes the revolving credit agreements as of June 30, 2021:
| | | | | | | | | | | |
| TDS | | UScellular |
| (Dollars in millions) | | | |
| Maximum borrowing capacity | $ | 400 | | | $ | 300 | |
| Letters of credit outstanding | $ | 1 | | | $ | 0 | |
| Amount borrowed | $ | 125 | | | $ | 0 | |
| Amount available for use | $ | 274 | | | $ | 300 | |
Borrowings under the TDS revolving credit agreement bear interest at a rate of London Inter-bank Offered Rate (LIBOR) plus 1.50%.
TDS and UScellular believe that they were in compliance with all of the financial covenants and other requirements set forth in their revolving credit agreements as of June 30, 2021.
In March 2020,July 2021, TDS borrowed $50 million on its seniorand 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
The following table summarizes the term loan credit agreement. This agreement was entered into in January 2020 and amended in March 2020. Theagreements as of June 30, 2021:
| | | | | | | | | | | |
| TDS | | UScellular |
| (Dollars in millions) | | | |
| Maximum borrowing capacity | $ | 200 | | | $ | 300 | |
| Amount borrowed | $ | 200 | | | $ | 300 | |
| Amount available for use | $ | 0 | | | $ | 0 | |
As of June 30, 2021, borrowings under the TDS term loan bear interest rate on outstanding borrowings is at a rate of LIBOR plus 200 basis points. Principal2.0% and principal reductions are due and payable in quarterly installments of $0.5 million beginning in June 2021. The remaining unpaid balance
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 January 2027. 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% and principal reductions are due and payable in quarterly installments of $0.75 million beginning in September 2021.
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.
TDS believesand UScellular believe that it wasthey were in compliance with all of the financial covenants and other requirements set forth in itstheir senior term loan credit agreementagreements as of SeptemberJune 30, 2020.2021.
Receivables Securitization Agreement
In April 2020,At June 30, 2021, UScellular borrowed $125 million under itshad a receivables securitization agreement which permitsfor securitized borrowings using its equipment installment plan receivables.receivables for general corporate purposes. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until maturity in December 2022, which may be extended from time to time as specified therein. The outstanding borrowings bear interest at floating rates. In October 2020,March 2021, UScellular amended and restatedborrowed $275 million under its receivables securitization 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 increase its total borrowing capacity to $300$450 million. As of June 30, 2021, the outstanding borrowings under the agreement were $100 million and extend the expiration dateunused capacity under the agreement was $350 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement to December 2022. There were no significant changes to other key terms of the receivables securitization 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 SeptemberJune 30, 2020.2021. As of SeptemberJune 30, 2020,2021, the USCC Master Note Trust held $222$382 million of assets available to be pledged as collateral for the receivables securitization agreement.
In July 2021, 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 securitization agreement.
Other Long-Term Debt
In August 2020,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 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 6.25%5.5% Senior Notes due in 2069,June 2070, and received cash proceeds of $483$484 million after payment of debt issuance costs of $17$16 million. These funds will be used for general corporate purposes. Interest on the Senior Notesthese notes is payable quarterly beginning in December 2020.September 2021. UScellular may redeem the Senior Notes,these notes, in whole or in part, at any time after September 2025June 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.
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, 2019.2020.
During 2017, 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.
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Assets | Assets | | | | Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 19 | | | $ | 19 | | Cash and cash equivalents | $ | 31 | | | $ | 18 | |
| | Short-term investments | | Short-term investments | 0 | | | 3 | |
| Accounts receivable | Accounts receivable | 618 | | | 637 | | Accounts receivable | 647 | | | 638 | |
| Inventory, net | Inventory, net | 3 | | | 5 | | Inventory, net | 3 | | | 3 | |
| Other current assets | Other current assets | 18 | | | 7 | | Other current assets | 31 | | | 21 | |
| Assets held for sale | 18 | | | 0 | | |
| | Licenses | Licenses | 637 | | | 647 | | Licenses | 637 | | | 637 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 108 | | | 95 | | Property, plant and equipment, net | 98 | | | 99 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 42 | | | 42 | | Operating lease right-of-use assets | 39 | | | 37 | |
| Other assets and deferred charges | Other assets and deferred charges | 317 | | | 347 | | Other assets and deferred charges | 355 | | | 347 | |
| Total assets | Total assets | $ | 1,780 | | | $ | 1,799 | | Total assets | $ | 1,841 | | | $ | 1,803 | |
| | Liabilities | Liabilities | | Liabilities | |
| Current liabilities | Current liabilities | $ | 26 | | | $ | 30 | | Current liabilities | $ | 23 | | | $ | 26 | |
| Long-term operating lease liabilities | Long-term operating lease liabilities | 38 | | | 39 | | Long-term operating lease liabilities | 35 | | | 34 | |
| Other deferred liabilities and credits | Other deferred liabilities and credits | 20 | | | 13 | | Other deferred liabilities and credits | 20 | | | 19 | |
| Total liabilities | $ | 84 | | | $ | 82 | | |
Total liabilities1 | | Total liabilities1 | $ | 78 | | | $ | 79 | |
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 at both SeptemberJune 30, 20202021 and December 31, 2019,2020, 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 $113$50 million and $229$88 million, during the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, of which $79$21 million in 20202021 and $199$67 million in 2019,2020, 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. The general partner’s put option related to its interest in Advantage Spectrum will be exercisable in the third quarter of 2021, and if not exercised at that time, will be exercisable in 2022. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to TDS, is recorded as Noncontrolling interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put 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:
| | Nine Months Ended September 30, | 2020 | | 2019 | |
| Six Months Ended June 30, | | Six Months Ended June 30, | 2021 | | 2020 |
| (Dollars in millions) | (Dollars in millions) | | | | (Dollars in millions) | | | |
| Net income attributable to TDS shareholders | Net income attributable to TDS shareholders | $ | 212 | | | $ | 110 | | Net income attributable to TDS shareholders | $ | 86 | | | $ | 135 | |
| Transfers (to) from noncontrolling interests | Transfers (to) from noncontrolling interests | | | | Transfers (to) from noncontrolling interests | | | |
| Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares | Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares | (38) | | | (23) | | 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 | Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares | 14 | | | 6 | | Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares | 1 | | | 14 | |
| | Net transfers (to) from noncontrolling interests | Net transfers (to) from noncontrolling interests | (24) | | | (17) | | Net transfers (to) from noncontrolling interests | (42) | | | (18) | |
| Changes from net income attributable to TDS shareholders and transfers (to) from noncontrolling interests | $ | 188 | | | $ | 93 | | |
| Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests | | 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.
Note 1213 Business Segment Information
UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, and finance, and general management services. Such billings are based on expenses specifically identified to 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 ninesix month periods ended, or as of SeptemberJune 30, 20202021 and September 30, 2019,2020, is as follows. See Note 1 — Basis of Presentation for additional information.
| | | | | TDS Telecom | | | | | |
| Three Months Ended or as of September 30, 2020 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Three Months Ended or as of June 30, 2021 | | Three 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 | $ | 775 | | | $ | 173 | | | $ | 74 | | | $ | 247 | | | $ | 24 | | | $ | 1,046 | | Service | $ | 774 | | | | $ | 251 | | | $ | 24 | | | $ | 1,049 | |
| Equipment and product sales | Equipment and product sales | 252 | | | 0 | | | 0 | | | 0 | | | 26 | | | 278 | | Equipment and product sales | 240 | | | | 0 | | | 22 | | | 262 | |
| Total operating revenues | Total operating revenues | 1,027 | | | 173 | | | 74 | | | 247 | | | 50 | | | 1,324 | | Total operating revenues | 1,014 | | | | 252 | | | 45 | | | 1,311 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 203 | | | 69 | | | 31 | | | 100 | | | 18 | | | 321 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 204 | | | | 101 | | | 19 | | | 324 | |
| Cost of equipment and products | Cost of equipment and products | 257 | | | 0 | | | 0 | | | 0 | | | 21 | | | 278 | | Cost of equipment and products | 258 | | | | 0 | | | 18 | | | 276 | |
| Selling, general and administrative | Selling, general and administrative | 335 | | | 51 | | | 18 | | | 69 | | | 11 | | | 415 | | Selling, general and administrative | 334 | | | | 73 | | | 9 | | | 416 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 161 | | | 30 | | | 20 | | | 49 | | | 7 | | | 217 | | Depreciation, amortization and accretion | 180 | | | | 49 | | | 5 | | | 234 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | | (Gain) loss on asset disposals, net | 2 | | | | 1 | | | 0 | | | 3 | |
| | Operating income (loss) | Operating income (loss) | 65 | | | 23 | | | 5 | | | 28 | | | (6) | | | 87 | | Operating income (loss) | 36 | | | | 28 | | | (6) | | | 58 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 48 | | | 0 | | | 0 | | | 0 | | | 0 | | | 48 | | Equity in earnings of unconsolidated entities | 47 | | | | 0 | | | 1 | | | 48 | |
| Interest and dividend income | Interest and dividend income | 2 | | | 1 | | | 0 | | | 1 | | | 1 | | | 4 | | Interest and dividend income | 2 | | | | 0 | | | 1 | | | 3 | |
| Gain (loss) on investments | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | |
| | Interest expense | Interest expense | (29) | | | 1 | | | 0 | | | 1 | | | (15) | | | (43) | | Interest expense | (60) | | | | 1 | | | (27) | | | (86) | |
| | Income (loss) before income taxes | Income (loss) before income taxes | 89 | | | 24 | | | 5 | | | 29 | | | (19) | | | 99 | | Income (loss) before income taxes | 25 | | | | 29 | | | (31) | | | 23 | |
Income tax expense (benefit)2 | 4 | | | | | | | 4 | | | (2) | | | 6 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (10) | | | | 7 | | | (8) | | | (11) | |
| Net income (loss) | Net income (loss) | 85 | | | 25 | | | (17) | | | 93 | | Net income (loss) | 35 | | | | 22 | | | (23) | | | 34 | |
| Add back: | Add back: | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 161 | | | 30 | | | 20 | | | 49 | | | 7 | | | 217 | | Depreciation, amortization and accretion | 180 | | | | 49 | | | 5 | | | 234 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 6 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | | (Gain) loss on asset disposals, net | 2 | | | | 1 | | | 0 | | | 3 | |
| | Gain (loss) on investments | (3) | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | |
| | Interest expense | Interest expense | 29 | | | (1) | | | 0 | | | (1) | | | 15 | | | 43 | | Interest expense | 60 | | | | (1) | | | 27 | | | 86 | |
Income tax expense (benefit)2 | 4 | | | 4 | | | (2) | | | 6 | | |
Adjusted EBITDA3 | $ | 282 | | | $ | 53 | | | $ | 25 | | | $ | 78 | | | $ | 2 | | | $ | 362 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | (10) | | | | 7 | | | (8) | | | (11) | |
Adjusted EBITDA1 | | Adjusted EBITDA1 | $ | 267 | | | | $ | 78 | | | $ | 1 | | | $ | 346 | |
| | Investments in unconsolidated entities | Investments in unconsolidated entities | $ | 467 | | | $ | 4 | | | $ | 0 | | | $ | 4 | | | $ | 37 | | | $ | 508 | | Investments in unconsolidated entities | $ | 445 | | | | $ | 4 | | | $ | 38 | | | $ | 487 | |
| Total assets | Total assets | $ | 9,180 | | | $ | 1,539 | | | $ | 721 | | | $ | 2,250 | | | $ | 465 | | | $ | 11,895 | | Total assets | $ | 9,920 | | | | $ | 2,433 | | | $ | 427 | | | $ | 12,780 | |
| Capital expenditures | Capital expenditures | $ | 216 | | | $ | 74 | | | $ | 18 | | | $ | 92 | | | $ | 2 | | | $ | 310 | | Capital expenditures | $ | 148 | | | | $ | 99 | | | $ | 3 | | | $ | 250 | |
| | | | | TDS Telecom | | | | | |
| Three Months Ended or as of September 30, 2019 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Three Months Ended or as of June 30, 2020 | | Three Months Ended or as of June 30, 2020 | 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 | | | $ | 169 | | | $ | 62 | | | $ | 231 | | | $ | 25 | | | $ | 1,030 | | Service | $ | 753 | | | | $ | 240 | | | $ | 23 | | | $ | 1,016 | |
| Equipment and product sales | Equipment and product sales | 257 | | | 0 | | | 0 | | | 0 | | | 34 | | | 291 | | Equipment and product sales | 220 | | | | 0 | | | 27 | | | 247 | |
| Total operating revenues | Total operating revenues | 1,031 | | | 169 | | | 62 | | | 231 | | | 59 | | | 1,321 | | Total operating revenues | 973 | | | | 241 | | | 49 | | | 1,263 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 199 | | | 68 | | | 27 | | | 94 | | | 20 | | | 313 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 197 | | | | 92 | | | 17 | | | 306 | |
| Cost of equipment and products | Cost of equipment and products | 266 | | | 0 | | | 0 | | | 0 | | | 29 | | | 295 | | Cost of equipment and products | 218 | | | | 0 | | | 23 | | | 241 | |
| Selling, general and administrative | Selling, general and administrative | 358 | | | 52 | | | 15 | | | 67 | | | 14 | | | 439 | | Selling, general and administrative | 323 | | | | 66 | | | 9 | | | 398 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 181 | | | 33 | | | 17 | | | 50 | | | 6 | | | 237 | | Depreciation, amortization and accretion | 178 | | | | 51 | | | 7 | | | 236 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 5 | | | 0 | | | 0 | | | 0 | | | 1 | | | 6 | | (Gain) loss on asset disposals, net | 4 | | | | 0 | | | 0 | | | 4 | |
| | (Gain) loss on license sales and exchanges, net | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | |
| | Operating income (loss) | Operating income (loss) | 20 | | | 16 | | | 3 | | | 20 | | | (11) | | | 29 | | Operating income (loss) | 53 | | | | 31 | | | (6) | | | 78 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 44 | | | 0 | | | 0 | | | 0 | | | 0 | | | 44 | | Equity in earnings of unconsolidated entities | 44 | | | | 0 | | | 0 | | | 44 | |
| Interest and dividend income | Interest and dividend income | 4 | | | 3 | | | 0 | | | 3 | | | 0 | | | 7 | | Interest and dividend income | 1 | | | | 1 | | | 0 | | | 2 | |
| Interest expense | Interest expense | (29) | | | 1 | | | 0 | | | 1 | | | (14) | | | (42) | | Interest expense | (25) | | | | 1 | | | (14) | | | (38) | |
| | Income (loss) before income taxes | Income (loss) before income taxes | 39 | | | 20 | | | 4 | | | 24 | | | (25) | | | 38 | | Income (loss) before income taxes | 73 | | | | 33 | | | (20) | | | 86 | |
Income tax expense (benefit)2 | 15 | | | | | | | 5 | | | (5) | | | 15 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 4 | | | | 5 | | | (1) | | | 8 | |
| Net income (loss) | Net income (loss) | 24 | | | 18 | | | (19) | | | 23 | | Net income (loss) | 69 | | | | 28 | | | (19) | | | 78 | |
| Add back: | Add back: | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 181 | | | 33 | | | 17 | | | 50 | | | 6 | | | 237 | | Depreciation, amortization and accretion | 178 | | | | 51 | | | 7 | | | 236 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 5 | | | 0 | | | 0 | | | 0 | | | 1 | | | 6 | | (Gain) loss on asset disposals, net | 4 | | | | 0 | | | 0 | | | 4 | |
| | (Gain) loss on license sales and exchanges, net | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | |
| | Interest expense | Interest expense | 29 | | | (1) | | | 0 | | | (1) | | | 14 | | | 42 | | Interest expense | 25 | | | | (1) | | | 14 | | | 38 | |
Income tax expense (benefit)2 | 15 | | | 5 | | | (5) | | | 15 | | |
Adjusted EBITDA3 | $ | 256 | | | $ | 52 | | | $ | 21 | | | $ | 73 | | | $ | (4) | | | $ | 325 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 4 | | | | 5 | | | (1) | | | 8 | |
Adjusted EBITDA1 | | Adjusted EBITDA1 | $ | 280 | | | | $ | 83 | | | $ | 1 | | | $ | 364 | |
| | Investments in unconsolidated entities | Investments in unconsolidated entities | $ | 471 | | | $ | 4 | | | $ | 0 | | | $ | 4 | | | $ | 36 | | | $ | 511 | | Investments in unconsolidated entities | $ | 445 | | | | $ | 4 | | | $ | 37 | | | $ | 486 | |
| Total assets | Total assets | $ | 8,291 | | | $ | 1,430 | | | $ | 644 | | | $ | 2,066 | | | $ | 524 | | | $ | 10,881 | | Total assets | $ | 8,500 | | | | $ | 2,210 | | | $ | 451 | | | $ | 11,161 | |
| Capital expenditures | Capital expenditures | $ | 170 | | | $ | 61 | | | $ | 20 | | | $ | 81 | | | $ | 2 | | | $ | 253 | | Capital expenditures | $ | 168 | | | | $ | 75 | | | $ | 4 | | | $ | 247 | |
| | | | | | TDS Telecom | | | | | |
| Nine Months Ended or as of September 30, 2020 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | 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 | $ | 2,290 | | | $ | 511 | | | $ | 216 | | | $ | 727 | | | $ | 71 | | | $ | 3,088 | | Service | $ | 1,545 | | | | $ | 500 | | | $ | 46 | | | $ | 2,091 | |
| Equipment and product sales | Equipment and product sales | 674 | | | 1 | | | 0 | | | 1 | | | 86 | | | 761 | | Equipment and product sales | 492 | | | | 1 | | | 45 | | | 538 | |
| Total operating revenues | Total operating revenues | 2,964 | | | 512 | | | 216 | | | 728 | | | 157 | | | 3,849 | | 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) | 580 | | | 197 | | | 91 | | | 287 | | | 52 | | | 919 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 389 | | | | 199 | | | 35 | | | 623 | |
| Cost of equipment and products | Cost of equipment and products | 692 | | | 1 | | | 0 | | | 1 | | | 72 | | | 765 | | Cost of equipment and products | 533 | | | | 0 | | | 37 | | | 570 | |
| Selling, general and administrative | Selling, general and administrative | 994 | | | 148 | | | 52 | | | 200 | | | 33 | | | 1,227 | | Selling, general and administrative | 639 | | | | 143 | | | 22 | | | 804 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 516 | | | 94 | | | 59 | | | 152 | | | 17 | | | 685 | | Depreciation, amortization and accretion | 350 | | | | 98 | | | 9 | | | 457 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 14 | | | 0 | | | 1 | | | 1 | | | 0 | | | 15 | | (Gain) loss on asset disposals, net | 7 | | | | 1 | | | 0 | | | 8 | |
| | (Gain) loss on sale of business and other exit costs, net | | (Gain) loss on sale of business and other exit costs, net | (1) | | | | 0 | | | 0 | | | (1) | |
| | Operating income (loss) | Operating income (loss) | 168 | | | 73 | | | 14 | | | 87 | | | (17) | | | 238 | | Operating income (loss) | 120 | | | | 60 | | | (12) | | | 168 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 137 | | | 0 | | | 0 | | | 0 | | | 1 | | | 138 | | Equity in earnings of unconsolidated entities | 88 | | | | 0 | | | 2 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 6 | | | 4 | | | 1 | | | 4 | | | 2 | | | 12 | | Interest and dividend income | 3 | | | | 0 | | | 3 | | | 6 | |
| Gain (loss) on investments | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | |
| | Interest expense | Interest expense | (76) | | | 3 | | | 0 | | | 3 | | | (46) | | | (119) | | Interest expense | (97) | | | | 2 | | | (43) | | | (138) | |
| Other, net | Other, net | 0 | | | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | Other, net | 0 | | | | 0 | | | (1) | | | (1) | |
| Income (loss) before income taxes | Income (loss) before income taxes | 238 | | | 79 | | | 15 | | | 94 | | | (61) | | | 271 | | Income (loss) before income taxes | 114 | | | | 62 | | | (51) | | | 125 | |
Income tax expense (benefit)2 | 11 | | | | | | | 13 | | | (7) | | | 17 | | |
Income tax expense (benefit)1 | | Income tax expense (benefit)1 | 17 | | | | 15 | | | (12) | | | 20 | |
| Net income (loss) | Net income (loss) | 227 | | | 81 | | | (54) | | | 254 | | Net income (loss) | 97 | | | | 46 | | | (38) | | | 105 | |
| Add back: | Add back: | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 516 | | | 94 | | | 59 | | | 152 | | | 17 | | | 685 | | Depreciation, amortization and accretion | 350 | | | | 98 | | | 9 | | | 457 | |
| (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 14 | | | 0 | | | 1 | | | 1 | | | 0 | | | 15 | | (Gain) loss on asset disposals, net | 7 | | | | 1 | | | 0 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | | (Gain) loss on sale of business and other exit costs, net | (1) | | | | 0 | | | 0 | | | (1) | |
| | Gain (loss) on investments | (3) | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | |
| Interest expense | Interest expense | 76 | | | (3) | | | 0 | | | (3) | | | 46 | | | 119 | | Interest expense | 97 | | | | (2) | | | 43 | | | 138 | |
Income tax expense (benefit)2 | 11 | | | 13 | | | (7) | | | 17 | | |
Adjusted EBITDA3 | $ | 841 | | | $ | 169 | | | $ | 74 | | | $ | 243 | | | $ | 3 | | | $ | 1,087 | | |
Income tax expense (benefit)1 | | Income tax expense (benefit)1 | 17 | | | | 15 | | | (12) | | | 20 | |
Adjusted EBITDA2 | | Adjusted EBITDA2 | $ | 567 | | | | $ | 158 | | | $ | 2 | | | $ | 727 | |
| | Capital expenditures | Capital expenditures | $ | 621 | | | $ | 171 | | | $ | 49 | | | $ | 221 | | | $ | 7 | | | $ | 849 | | Capital expenditures | $ | 273 | | | | $ | 169 | | | $ | 4 | | | $ | 446 | |
| | | | | | TDS Telecom | | | | | |
| Nine Months Ended or as of September 30, 2019 | UScellular | | Wireline | | Cable | | TDS Telecom Total1 | | Corporate, Eliminations and Other | | Total | |
| Six Months Ended or as of June 30, 2020 | | Six Months Ended or as of June 30, 2020 | 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 | $ | 2,272 | | | $ | 512 | | | $ | 183 | | | $ | 694 | | | $ | 72 | | | $ | 3,038 | | Service | $ | 1,515 | | | | $ | 480 | | | $ | 47 | | | $ | 2,042 | |
| Equipment and product sales | Equipment and product sales | 698 | | | 1 | | | 0 | | | 1 | | | 103 | | | 802 | | Equipment and product sales | 422 | | | | 1 | | | 59 | | | 482 | |
| Total operating revenues | Total operating revenues | 2,970 | | | 512 | | | 184 | | | 695 | | | 175 | | | 3,840 | | Total operating revenues | 1,937 | | | | 481 | | | 106 | | | 2,524 | |
| Cost of services (excluding Depreciation, amortization and accretion reported below) | Cost of services (excluding Depreciation, amortization and accretion reported below) | 568 | | | 195 | | | 79 | | | 274 | | | 58 | | | 900 | | Cost of services (excluding Depreciation, amortization and accretion reported below) | 377 | | | | 188 | | | 34 | | | 599 | |
| Cost of equipment and products | Cost of equipment and products | 724 | | | 1 | | | 0 | | | 1 | | | 83 | | | 808 | | Cost of equipment and products | 435 | | | | 0 | | | 52 | | | 487 | |
| Selling, general and administrative | Selling, general and administrative | 1,027 | | | 148 | | | 44 | | | 193 | | | 40 | | | 1,260 | | Selling, general and administrative | 659 | | | | 130 | | | 20 | | | 809 | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 524 | | | 99 | | | 51 | | | 150 | | | 23 | | | 697 | | Depreciation, amortization and accretion | 354 | | | | 103 | | | 13 | | | 470 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 13 | | | (8) | | | 1 | | | (7) | | | (1) | | | 5 | | (Gain) loss on asset disposals, net | 8 | | | | 0 | | | 0 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | |
| | | Operating income (loss) | Operating income (loss) | 115 | | | 78 | | | 8 | | | 86 | | | (30) | | | 171 | | Operating income (loss) | 104 | | | | 59 | | | (12) | | | 151 | |
| Equity in earnings of unconsolidated entities | Equity in earnings of unconsolidated entities | 128 | | | 0 | | | 0 | | | 0 | | | 1 | | | 129 | | Equity in earnings of unconsolidated entities | 89 | | | | 0 | | | 1 | | | 90 | |
| Interest and dividend income | Interest and dividend income | 14 | | | 8 | | | 1 | | | 9 | | | 1 | | | 24 | | Interest and dividend income | 5 | | | | 4 | | | (1) | | | 8 | |
| Interest expense | Interest expense | (87) | | | 2 | | | 0 | | | 2 | | | (43) | | | (128) | | Interest expense | (49) | | | | 2 | | | (28) | | | (75) | |
| | Other, net | | Other, net | 0 | | | | (1) | | | 0 | | | (1) | |
| Income (loss) before income taxes | Income (loss) before income taxes | 170 | | | 88 | | | 9 | | | 97 | | | (71) | | | 196 | | Income (loss) before income taxes | 149 | | | | 64 | | | (40) | | | 173 | |
Income tax expense (benefit)2 | 55 | | | | | | | 23 | | | (14) | | | 64 | | |
Income tax expense (benefit)1 | | Income tax expense (benefit)1 | 8 | | | | 8 | | | (4) | | | 12 | |
| Net income (loss) | Net income (loss) | 115 | | | 74 | | | (57) | | | 132 | | Net income (loss) | 141 | | | | 56 | | | (36) | | | 161 | |
| Add back: | Add back: | | | | | | | | Add back: | | | | | | | | |
| Depreciation, amortization and accretion | Depreciation, amortization and accretion | 524 | | | 99 | | | 51 | | | 150 | | | 23 | | | 697 | | Depreciation, amortization and accretion | 354 | | | | 103 | | | 13 | | | 470 | |
| | (Gain) loss on asset disposals, net | (Gain) loss on asset disposals, net | 13 | | | (8) | | | 1 | | | (7) | | | (1) | | | 5 | | (Gain) loss on asset disposals, net | 8 | | | | 0 | | | 0 | | | 8 | |
| (Gain) loss on sale of business and other exit costs, net | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | |
| | | Interest expense | Interest expense | 87 | | | (2) | | | 0 | | | (2) | | | 43 | | | 128 | | Interest expense | 49 | | | | (2) | | | 28 | | | 75 | |
Income tax expense (benefit)2 | 55 | | | 23 | | | (14) | | | 64 | | |
Adjusted EBITDA3 | $ | 793 | | | $ | 177 | | | $ | 61 | | | $ | 238 | | | $ | (6) | | | $ | 1,025 | | |
Income tax expense (benefit)1 | | Income tax expense (benefit)1 | 8 | | | | 8 | | | (4) | | | 12 | |
Adjusted EBITDA2 | | Adjusted EBITDA2 | $ | 560 | | | | $ | 165 | | | $ | 1 | | | $ | 726 | |
| | Capital expenditures | Capital expenditures | $ | 467 | | | $ | 145 | | | $ | 48 | | | $ | 193 | | | $ | 4 | | | $ | 664 | | Capital expenditures | $ | 405 | | | | $ | 128 | | | $ | 6 | | | $ | 539 | |
Numbers may not foot due to rounding.
1TDS Telecom Total includes eliminations between the Wireline and Cable segments.
2Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense for “TDS Telecom Total".
3Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.
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 SeptemberJune 30, 2020,2021, 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 ninethree months ended SeptemberJune 30, 2020,2021, 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.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, 2019,2020, for additional information. There have been no material changes to such information since December 31, 2019.2020.
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 thirdsecond quarter of 2020.2021.
The maximum dollar value of shares that may yet be purchased under this program was $185$182 million as of SeptemberJune 30, 2020.2021. There were no purchases made by or on behalf of TDS, and no open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.
Other Information
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.
Exhibits
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| Exhibit Number | Description of Documents |
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| Exhibit 4.1 | Form of NinthEleventh Supplemental Indenture dated as of August 12, 2020,May 17, 2021, between UScellular and The Bank of New York Mellon Trust Company, N.A., related to $500,000,000 of UScellular's 6.25%UScellular's 5.5% Senior Notes due 2069,2070 is hereby incorporated by reference to Exhibit 2 to UScellular'sUScellular's Registration Statement on Form 8-A dated August 12, 2020.May 17, 2021. |
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| Exhibit 4.2 | First Amended and Restated Series 2017-VFN Indenture Supplement by andCredit Agreement, among USCC Master Note Trust, as Issuer, USCC Services, LLC, as Servicer, and U.S. BankTDS, Wells Fargo National Association, as Indenture Trustee,administrative agent, and the other lenders thereto, dated October 23, 2020,as of July 20, 2021, including the form of subsidiary Guaranty, is hereby incorporated by reference to Exhibit 4.1 from UScellular'sto TDS' Current Report on Form 8-K dated October 23, 2020.July 20, 2021. |
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| Exhibit 4.3 | |
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| Exhibit 4.4 | |
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| Exhibit 4.5 | |
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| Exhibit 4.6 | |
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| Exhibit 10.1 | |
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| Exhibit 10.2 | |
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| Exhibit 10.3 | |
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| Exhibit 10.4 | |
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| Exhibit 10.5 | Amendment No. 1 to Amended and Restated Series 2017-VFN Note Purchase Agreement by and among USCC Receivables Funding LLC, as Transferor, USCC Master Note Trust, as Issuer, USCC Services, LLC, as Servicer, UScellular as Performance Guarantor, and Royal Bank of Canada, as Administrative Agent for owners of the notes, dated October 23, 2020,June 29, 2021, is hereby incorporated by reference to Exhibit 10.110.3 from UScellular's Form 8-K dated October 23, 2020.10-Q for the period ended June 30, 2021. |
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| 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. |
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| Exhibit 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
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| Exhibit 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document |
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| Exhibit 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document |
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| Exhibit 101.LAB | Inline XBRL Taxonomy Label Linkbase Document |
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| Exhibit 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 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
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| 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.
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| | | TELEPHONE AND DATA SYSTEMS, INC. | | |
| | | (Registrant) | | |
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| Date: | November 5, 2020August 6, 2021 | | /s/ LeRoy T. Carlson, Jr. | |
| | | | LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer) |
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| Date: | November 5, 2020August 6, 2021 | | /s/ Peter L. Sereda | |
| | | | Peter L. Sereda Executive Vice President and Chief Financial Officer (principal financial officer) |
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| Date: | November 5, 2020August 6, 2021 | | /s/ Anita J. Kroll | |
| | | | Anita J. Kroll Vice President - Controller and Chief Accounting Officer (principal accounting officer) |
