UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2021


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

For the transition period from to

Commission file number 001-14157


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

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

(Address of principal executive offices) (Zip code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, $.01 par value

TDS

New York Stock Exchange

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

TDSPrU

New York Stock Exchange

~~6.625% Senior Notes due 2045~~Depository Shares each representing a 1/1000th interest in a share of 6.000% Series VV Cumulative Redeemable Perpetual Preferred Stock, $.01 par value

~~TDI~~TDSPrV

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

☒

☐

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

Yes

☒

☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

☐

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

Yes

☐

☒

The number of shares outstanding of each of the issuer's classes of common stock, as of ~~June~~September 30, 2021, is ~~107,441,800~~107,382,200 Common Shares, $.01 par value, and ~~7,303,600~~7,317,500 Series A Common Shares, $.01 par value.

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q

For the Period Ended ~~June~~September 30, 2021


Index			Page No.

Management Discussion and Analysis of Financial Condition and Results of Operations			1
Executive Overview			1
Terms Used by TDS			3
Results of Operations – TDS Consolidated			4
UScellular Operations			7
TDS Telecom Operations			13
Liquidity and Capital Resources			19
Consolidated Cash Flow Analysis			24
Consolidated Balance Sheet Analysis			25
Supplemental Information Relating to Non-GAAP Financial Measures			26
Application of Critical Accounting Policies and Estimates			29

Regulatory Matters			29
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement			30

Risk Factors			32

Quantitative and Qualitative Disclosures About Market Risk			32

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

Controls and Procedures			5859

Legal Proceedings			5859

Unregistered Sales of Equity Securities and Use of Proceeds			5960

~~Other Information~~			59

Exhibits			6061

Form 10-Q Cross Reference Index			6162

Signatures			6263

Table of Contents


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

Executive Overview

The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and ~~six~~nine months ended ~~June~~September 30, 2021, to the three and ~~six~~nine months ended ~~June~~September 30, 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, 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 broadband, video and voice services through its wholly-owned subsidiaries, TDS Telecommunications LLC and TDS Broadband LLC (collectively, TDS Telecom). TDS operates entirely in the United States.

During the first quarter of 2021, TDS modified its reporting segment structure to combine its Wireline and Cable segments into a single reportable segment for TDS Telecom. TDS Telecom believes this presentation better articulates its progress and performance against its strategy, which includes a focus on overall broadband growth and future fiber deployment across its markets. This change also reflects TDS Telecom's progress in aligning its organizational, operational and support structures to leverage one cost base to better support its customers across all of its markets. Prior periods have been updated to conform to this revised presentation. See Note 1314 — 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~~nine months ended ~~June~~September 30, 2021. The impact of COVID-19 on TDS' future financial results is uncertain, but is not projected to have a material impact. ~~There~~However, there are many factors, including the severity and duration of the ~~outbreak,~~pandemic, as well as other direct and indirect impacts, that could negatively impact TDS.

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TDS Mission and Strategy

TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, support the communities it serves, and build value over the long-term for its shareholders. Across all of its businesses, TDS is focused on providing exceptional customer experiences through best-in-class services and products and superior customer service. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities.

TDS’ 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 increasing revenues from prepaid plans and expanding its solutions available to business and government customers.

▪UScellular continues to devote efforts to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. UScellular's 5G deployment is initially focused on mobility services using its low band spectrum. UScellular has acquired high-band ~~spectrum~~ and ~~is in the process of acquiring~~ mid-band spectrum, which it will deploy in the future to further enable the delivery of 5G services. UScellular has launched commercial 5G services in portions of substantially all of UScellular’s markets and will continue to launch in additional areas in the coming years. ~~In addition to the deployment of 5G technology, UScellular is also modernizing its 4G LTE network to further enhance 4G LTE speeds.~~

▪UScellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, UScellular actively seeks attractive opportunities to acquire wireless spectrum, including pursuant to FCC auctions.

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

▪TDS Telecom may also seek to grow its operations through the acquisition of businesses that support and complement its existing markets or by creating entirely new clusters of markets in advantageous locations. TDS Telecom intends to avoid markets served by other fiber overbuilders or municipalities which have constructed their own networks with fiber to the home.

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Terms Used by TDS

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

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

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

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

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

▪Auctions 105, 107 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 is an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that ~~is expected to start~~started in October ~~2021.~~2021 and is not complete as of the date of this report.

▪Broadband Connections – refers to the individual customers provided high-speed internet access through various transmission technologies, including fiber, DSL, dedicated internet circuit technologies or cable modem service.

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

▪Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

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

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

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

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

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

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

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

▪IPTV – internet protocol television.

▪Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.

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

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

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

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

▪Retail Connections – 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 individual customers provided video services.

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

Table of Contents

Results of Operations — TDS Consolidated


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020			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	$	1,014	$	973	4	%	$	2,037	$	1,937	5	%	UScellular	$	1,016	$	1,027	(1)	%	$	3,053	$	2,964	3	%
TDS Telecom	TDS Telecom	252		241		5	%	501		481		4	%	TDS Telecom	252		247		2	%	752		728		3	%
All other1	All other1	45		49		(8)	%	91		106		(15)	%	All other1	60		50		22	%	152		157		(3)	%
Total operating revenues	Total operating revenues	1,311		1,263		4	%	2,629		2,524		4	%	Total operating revenues	1,328		1,324		–		3,957		3,849		3	%
Operating expenses	Operating expenses													Operating expenses
UScellular	UScellular	978		920		6	%	1,917		1,833		5	%	UScellular	971		962		1	%	2,888		2,796		3	%
TDS Telecom	TDS Telecom	224		210		7	%	441		422		5	%	TDS Telecom	224		219		2	%	665		641		4	%
All other1	All other1	51		55		(7)	%	103		118		(14)	%	All other1	64		56		15	%	167		174		(4)	%
Total operating expenses	Total operating expenses	1,253		1,185		6	%	2,461		2,373		4	%	Total operating expenses	1,259		1,237		2	%	3,720		3,611		3	%
Operating income (loss)	Operating income (loss)													Operating income (loss)
UScellular	UScellular	36		53		(32)	%	120		104		16	%	UScellular	45		65		(31)	%	165		168		(2)	%
TDS Telecom	TDS Telecom	28		31		(10)	%	60		59		1	%	TDS Telecom	27		28		(3)	%	87		87		(1)	%
All other1	All other1	(6)		(6)		–		(12)		(12)		2	%	All other1	(3)		(6)		40	%	(15)		(17)		14	%
Total operating income	Total operating income	58		78		(26)	%	168		151		12	%	Total operating income	69		87		(21)	%	237		238		–
Investment and other income (expense)	Investment and other income (expense)													Investment and other income (expense)
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	48		44		7	%	90		90		–		Equity in earnings of unconsolidated entities	48		48		–		138		138		–
Interest and dividend income	Interest and dividend income	3		2		40	%	6		8		(22)	%	Interest and dividend income	3		4		(30)	%	9		12		(24)	%

Gain (loss) on investments														Gain (loss) on investments	—		3		N/M		—		3		N/M
Interest expense	Interest expense	(86)		(38)		N/M		(138)		(75)		(85)	%	Interest expense	(54)		(43)		(24)	%	(193)		(119)		(63)	%
Other, net	Other, net	—		—		(11)	%	(1)		(1)		10	%	Other, net	—		—		19	%	(1)		(1)		13	%
Total investment and other income (expense)	Total investment and other income (expense)	(35)		8		N/M		(43)		22		N/M		Total investment and other income (expense)	(3)		12		N/M		(47)		33		N/M

Income before income taxes	Income before income taxes	23		86		(73)	%	125		173		(28)	%	Income before income taxes	66		99		(33)	%	190		271		(30)	%
Income tax expense (benefit)		(11)		8		N/M		20		12		62	%
Income tax expense														Income tax expense	19		6		N/M		38		17		N/M

Net income	Net income	34		78		(56)	%	105		161		(35)	%	Net income	47		93		(50)	%	152		254		(40)	%
Less: Net income attributable to noncontrolling interests, net of tax	Less: Net income attributable to noncontrolling interests, net of tax	7		13		(44)	%	19		26		(26)	%	Less: Net income attributable to noncontrolling interests, net of tax	7		15		(55)	%	26		42		(37)	%
Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	27		65		(59)	%	86		135		(36)	%	Net income attributable to TDS shareholders	40		78		(49)	%	126		212		(41)	%
TDS Preferred Share dividends	TDS Preferred Share dividends	7		—		N/M		9		—		N/M		TDS Preferred Share dividends	12		—		N/M		21		—		N/M
Net income attributable to TDS common shareholders	Net income attributable to TDS common shareholders	$	20	$	65	(69)	%	$	77	$	135	(43)	%	Net income attributable to TDS common shareholders	$	28	$	78	(64)	%	$	105	$	212	(51)	%

Adjusted OIBDA (Non-GAAP)2	Adjusted OIBDA (Non-GAAP)2	$	295	$	318	(7)	%	$	632	$	629	1	%	Adjusted OIBDA (Non-GAAP)2	$	290	$	310	(6)	%	$	923	$	938	(2)	%
Adjusted EBITDA (Non-GAAP)2	Adjusted EBITDA (Non-GAAP)2	$	346	$	364	(5)	%	$	727	$	726	–		Adjusted EBITDA (Non-GAAP)2	$	341	$	362	(6)	%	$	1,069	$	1,087	(2)	%
Capital expenditures3	Capital expenditures3	$	250	$	247	1	%	$	446	$	539	(17)	%	Capital expenditures3	$	279	$	310	(10)	%	$	726	$	849	(15)	%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful

1Consists of corporate and other operations and intercompany eliminations.

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

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

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

Table of Contents

Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for 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 the three months ended ~~June~~September 30, 2021 and 2020, respectively and ~~$41 million and $42~~$63 million for both the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~2020, respectively.~~2020. 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~~nine months ended ~~June~~September 30, 2021, primarily as a result of (i) the write off of ~~$36~~$14 million and $50 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 and nine months ended ~~June~~September 30, 2021, respectively, 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. These increases were partially offset by a reduction in interest expense due to the redemptions of Senior Notes with higher interest rates. See Note 910 — Debt in the Notes to Consolidated Financial Statements for additional information.

Income tax expense

The effective tax rate on Income before income taxes for the three months ended ~~June~~September 30, 2021 and 2020 was ~~(48.9)%~~29.3% and ~~9.6%~~5.8%, respectively. The higher effective tax rate ~~for the three months ended June 30,~~in 2021 ~~was lower~~as compared to 2020 is due primarily to ~~the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years. The decrease was partially offset by~~ the income tax benefits of the CARES Act included in the 2020 tax rate, which do not recur as benefits in the 2021 tax rate.

The effective tax rate on Income before income taxes for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, was ~~15.5%~~20.3% and ~~6.9%~~6.5%, respectively. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2021 was higher due primarily to 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 increase was partially offset by the reduction of tax accruals resulting from ~~expirations~~the expiration of state statute of limitations for prior tax ~~years.~~years in the second quarter of 2021.

Net income attributable to noncontrolling interests, net of tax


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
UScellular noncontrolling public shareholders’	UScellular noncontrolling public shareholders’	$	6	$	12	$	17	$	24	UScellular noncontrolling public shareholders’	$	6	$	15	$	23	$	39
Noncontrolling shareholders’ or partners’	Noncontrolling shareholders’ or partners’	1		1		2		2		Noncontrolling shareholders’ or partners’	1		—		3		3
Net income attributable to noncontrolling interests, net of tax	Net income attributable to noncontrolling interests, net of tax	$	7	$	13	$	19	$	26	Net income attributable to noncontrolling interests, net of tax	$	7	$	15	$	26	$	42

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

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Earnings

(Dollars in millions)

Three Months Ended

Net income decreased due primarily to higher operating, interest, and income tax expenses. Adjusted EBITDA decreased due primarily to higher operating expenses.

Nine Months Ended

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

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

Table of Contents


			UScellular OPERATIONS

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.

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 ~~5,000~~4,900 associates

▪~~4,278~~4,274 owned towers

▪~~6,819~~6,857 cell sites in service

Table of Contents

Operational Overview


As of June 30,			2021	2020
As of September 30,					As of September 30,		2021	2020
Retail Connections – End of Period	Retail Connections – End of Period				Retail Connections – End of Period
		Postpaid	4,399,000	4,372,000		Postpaid	4,391,000	4,401,000
		Prepaid	507,000	496,000		Prepaid	518,000	506,000
		Total	4,906,000	4,868,000		Total	4,909,000	4,907,000


		Q2 2021		Q2 2020		Q2 2021 vs. Q2 2020		YTD 2021		YTD 2020		YTD 2021 vs. YTD 2020			Q3 2021		Q3 2020		Q3 2021 vs. Q3 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	101,000		85,000		19	%	204,000		175,000		17	%	Handsets	105,000		102,000		3	%	309,000		277,000		12	%
Connected Devices	Connected Devices	40,000		44,000		(9)	%	79,000		86,000		(8)	%	Connected Devices	40,000		66,000		(39)	%	118,000		152,000		(22)	%
Total Gross Additions	Total Gross Additions	141,000		129,000		9	%	283,000		261,000		8	%	Total Gross Additions	145,000		168,000		(14)	%	427,000		429,000		–
Net Additions (Losses)	Net Additions (Losses)													Net Additions (Losses)
Handsets	Handsets	(1,000)		3,000		N/M		(4,000)		(17,000)		76	%	Handsets	(5,000)		—		N/M		(8,000)		(17,000)		53	%
Connected Devices	Connected Devices	(5,000)		9,000		N/M		(8,000)		3,000		N/M		Connected Devices	(3,000)		28,000		N/M		(11,000)		32,000		N/M
Total Net Additions (Losses)	Total Net Additions (Losses)	(6,000)		12,000		N/M		(12,000)		(14,000)		14	%	Total Net Additions (Losses)	(8,000)		28,000		N/M		(19,000)		15,000		N/M
Churn	Churn													Churn
Handsets	Handsets	0.88	%	0.71	%			0.90	%	0.83	%			Handsets	0.95	%	0.88	%			0.92	%	0.85	%
Connected Devices	Connected Devices	2.69	%	2.24	%			2.61	%	2.67	%			Connected Devices	2.59	%	2.35	%			2.60	%	2.56	%
Total Churn	Total Churn	1.11	%	0.89	%			1.12	%	1.05	%			Total Churn	1.15	%	1.06	%			1.13	%	1.05	%

N/M - Percentage change not meaningful

Total postpaid handset net ~~additions decreased~~losses increased for the three months ended ~~June~~September 30, 2021, when compared to the same period last year due primarily to an increase in defections resulting from higher consumer switching activity which was depressed in 2020 due to COVID-19. Partially offsetting the increase in defections was an increase in gross additions.

Total postpaid handset net losses decreased for the ~~six~~nine months ended ~~June~~September 30, 2021, when compared to the same period last year due primarily to an increase in gross additions as a result of higher consumer switching activity in 2021, as well as a decrease in non-pay defections. Partially offsetting the decrease was an increase in voluntary defections.

Total postpaid connected device net additions decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, when compared to the same period last year ~~in substantial part,~~ due primarily to lower demand for internet related products as a result of a reduction in COVID-related funding vehicles, many of which are connected to government subsidies.

Macroeconomic factors, including the continuing impacts of the ongoing COVID-19 pandemic, have caused some supply chain disruption and delays, including constraints on certain devices. These supply constraints are due primarily to component availability, resulting in extended lead times and additional uncertainty, which may negatively impact UScellular in future periods.

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Postpaid Revenue

Three Months Ended
June 30, Six Months Ended
June 30,
2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020
Average Revenue Per User (ARPU) $ 47.74 $ 46.24 3 % $ 47.70 $ 46.72 2 %
Average Revenue Per Account (ARPA) $ 125.25 $ 120.70 4 % $ 125.25 $ 121.80 3 %


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
Average Revenue Per User (ARPU)	$	48.12	$	47.10	2	%	$	47.83	$	46.84	2	%


Average Revenue Per Account (ARPA)	$	125.99	$	123.27	2	%	$	125.50	$	122.28	3	%

Postpaid ARPU and Postpaid ARPA increased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, when compared to the same period last year, due to (i) favorable plan and product offering mix, (ii) an increase in regulatory recovery revenues ~~(ii) favorable plan~~ and ~~product offering mix,~~ (iii) an increase in device protection plan ~~revenues, and (iv) an increase in overage fees which were waived in Q2 2020 to assist customers during the COVID-19 pandemic.~~revenues. These increases were partially offset by an increase in promotional discounts.

2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to a third quarter out-of-period error. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

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Financial Overview - UScellular


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020			2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
(Dollars in millions)	(Dollars in millions)													(Dollars in millions)
Retail service	Retail service	$	686	$	658	4	%	$	1,371	$	1,329	3	%	Retail service	$	699	$	674	4	%	$	2,069	$	2,004	3	%
Inbound roaming	Inbound roaming	28		41		(31)	%	56		77		(27)	%	Inbound roaming	30		42		(29)	%	86		119		(28)	%
Other	Other	60		54		10	%	118		109		8	%	Other	59		59		1	%	178		167		6	%
Service revenues	Service revenues	774		753		3	%	1,545		1,515		2	%	Service revenues	788		775		2	%	2,333		2,290		2	%
Equipment sales	Equipment sales	240		220		9	%	492		422		17	%	Equipment sales	228		252		(10)	%	720		674		7	%
Total operating revenues	Total operating revenues	1,014		973		4	%	2,037		1,937		5	%	Total operating revenues	1,016		1,027		(1)	%	3,053		2,964		3	%

System operations (excluding Depreciation, amortization and accretion reported below)	System operations (excluding Depreciation, amortization and accretion reported below)	204		197		4	%	389		377		3	%	System operations (excluding Depreciation, amortization and accretion reported below)	205		203		1	%	594		580		2	%
Cost of equipment sold	Cost of equipment sold	258		218		19	%	533		435		23	%	Cost of equipment sold	252		257		(2)	%	786		692		14	%
Selling, general and administrative	Selling, general and administrative	334		323		3	%	639		659		(3)	%	Selling, general and administrative	346		335		3	%	984		994		(1)	%
Depreciation, amortization and accretion	Depreciation, amortization and accretion	180		178		1	%	350		354		(2)	%	Depreciation, amortization and accretion	160		161		–		510		516		(1)	%

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	2		4		(50)	%	7		8		(9)	%	(Gain) loss on asset disposals, net	8		6		29	%	15		14		7	%
(Gain) loss on sale of business and other exit costs, net	(Gain) loss on sale of business and other exit costs, net	—		—		N/M		(1)		—		N/M		(Gain) loss on sale of business and other exit costs, net	—		—		N/M		(1)		—		N/M

Total operating expenses	Total operating expenses	978		920		6	%	1,917		1,833		5	%	Total operating expenses	971		962		1	%	2,888		2,796		3	%

Operating income	Operating income	$	36	$	53	(32)	%	$	120	$	104	16	%	Operating income	$	45	$	65	(31)	%	$	165	$	168	(2)	%

Net income	Net income	$	35	$	69	(49)	%	$	97	$	141	(31)	%	Net income	$	35	$	85	(59)	%	$	132	$	227	(42)	%
Adjusted OIBDA (Non-GAAP)1	Adjusted OIBDA (Non-GAAP)1	$	218	$	235	(7)	%	$	476	$	466	2	%	Adjusted OIBDA (Non-GAAP)1	$	213	$	232	(8)	%	$	689	$	698	(1)	%
Adjusted EBITDA (Non-GAAP)1	Adjusted EBITDA (Non-GAAP)1	$	267	$	280	(5)	%	$	567	$	560	1	%	Adjusted EBITDA (Non-GAAP)1	$	262	$	282	(7)	%	$	831	$	841	(1)	%
Capital expenditures2	Capital expenditures2	$	148	$	168	(12)	%	$	273	$	405	(33)	%	Capital expenditures2	$	185	$	216	(14)	%	$	458	$	621	(26)	%

N/M - Percentage change not meaningful

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

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

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Operating Revenues

Three Months Ended ~~June~~September 30, 2021 and 2020

(Dollars in millions)

Operating Revenues

~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

(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 ~~six~~nine months ended ~~June~~September 30, 2021, primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section as well as an increase in the average number of postpaid ~~subscribers.~~subscribers and a $9 million out-of-period error recorded in the three months ended September 30, 2021 related to the timing of recognition of regulatory fee billings. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information.

Inbound roaming revenues decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, primarily driven by lower data revenues resulting from lower usage and lower rates. UScellular expects inbound roaming revenues to continue to decline during 2021 relative to prior year levels.

Other service revenues were flat for the three months ended September 30, 2021. Other service revenues increased for the ~~three and six~~nine months ended ~~June~~September 30, 2021, resulting from increases in tower rental revenues and miscellaneous other service revenues.

Equipment sales revenues decreased for the three months ended September 30, 2021, due primarily to higher promotional activity. Equipment sales revenues increased for the ~~three and six~~nine months ended ~~June~~September 30, 2021, due primarily to an increase in the volume of new smartphone and accessory sales, partially offset by ~~an increase in~~higher 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.

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System operations expenses

System operations expenses increased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due to higher circuit costs as well as an increase in cell site rent and maintenance expense, partially offset by a decrease in roaming expense.

Cost of equipment sold

Cost of equipment sold decreased for the three months ended September 30, 2021, due primarily to a decrease in the volume of connected device sales.

Cost of equipment sold increased for the ~~three and six~~nine months ended ~~June~~September 30, 2021, due primarily to an increase in the volume of new smartphone and accessory sales.

Selling, general and administrative expenses

Selling, general and administrative expenses increased for the three months ended ~~June~~September 30, 2021, due primarily to increases in bad debts expense and system development ~~costs and Federal USF expense.~~costs.

Selling, general and administrative expenses decreased for the ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to ~~reductions~~decreases in ~~(i)~~ bad debts expense ~~driven by fewer non-pay customers as a result of better credit mix~~ and ~~improved customer payment behavior, and (ii)~~ advertising expenses. This was partially offset by increases in system development costs and Federal USF expense.

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			TDS TELECOM OPERATIONS

Business Overview

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 wholesale customers. TDS Telecom's strategy is to grow its customer base through market expansions and offering state-of-the-art services. ~~The company~~TDS Telecom invests in high-quality networks, products and ~~provides excellent~~services, with the constant focus on delivering a best-in-class customer ~~service, a~~experience, key ~~tenet~~tenets of its long-standing mission.

OPERATIONS

▪Serves 1.2 million connections in 32 states

▪Employs approximately ~~2,900~~3,000 associates

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Operational Overview

Total Service Addresses

As of ~~June~~September 30,

TDS Telecom grew its service addresses 6% through network expansion and now offers 1Gig service to ~~56%~~57% of its total footprint.

Wireline Service Addresses

As of ~~June~~September 30,

TDS Telecom serves ~~39%~~40% of its wireline service addresses with fiber-to-the-home as of ~~June~~September 30, 2021, compared to ~~33%~~34% a year ago. Expansion markets have increased to ~~11%~~12% of wireline service addresses, up from 6%7% a year ago.


As of June 30,		2021	2020	2021 vs. 2020
As of September 30,						As of September 30,	2021	2020	2021 vs. 2020
Residential connections	Residential connections					Residential connections
Broadband	Broadband					Broadband
Wireline, Incumbent	Wireline, Incumbent	249,200	240,400	4	%	Wireline, Incumbent	252,100	243,400	4	%
Wireline, Expansion	Wireline, Expansion	28,300	14,700	92	%	Wireline, Expansion	32,600	17,300	88	%
Cable	Cable	201,200	191,000	5	%	Cable	202,700	193,300	5	%
Total Broadband	Total Broadband	478,700	446,000	7	%	Total Broadband	487,400	454,000	7	%
Video	Video	143,200	144,600	(1)	%	Video	143,100	144,500	(1)	%
Voice	Voice	308,100	317,100	(3)	%	Voice	306,300	314,400	(3)	%
Total Residential Connections	Total Residential Connections	930,100	907,800	2	%	Total Residential Connections	936,800	913,000	3	%
Commercial connections	Commercial connections	274,400	297,200	(8)	%	Commercial connections	269,000	292,900	(8)	%
Total connections	Total connections	1,204,500	1,205,000	–		Total connections	1,205,700	1,205,900	–

Numbers may not foot due to rounding.

Total connections ~~decreased slightly~~are flat despite strong broadband connection growth due ~~primarily~~ to ~~a decrease~~offsetting decreases in legacy voice ~~connections~~ and competitive local exchange carrier (CLEC) ~~commercial~~ connections.

A majority of TDS Telecom's residential customers take advantage of bundling options as ~~64%~~63% of customers subscribe to more than one service.

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Total residential revenue per connection increased 7%4% and 6%5% for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, due to a higher concentration of broadband ~~connection growth~~connections as well as an increase in broadband speeds and price increases. Cable residential revenue per connection exceeds wireline due to a higher mix of video connections.

Residential Broadband Connections by Speed

As of ~~June~~September 30,

Residential broadband customers continue to choose higher speeds with ~~63%~~65% taking speeds of 100 Mbps or greater, ~~and 7%~~up from 59% a year ago, with 8% currently choosing 1Gig.

Broadband Penetration

As of ~~June~~September 30,

~~Broadband~~Total broadband penetration ~~has stayed steady~~increased 1% due primarily to broadband connection growth as service addresses have grown 6%. Broadband penetration rates vary between wireline and cable due to the competitive profiles of the respective markets.

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Financial Overview - TDS Telecom


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020			2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
(Dollars in millions)	(Dollars in millions)													(Dollars in millions)
Residential	Residential													Residential
Wireline, Incumbent	Wireline, Incumbent	$	86	$	81	7	%	$	171	$	162	6	%	Wireline, Incumbent	$	87	$	85	3	%	$	258	$	246	5	%
Wireline, Expansion	Wireline, Expansion	8		4		81	%	15		8		80	%	Wireline, Expansion	9		5		73	%	24		13		77	%
Cable	Cable	66		60		10	%	131		119		9	%	Cable	66		62		6	%	197		182		8	%
Total residential	Total residential	160		145		10	%	317		289		10	%	Total residential	162		152		6	%	479		441		8	%
Commercial	Commercial	46		48		(4)	%	93		98		(5)	%	Commercial	45		48		(6)	%	138		146		(5)	%
Wholesale	Wholesale	45		47		(3)	%	91		94		(3)	%	Wholesale	44		46		(5)	%	135		140		(4)	%
Total service revenues	Total service revenues	251		240		5	%	500		480		4	%	Total service revenues	251		247		2	%	751		727		3	%
Equipment revenues	Equipment revenues	—		—		5	%	1		1		7	%	Equipment revenues	—		—		(44)	%	1		1		(15)	%
Total operating revenues	Total operating revenues	252		241		5	%	501		481		4	%	Total operating revenues	252		247		2	%	752		728		3	%

Cost of services (excluding Depreciation, amortization and accretion reported below)	Cost of services (excluding Depreciation, amortization and accretion reported below)	101		92		10	%	199		188		6	%	Cost of services (excluding Depreciation, amortization and accretion reported below)	102		100		3	%	301		287		5	%
Cost of equipment and products	Cost of equipment and products	—		—		(12)	%	—		—		(7)	%	Cost of equipment and products	—		—		(36)	%	—		1		(17)	%
Selling, general and administrative	Selling, general and administrative	73		66		11	%	143		130		10	%	Selling, general and administrative	72		69		5	%	216		200		8	%
Depreciation, amortization and accretion	Depreciation, amortization and accretion	49		51		(5)	%	98		103		(5)	%	Depreciation, amortization and accretion	49		49		(1)	%	147		152		(4)	%
(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	1		—		N/M		1		—		N/M		(Gain) loss on asset disposals, net	1		—		50	%	2		1		N/M
Total operating expenses	Total operating expenses	224		210		7	%	441		422		5	%	Total operating expenses	224		219		2	%	665		641		4	%

Operating income	Operating income	$	28	$	31	(10)	%	$	60	59		1	%	Operating income	$	27	$	28	(3)	%	$	87	$	87	(1)	%

Net income	Net income	$	22	$	28	(22)	%	$	46	56		(17)	%	Net income	$	21	$	25	(16)	%	$	68	$	81	(17)	%
Adjusted OIBDA (Non-GAAP)1	Adjusted OIBDA (Non-GAAP)1	$	78	$	82	(6)	%	$	159	162		(2)	%	Adjusted OIBDA (Non-GAAP)1	$	77	$	78	(2)	%	$	235	$	240	(2)	%
Adjusted EBITDA (Non-GAAP)1	Adjusted EBITDA (Non-GAAP)1	$	78	$	83	(7)	%	$	158	165		(4)	%	Adjusted EBITDA (Non-GAAP)1	$	77	$	78	(2)	%	$	235	$	243	(3)	%
Capital expenditures2	Capital expenditures2	$	99	$	75	33	%	$	169	128		32	%	Capital expenditures2	$	91	$	92	(1)	%	$	260	$	221	18	%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful

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

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

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Operating Revenues

Three Months Ended ~~June~~September 30, 2021 and 2020

(Dollars in millions)

Operating Revenues

~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

(Dollars in millions)

Residential revenues consist of:

•Broadband services, including ~~internet,~~ security and support services

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

•Voice services

Commercial revenues consist of:

•High-speed and dedicated business internet services

•Video services

•Voice services

Wholesale revenues consist of:

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

•Federal and state 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 ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to growth in broadband connections, price increases and federal universal service ~~surcharges,~~charges, partially offset by a decline in voice connections.

Commercial revenues decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to declining connections in CLEC ~~markets.~~markets, partially offset by an increase in broadband connections.

Wholesale revenues decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to the timing of certain state USF support and decreased access revenues.

Cost of services

Cost of services increased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to higher employee expenses to support current and future growth and increased plant and maintenance ~~costs, and increases in video programming~~ costs, partially offset by a decrease in building expenses and a decrease in costs to provide legacy ~~services and building expenses.~~services.

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Selling, general and administrative

Selling, general and administrative expenses increased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to ~~higher employee and call center~~increases in advertising expenses ~~to support current and future growth,~~in TDS Telecom's expansion markets, increases to charges for federal universal service support, ~~increased~~and increases in project costs associated with a new customer management ~~system, and increased advertising expenses in TDS Telecom's expansion markets.~~system.

Depreciation, amortization and accretion

Depreciation, amortization and accretion decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2021, due primarily to certain assets becoming fully depreciated, partially offset by higher depreciation due to increased capital expenditures on new fiber assets throughout 2020 and 2021 and increased software amortization.

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Liquidity and Capital Resources

Sources of Liquidity

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

TDS has incurred negative free cash flow at times in the past and this could occur in the future. However, TDS believes that existing cash and investment balances, funds available under its revolving credit, term loan and receivables 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 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 telecommunications services, wireless spectrum license 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 fiber 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.

Cash and Cash Equivalents

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

Cash and Cash Equivalents

(Dollars in millions)

The majority of TDS’ Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies.

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Financing

Revolving Credit Agreements

In ~~March 2020,~~July 2021, TDS entered into aan amended and restated $400 million unsecured revolving credit agreement with certain lenders and other parties and UScellular entered into aan amended and restated $300 million unsecured revolving credit agreement with certain lenders and other parties. Amounts under the amended and restated revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in ~~March 2025.~~July 2026. During the ~~three~~nine months ended ~~June~~September 30, 2021, TDS borrowed and repaid $125 million under its revolving credit agreement. As of ~~June~~September 30, 2021, there were no outstanding borrowings under the ~~UScellular~~ revolving credit ~~agreement. As~~agreements, except for letters of ~~June 30, 2021, TDS’~~credit, and ~~UScellular’s~~TDS' and UScellular's unused borrowing capacity was ~~$274~~$399 million and $300 million, respectively.

~~In July 2021, TDS and UScellular amended and restated their revolving credit agreements. The maturity date of the agreements was extended to July 2026 and the consolidated leverage ratio, as defined~~See Note 10 — Debt in the ~~agreements, may not be greater than 3.75~~Notes to ~~1.00 as of the end of any fiscal quarter. There were no significant changes~~Consolidated Financial Statements for additional information related to ~~other terms of~~ the revolving credit agreements.

Term Loan Agreements

In January 2021, TDS borrowed $75 million under its senior term loan credit agreement. In February 2021, UScellular borrowed $217 million under its senior term loan credit agreement. As of June 30, 2021, TDS and UScellular 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 of $300 million and $200 million, respectively. During the nine months ended September 30, 2021, TDS borrowed $75 million under its senior term loan credit agreement and UScellular borrowed $217 million under its senior term loan credit agreement. As of September 30, 2021, TDS' and UScellular's outstanding borrowings under the term loan agreements were $200 million and $300 million, respectively, and TDS' and UScellular's unused borrowing capacity was $300 million and $200 million, respectively.

See Note 910 — 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, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In ~~March 2021, UScellular borrowed an additional $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 $450 million. As of June 30, 2021, the outstanding borrowings under the agreement were $100 million and the unused capacity under the agreement was $350 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until December 2022, which may be extended from time to time as specified therein. During the nine months ended September 30, 2021, UScellular borrowed an additional $500 million under its receivables securitization agreement and repaid $200 million of the outstanding borrowings. As of September 30, 2021, the outstanding borrowings under the agreement were $325 million and the unused capacity under the agreement was $125 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In October 2021, UScellular borrowed the remaining $125 million under the agreement.

See Note 910 — Debt in the Notes 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 end of any fiscal quarter. There were no significant changes to other terms of the receivable 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 ~~June~~September 30, 2021.

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Other Long-Term Financing

In 2020, UScellular issued $500 million of 6.25% Senior Notes due in 2069 and $500 million of 5.5% Senior Notes due in March 2070. The proceeds from both issuances were for general corporate purposes, including but not limited to, the purchase of additional wireless spectrum licenses acquired in Auction 107, funding of capital expenditures, including in connection with 5G buildout projects and retirement of existing debt.

In March 2021, TDS issued 16,800 shares of 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock (Preferred Shares) for $25,000 per Preferred Share, for total gross proceeds of $420 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 16,800,000 depositary shares, ~~(Depositary Shares),~~ each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $406 million after payment of issuance costs of $14 million. The proceeds were for general corporate purposes, including but not limited to, the funding of capital expenditures associated with TDS Telecom's fiber program and retirement of existing debt. See Note 1213 — Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information related to TDS' Preferred Shares.

In May 2021, TDS redeemed its outstanding $225 million of 6.875% Senior Notes due 2059 and $300 million of 7.0% Senior Notes due 2060, and UScellular redeemed its outstanding $275 million of 7.25% Senior Notes due 2063. At time of redemption, $26 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In May 2021, UScellular issued $500 million of 5.5% Senior Notes due in June 2070. The proceeds from the issuance were used for general corporate purposes, including but not limited to, the repayment of other debt, the purchase of additional spectrum and the funding of capital expenditures, including in connection with 5G buildout projects.

In June 2021, UScellular redeemed its outstanding $300 million of 7.25% Senior Notes due 2064. At time of redemption, $10 million of interest expense was recorded related to unamortized debt issuance costs for these notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In August 2021, TDS ~~announced that it will redeem~~issued 27,600 shares of 6.000% Series VV Preferred Shares for $25,000 per Preferred Share, for total gross proceeds of $690 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 27,600,000 depositary shares, each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $668 million after payment of issuance costs of $22 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 13 — Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information related to TDS' Preferred Shares.

In September 2021, TDS redeemed its outstanding $116 million of 6.625% Senior Notes due 2045 and UScellular ~~announced that it will redeem~~redeemed its outstanding $342 million of 6.95% Senior Notes due 2060. At time of redemption, $14 million of interest expense ~~will be~~was recorded related to unamortized debt issuance costs related to the notes. The notes ~~are expected to be~~were redeemed ~~on September 1, 2021,~~ at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

In October 2021, TDS redeemed its outstanding $195 million of 5.875% Senior Notes due 2061. At time of redemption, $7 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.

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 borrowing capacity of debt facilities that are structurally senior to UScellular’s senior unsecured notes.

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Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, were as follows:

Capital Expenditures

(Dollars in millions)

UScellular’s capital expenditures for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, were ~~$273~~$458 million and ~~$405~~$621 million, respectively.

Capital expenditures for the full year 2021 are expected to be between ~~$775~~$700 million and ~~$875~~$800 million. These expenditures are expected to be used principally for the following purposes:

▪Continue network modernization and 5G deployment;

▪Enhance and maintain UScellular's network coverage, including providing additional speed and capacity to accommodate increased data usage by current customers; and

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

TDS Telecom’s capital expenditures for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, were ~~$169~~$260 million and ~~$128~~$221 million, respectively.

Capital expenditures for the full year 2021 are expected to be between ~~$425~~$400 million and ~~$475~~$450 million. These expenditures are expected to be used principally for the following purposes:

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

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

▪Upgrade broadband capacity and speeds; and

▪Support success-based spending for broadband and video growth.

Macroeconomic factors, including the continuing impacts of the ongoing COVID-19 pandemic, have caused some supply chain disruption and delays for both UScellular and TDS Telecom. These factors may impact the acquisition of certain products and materials and contribute to internal and external labor shortages.

TDS intends to finance its capital expenditures for 2021 using primarily Cash flows from operating activities, existing cash balances and, if required, additional debt financing from its revolving credit, term loan and 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.

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Variable Interest Entities

TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 1011 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

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Common Share Repurchase Programs

During the ~~six~~nine months ended ~~June~~September 30, 2021, TDS repurchased ~~162,500~~239,989 Common Shares for $3$5 million at an average cost per share of ~~$18.50.~~$18.89. As of ~~June~~September 30, 2021, the maximum dollar value of TDS Common Shares that may yet be repurchased under TDS’ program was ~~$182~~$181 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

During the ~~six~~nine months ended ~~June~~September 30, 2021, UScellular repurchased ~~54,900~~681,310 Common Shares for $2$21 million at an average cost per share of ~~$29.52.~~$31.36. As of ~~June~~September 30, 2021, the total cumulative amount of UScellular Common Shares authorized to be repurchased is ~~4,452,000.~~3,825,000.

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.

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Consolidated Cash Flow Analysis

TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade communications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors. The following discussion summarizes TDS' cash flow activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

2021 Commentary

TDS’ Cash, cash equivalents and restricted cash decreased ~~$1,033~~$691 million. Net cash provided by operating activities was ~~$481~~$863 million due to net income of ~~$105~~$152 million adjusted for non-cash items of ~~$497~~$725 million and distributions received from unconsolidated entities of ~~$80~~$107 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~~$121 million. The working capital changes were primarily influenced by a decrease to accrued taxes and the timing of vendor payments ~~increases~~and an increase in ~~inventory,~~customer and ~~the timing of annual associate bonus payments.~~agent receivables.

Cash flows used for investing activities were ~~$1,715~~$2,006 million. Cash paid for additions to property, plant and equipment totaled ~~$457~~$726 million. Cash payments for wireless spectrum license acquisitions, including advance payments, were ~~$1,253~~$1,273 million.

Cash flows provided by financing activities were ~~$201~~$452 million, due primarily to the issuance of ~~$420~~$1,110 million of TDS Preferred Shares, the issuance of $500 million of 5.5% UScellular Senior Notes, ~~$275~~$500 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~~$76 million borrowed under the TDS term loan. These were partially offset by the redemption of ~~$525~~$641 million of TDS Senior Notes, ~~$575~~$917 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, a $125 million repayment on the TDS revolving credit agreement, the repurchase of TDS and UScellular Common Shares, the payment of dividends and the payment of debt and equity issuance costs.

2020 Commentary

TDS’ Cash, cash equivalents and restricted cash increased ~~$112~~$622 million. Net cash provided by operating activities was ~~$806~~$1,166 million due to net income of ~~$161~~$254 million adjusted for non-cash items of ~~$612~~$871 million and distributions received from unconsolidated entities of ~~$91~~$118 million, including $43 million in distributions from the LA Partnership. This was offset by changes in working capital items which decreased net cash by ~~$58~~$77 million. The working capital changes were primarily influenced by tax impacts from the CARES Act and annual associate bonus payments, partially offset by the timing of vendor payments and collections of customer and agent receivables.

Cash flows used for investing activities were ~~$769~~$1,078 million. Cash paid for additions to property, plant and equipment totaled ~~$610~~$914 million. Cash payments for wireless spectrum license acquisitions were ~~$144~~$169 million.

Cash flows provided by financing activities were ~~$75~~$534 million, ~~due primarily to cash received from~~reflecting the issuance of $500 million of 6.25% UScellular Senior Notes, $125 million borrowed under the UScellular receivables securitization agreement, and $50 million borrowed under the TDS term ~~loan borrowing,~~loan. These were partially offset by the repurchase of TDS and UScellular Common Shares, the payment of dividends, and the payment of ~~dividends.~~debt issuance costs.

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Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 2021 were as follows:

~~Inventory, net~~

~~Inventory, net increased $35 million due primarily to an increase in the volume of inventory at UScellular.~~

Licenses

Licenses increased ~~$1,288~~$1,473 million due primarily to wireless spectrum ~~license rights~~licenses acquired through Auction 107. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.

~~Accounts payable~~Current portion of long-term debt

~~Accounts payable decreased $134~~Current portion of long-term debt increased $189 million due primarily to ~~vendor payment timing differences.~~the announced October 2021 redemption of $195 million of TDS' 5.875% Senior Notes due 2061.

~~Accrued compensation~~Other deferred liabilities and credits

~~Accrued compensation decreased $40~~Other deferred liabilities and credits increased $209 million due primarily to ~~associate bonus payments~~relocation and acceleration fees related to wireless spectrum licenses acquired through Auction 107 and an increase in ~~March 2021.~~asset retirement obligations.

Long-term debt, net

The following table presents the components of the ~~$89~~$620 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~~293
Borrowings under Receivables Securitization Agreement	~~275~~500
Issuance of Senior Notes	500
Payment of debt issuance costs	(16)
Repayments under Revolving Credit Agreements	(125)
Repayments under Receivables Securitization Agreement	(200)
Redemptions of Senior Notes	~~(1,100)~~(1,558)
Reclassify TDS Senior Notes, net of debt issuance costs, to Current portion of long-term debt	(188)
Debt issuance costs charged to interest expense	3752
Other	~~(2)~~(3)
Balance at ~~June~~September 30, 2021	$	~~3,335~~2,804

Preferred Shares

Preferred Shares increased ~~$406~~$1,074 million due to the issuance of ~~$420~~$1,110 million of TDS Preferred Shares, net of issuance costs.

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Supplemental Information Relating to Non-GAAP Financial Measures

TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this Form 10-Q Report:

▪EBITDA

▪Adjusted EBITDA

▪Adjusted OIBDA

▪Free cash flow

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

EBITDA, Adjusted EBITDA and Adjusted OIBDA

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

Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. See Note 1314 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
TDS - CONSOLIDATED	TDS - CONSOLIDATED	2021		2020		2021		2020		TDS - CONSOLIDATED	2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Net income (GAAP)	Net income (GAAP)	$	34	$	78	$	105	$	161	Net income (GAAP)	$	47	$	93	$	152	$	254
Add back:	Add back:									Add back:
Income tax expense (benefit)		(11)		8		20		12
Income tax expense										Income tax expense	19		6		38		17
Interest expense	Interest expense	86		38		138		75		Interest expense	54		43		193		119
Depreciation, amortization and accretion	Depreciation, amortization and accretion	234		236		457		470		Depreciation, amortization and accretion	213		217		670		685
EBITDA (Non-GAAP)	EBITDA (Non-GAAP)	343		360		720		718		EBITDA (Non-GAAP)	333		359		1,053		1,075
Add back or deduct:	Add back or deduct:									Add back or deduct:

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	3		4		8		8		(Gain) loss on asset disposals, net	8		6		17		15
(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 investments										(Gain) loss on investments	—		(3)		—		(3)
Adjusted EBITDA (Non-GAAP)	Adjusted EBITDA (Non-GAAP)	346		364		727		726		Adjusted EBITDA (Non-GAAP)	341		362		1,069		1,087
Deduct:	Deduct:									Deduct:
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	48		44		90		90		Equity in earnings of unconsolidated entities	48		48		138		138
Interest and dividend income	Interest and dividend income	3		2		6		8		Interest and dividend income	3		4		9		12
Other, net	Other, net	—		—		(1)		(1)		Other, net	—		—		(1)		(1)
Adjusted OIBDA (Non-GAAP)	Adjusted OIBDA (Non-GAAP)	295		318		632		629		Adjusted OIBDA (Non-GAAP)	290		310		923		938
Deduct:	Deduct:									Deduct:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	234		236		457		470		Depreciation, amortization and accretion	213		217		670		685

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	3		4		8		8		(Gain) loss on asset disposals, net	8		6		17		15
(Gain) loss on sale of business and other exit costs, net	(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—		(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

Operating income (GAAP)	Operating income (GAAP)	$	58	$	78	$	168	$	151	Operating income (GAAP)	$	69	$	87	$	237	$	238

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
UScellular	UScellular	2021		2020		2021		2020		UScellular	2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Net income (GAAP)	Net income (GAAP)	$	35	$	69	$	97	$	141	Net income (GAAP)	$	35	$	85	$	132	$	227
Add back:	Add back:									Add back:
Income tax expense (benefit)		(10)		4		17		8
Income tax expense										Income tax expense	14		4		31		11
Interest expense	Interest expense	60		25		97		49		Interest expense	45		29		144		76
Depreciation, amortization and accretion	Depreciation, amortization and accretion	180		178		350		354		Depreciation, amortization and accretion	160		161		510		516
EBITDA (Non-GAAP)	EBITDA (Non-GAAP)	265		276		561		552		EBITDA (Non-GAAP)	254		279		817		830
Add back or deduct:	Add back or deduct:									Add back or deduct:

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	2		4		7		8		(Gain) loss on asset disposals, net	8		6		15		14
(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 investments										(Gain) loss on investments	—		(3)		—		(3)
Adjusted EBITDA (Non-GAAP)	Adjusted EBITDA (Non-GAAP)	267		280		567		560		Adjusted EBITDA (Non-GAAP)	262		282		831		841
Deduct:	Deduct:									Deduct:
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	47		44		88		89		Equity in earnings of unconsolidated entities	48		48		137		137
Interest and dividend income	Interest and dividend income	2		1		3		5		Interest and dividend income	1		2		5		6

Adjusted OIBDA (Non-GAAP)	Adjusted OIBDA (Non-GAAP)	218		235		476		466		Adjusted OIBDA (Non-GAAP)	213		232		689		698
Deduct:	Deduct:									Deduct:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	180		178		350		354		Depreciation, amortization and accretion	160		161		510		516

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	2		4		7		8		(Gain) loss on asset disposals, net	8		6		15		14
(Gain) loss on sale of business and other exit costs, net	(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—		(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

Operating income (GAAP)	Operating income (GAAP)	$	36	$	53	$	120	$	104	Operating income (GAAP)	$	45	$	65	$	165	$	168


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
TDS TELECOM	TDS TELECOM	2021		2020		2021		2020		TDS TELECOM	2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Net income (GAAP)	Net income (GAAP)	$	22	$	28	$	46	$	56	Net income (GAAP)	$	21	$	25	$	68	$	81
Add back:	Add back:									Add back:
Income tax expense	Income tax expense	7		5		15		8		Income tax expense	7		4		22		13
Interest expense	Interest expense	(1)		(1)		(2)		(2)		Interest expense	(1)		(1)		(3)		(3)
Depreciation, amortization and accretion	Depreciation, amortization and accretion	49		51		98		103		Depreciation, amortization and accretion	49		49		147		152
EBITDA (Non-GAAP)	EBITDA (Non-GAAP)	77		83		157		165		EBITDA (Non-GAAP)	76		78		233		243
Add back or deduct:	Add back or deduct:									Add back or deduct:

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	1		—		1		—		(Gain) loss on asset disposals, net	1		—		2		1
Adjusted EBITDA (Non-GAAP)	Adjusted EBITDA (Non-GAAP)	78		83		158		165		Adjusted EBITDA (Non-GAAP)	77		78		235		243
Deduct:	Deduct:									Deduct:
Interest and dividend income	Interest and dividend income	—		1		—		4		Interest and dividend income	—		1		1		4
Other, net	Other, net	—		—		—		(1)		Other, net	—		—		(1)		(1)
Adjusted OIBDA (Non-GAAP)	Adjusted OIBDA (Non-GAAP)	78		82		159		162		Adjusted OIBDA (Non-GAAP)	77		78		235		240
Deduct:	Deduct:									Deduct:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	49		51		98		103		Depreciation, amortization and accretion	49		49		147		152
(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	1		—		1		—		(Gain) loss on asset disposals, net	1		—		2		1
Operating income (GAAP)	Operating income (GAAP)	$	28	$	31	$	60	$	59	Operating income (GAAP)	$	27	$	28	$	87	$	87

Numbers may not foot due to rounding.

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Free Cash Flow

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


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Cash flows from operating activities (GAAP)	Cash flows from operating activities (GAAP)	$	481	$	806	Cash flows from operating activities (GAAP)	$	863	$	1,166
Less: Cash paid for additions to property, plant and equipment	Less: Cash paid for additions to property, plant and equipment	457		610		Less: Cash paid for additions to property, plant and equipment	726		914
Free cash flow (Non-GAAP)	Free cash flow (Non-GAAP)	$	24	$	196	Free cash flow (Non-GAAP)	$	137	$	252

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Application of Critical Accounting Policies and Estimates

TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements and TDS’ Application of Critical Accounting Policies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in TDS’ Form 10-K for the year ended December 31, 2020.

Regulatory Matters

5G Fund

On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America. The 5G Fund will be implemented through a two-phase competitive process, using multi-round auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones. The order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment.

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

FCC Rulemaking - Restoring Internet Freedom

In December 2017, the FCC approved rules reversing or revising decisions made in the FCC’s 2015 Open Internet and Title II Order (Restoring Internet Freedom). The 2017 action reversed the FCC’s 2015 decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II of the Telecommunications Act. The 2017 action also reversed the FCC’s 2015 restrictions on blocking, throttling and paid prioritization, and modified transparency rules relating to such practices. Several parties filed suit in federal court challenging the 2017 actions. On October 1, 2019, the Court of Appeals for the D.C. Circuit issued an order reaffirming the FCC in most respects, but limiting the FCC's ability to preempt state and local net neutrality laws. On February 19, 2020, the FCC issued a Public Notice seeking comment on three issues under further consideration by the FCC based on a recent D.C. Circuit decision. On October 27, 2020, the FCC adopted an Order on Remand in response to the U.S. Court of Appeals for the D.C. Circuit’s remand on the three issues under further consideration by the FCC and found no basis to alter the FCC’s conclusions in the Restoring Internet Freedom Order.

A number of states, including certain states in which TDS operates, have adopted or considered laws intended to reinstate aspects of the foregoing net neutrality regulations that were reversed or revised by the FCC in 2017. To the extent such laws are enacted, it is expected that legal proceedings will be pursued challenging such laws, subject now to the DC Circuit ruling limiting the FCC's preemptive authority in this matter. The new administration may also conduct rulemaking proceedings that may reinstate, in some form, net neutrality rules. TDS cannot predict the outcome of any of these proceedings or the impact on its business.

Spectrum Auctions

On March 2, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.5 GHz band (Auction 105). On September 2, 2020, the FCC announced by public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million,. ~~The~~ of which up to $5 million relates to licenses which are subject to the FCC's spectrum aggregation and ownership attribution rules for Auction 105. None of the wireless spectrum licenses have ~~not yet~~ been granted yet by the 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~~$181 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~~granted. In October 2021, UScellular paid $36 million related to the ~~period ended June 30, 2021.~~additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023. Combined with prior mid-band purchases in Auction 105, UScellular will have mid-band spectrum in nearly all of its operating footprint, covering approximately 95% of subscribers.

On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On July 19, 2021, UScellular filed an application to participate in Auction 110 ~~on July 19, 2021. Upfront payments are due~~and on September 2,17, 2021, ~~and bidding will commence~~the FCC announced that UScellular was a qualified bidder for the auction. Bidding commenced on October 5, ~~2021.~~2021 and is still ongoing as of the date of this report.

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Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, those set forth below, as more fully described under “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2020 and in this Form 10-Q. Each of the following risks could have a material adverse effect on TDS’ business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. You should carefully consider the Risk Factors in TDS’ Form 10-K for the year ended December 31, 2020, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to TDS’ business, financial condition or results of operations.

Operational Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

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Financial Risk Factors

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

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

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

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

Regulatory, Legal and Governance Risk Factors

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

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

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

▪The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on TDS’ wireless business, financial condition or results of operations.

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

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

General Risk Factors

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

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

▪The impact of public health emergencies, such as the COVID-19 pandemic, on TDS' business is uncertain, but depending on duration and severity could have a material adverse effect on TDS' business, financial condition or results of operations.

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Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in TDS’ Annual Report on Form 10-K for the year ended December 31, 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, 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, TDS has not identified for disclosure any material changes to the risk factors as previously disclosed in TDS’ Annual Report on Form 10-K for the year ended December 31, 2020.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

The following table presents the scheduled principal payments on long-term debt, finance lease obligations, and the related weighted average interest rates by maturity dates at ~~June~~September 30, 2021.


		Principal Payments Due by Period					Principal Payments Due by Period
		Long-Term Debt Obligations1		Weighted-Avg. Interest Rates on Long-Term Debt Obligations2			Long-Term Debt Obligations1		Weighted-Avg. Interest Rates on Long-Term Debt Obligations2
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Remainder of 2021	Remainder of 2021	$	4	2.7	%	Remainder of 2021	$	196	5.9	%
2022	2022	105		1.3	%	2022	331		1.3	%
2023	2023	5		2.4	%	2023	6		3.2	%
2024	2024	5		2.4	%	2024	5		3.2	%
2025	2025	130		1.6	%	2025	5		3.2	%
Thereafter	Thereafter	3,181		5.6	%	Thereafter	2,529		5.4	%
Total	Total	$	3,430	5.3	%	Total	$	3,072	5.0	%

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 UScellular's 6.7% Senior Notes.

2 Represents the weighted average stated interest rates at ~~June~~September 30, 2021, for debt maturing in the respective ~~periods~~periods.

See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of ~~June~~September 30, 2021.

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Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			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	$	1,049	$	1,016	$	2,091	$	2,042	Service	$	1,065	$	1,046	$	3,156	$	3,088
Equipment and product sales	Equipment and product sales	262		247		538		482		Equipment and product sales	263		278		801		761
Total operating revenues	Total operating revenues	1,311		1,263		2,629		2,524		Total operating revenues	1,328		1,324		3,957		3,849

Operating expenses	Operating expenses									Operating expenses
Cost of services (excluding Depreciation, amortization and accretion reported below)	Cost of services (excluding Depreciation, amortization and accretion reported below)	324		306		623		599		Cost of services (excluding Depreciation, amortization and accretion reported below)	327		321		950		919
Cost of equipment and products	Cost of equipment and products	276		241		570		487		Cost of equipment and products	282		278		852		765
Selling, general and administrative	Selling, general and administrative	416		398		804		809		Selling, general and administrative	429		415		1,232		1,227
Depreciation, amortization and accretion	Depreciation, amortization and accretion	234		236		457		470		Depreciation, amortization and accretion	213		217		670		685

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	3		4		8		8		(Gain) loss on asset disposals, net	8		6		17		15
(Gain) loss on sale of business and other exit costs, net	(Gain) loss on sale of business and other exit costs, net	0		0		(1)		0		(Gain) loss on sale of business and other exit costs, net	—		—		(1)		—

Total operating expenses	Total operating expenses	1,253		1,185		2,461		2,373		Total operating expenses	1,259		1,237		3,720		3,611

Operating income	Operating income	58		78		168		151		Operating income	69		87		237		238

Investment and other income (expense)	Investment and other income (expense)									Investment and other income (expense)
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	48		44		90		90		Equity in earnings of unconsolidated entities	48		48		138		138
Interest and dividend income	Interest and dividend income	3		2		6		8		Interest and dividend income	3		4		9		12

Gain (loss) on investments										Gain (loss) on investments	—		3		—		3
Interest expense	Interest expense	(86)		(38)		(138)		(75)		Interest expense	(54)		(43)		(193)		(119)
Other, net	Other, net	0		0		(1)		(1)		Other, net	—		—		(1)		(1)
Total investment and other income (expense)	Total investment and other income (expense)	(35)		8		(43)		22		Total investment and other income (expense)	(3)		12		(47)		33

Income before income taxes	Income before income taxes	23		86		125		173		Income before income taxes	66		99		190		271
Income tax expense (benefit)		(11)		8		20		12
Income tax expense										Income tax expense	19		6		38		17
Net income	Net income	34		78		105		161		Net income	47		93		152		254
Less: Net income attributable to noncontrolling interests, net of tax	Less: Net income attributable to noncontrolling interests, net of tax	7		13		19		26		Less: Net income attributable to noncontrolling interests, net of tax	7		15		26		42
Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	27		65		86		135		Net income attributable to TDS shareholders	40		78		126		212
TDS Preferred Share dividends	TDS Preferred Share dividends	7		0		9		0		TDS Preferred Share dividends	12		—		21		—
Net income attributable to TDS common shareholders	Net income attributable to TDS common shareholders	$	20	$	65	$	77	$	135	Net income attributable to TDS common shareholders	$	28	$	78	$	105	$	212

Basic weighted average shares outstanding	Basic weighted average shares outstanding	115		114		115		115		Basic weighted average shares outstanding	115		114		115		114
Basic earnings per share attributable to TDS common shareholders	Basic earnings per share attributable to TDS common shareholders	$	0.18	$	0.57	$	0.67	$	1.18	Basic earnings per share attributable to TDS common shareholders	$	0.24	$	0.68	$	0.91	$	1.85

Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	116		115		116		115		Diluted weighted average shares outstanding	116		115		116		115
Diluted earnings per share attributable to TDS common shareholders	Diluted earnings per share attributable to TDS common shareholders	$	0.17	$	0.56	$	0.65	$	1.15	Diluted earnings per share attributable to TDS common shareholders	$	0.24	$	0.66	$	0.89	$	1.81

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Net income	Net income	$	34	$	78	$	105	$	161	Net income	$	47	$	93	$	152	$	254
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		1		1		2		Amortization of prior service cost	1		1		2		2
Comprehensive income	Comprehensive income	35		79		106		163		Comprehensive income	48		94		154		256
Less: Net income attributable to noncontrolling interests, net of tax	Less: Net income attributable to noncontrolling interests, net of tax	7		13		19		26		Less: Net income attributable to noncontrolling interests, net of tax	7		15		26		42
Comprehensive income attributable to TDS shareholders	Comprehensive income attributable to TDS shareholders	$	28	$	66	$	87	$	137	Comprehensive income attributable to TDS shareholders	$	41	$	79	$	128	$	214

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	105	$	161	Net income	$	152	$	254
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities					Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	Depreciation, amortization and accretion	457		470		Depreciation, amortization and accretion	670		685
Bad debts expense	Bad debts expense	22		48		Bad debts expense	36		55
Stock-based compensation expense	Stock-based compensation expense	24		25		Stock-based compensation expense	35		39
Deferred income taxes, net	Deferred income taxes, net	40		150		Deferred income taxes, net	55		217
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	(90)		(90)		Equity in earnings of unconsolidated entities	(138)		(138)
Distributions from unconsolidated entities	Distributions from unconsolidated entities	80		91		Distributions from unconsolidated entities	107		118

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	8		8		(Gain) loss on asset disposals, net	17		15
(Gain) loss on sale of business and other exit costs, net	(Gain) loss on sale of business and other exit costs, net	(1)		0		(Gain) loss on sale of business and other exit costs, net	(1)		—

(Gain) loss on investments						(Gain) loss on investments	—		(3)
Other operating activities	Other operating activities	37		1		Other operating activities	51		1
Changes in assets and liabilities from operations	Changes in assets and liabilities from operations					Changes in assets and liabilities from operations
Accounts receivable	Accounts receivable	37		21		Accounts receivable	26		26
Equipment installment plans receivable	Equipment installment plans receivable	(32)		22		Equipment installment plans receivable	(44)		13
Inventory	Inventory	(35)		15		Inventory	12		2
Accounts payable	Accounts payable	(106)		49		Accounts payable	(56)		95
Customer deposits and deferred revenues	Customer deposits and deferred revenues	6		(8)		Customer deposits and deferred revenues	13		(21)
Accrued taxes	Accrued taxes	(25)		(115)		Accrued taxes	(43)		(156)
Accrued interest	Accrued interest	(3)		0		Accrued interest	4		14
Other assets and liabilities	Other assets and liabilities	(43)		(42)		Other assets and liabilities	(33)		(50)
Net cash provided by operating activities	Net cash provided by operating activities	481		806		Net cash provided by operating activities	863		1,166

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Cash paid for additions to property, plant and equipment	Cash paid for additions to property, plant and equipment	(457)		(610)		Cash paid for additions to property, plant and equipment	(726)		(914)
Cash paid for intangible assets	Cash paid for intangible assets	(1,264)		(144)		Cash paid for intangible assets	(1,268)		(169)
Cash received from investments	Cash received from investments	3		1		Cash received from investments	3		1
Cash paid for investments	Cash paid for investments	0		(1)		Cash paid for investments	—		(1)
Cash received from divestitures and exchanges	Cash received from divestitures and exchanges	1		1		Cash received from divestitures and exchanges	2		1
Advance payments for license acquisitions	Advance payments for license acquisitions	0		(16)		Advance payments for license acquisitions	(20)		—
Other investing activities	Other investing activities	2		0		Other investing activities	3		4
Net cash used in investing activities	Net cash used in investing activities	(1,715)		(769)		Net cash used in investing activities	(2,006)		(1,078)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Issuance of long-term debt	Issuance of long-term debt	1,192		175		Issuance of long-term debt	1,418		675
Repayment of long-term debt	Repayment of long-term debt	(1,301)		(5)		Repayment of long-term debt	(1,884)		(8)
Issuance of TDS Preferred Shares	Issuance of TDS Preferred Shares	420		0		Issuance of TDS Preferred Shares	1,110		—
TDS Common Shares reissued for benefit plans, net of tax payments	TDS Common Shares reissued for benefit plans, net of tax payments	(5)		(3)		TDS Common Shares reissued for benefit plans, net of tax payments	(5)		(3)
UScellular Common Shares reissued for benefit plans, net of tax payments	UScellular Common Shares reissued for benefit plans, net of tax payments	(13)		(8)		UScellular Common Shares reissued for benefit plans, net of tax payments	(16)		(11)
Repurchase of TDS Common Shares	Repurchase of TDS Common Shares	(3)		(14)		Repurchase of TDS Common Shares	(4)		(14)
Repurchase of UScellular Common Shares	Repurchase of UScellular Common Shares	(2)		(23)		Repurchase of UScellular Common Shares	(21)		(23)
Dividends paid to TDS shareholders	Dividends paid to TDS shareholders	(49)		(39)		Dividends paid to TDS shareholders	(81)		(58)
Payment of debt and equity issuance costs	Payment of debt and equity issuance costs	(30)		(7)		Payment of debt and equity issuance costs	(59)		(23)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(2)		(1)		Distributions to noncontrolling interests	(2)		(2)
Other financing activities	Other financing activities	(6)		0		Other financing activities	(4)		1
Net cash provided by financing activities	Net cash provided by financing activities	201		75		Net cash provided by financing activities	452		534

Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(1,033)		112		Net increase (decrease) in cash, cash equivalents and restricted cash	(691)		622

Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash					Cash, cash equivalents and restricted cash
Beginning of period	Beginning of period	1,452		474		Beginning of period	1,452		474
End of period	End of period	$	419	$	586	End of period	$	761	$	1,096

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

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets

(Unaudited)


		June 30, 2021		December 31, 2020			September 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	$	385	$	1,429	Cash and cash equivalents	$	725	$	1,429
Short-term investments	Short-term investments	0		3		Short-term investments	—		3
Accounts receivable	Accounts receivable					Accounts receivable
Customers and agents, less allowances of $59 and $67, respectively	Customers and agents, less allowances of $59 and $67, respectively	976		1,004		Customers and agents, less allowances of $59 and $67, respectively	994		1,004
Other, less allowances of $3 and $2, respectively	Other, less allowances of $3 and $2, respectively	96		108		Other, less allowances of $3 and $2, respectively	89		108
Inventory, net	Inventory, net	189		154		Inventory, net	142		154
Prepaid expenses	Prepaid expenses	108		105		Prepaid expenses	104		105
Income taxes receivable	Income taxes receivable	187		187		Income taxes receivable	187		187
Other current assets	Other current assets	50		36		Other current assets	56		36
Total current assets	Total current assets	1,991		3,026		Total current assets	2,297		3,026

Assets held for sale	Assets held for sale	3		2		Assets held for sale	3		2

Licenses	Licenses	3,926		2,638		Licenses	4,111		2,638

Goodwill	Goodwill	547		547		Goodwill	547		547

Other intangible assets, net of accumulated amortization of $81 and $71, respectively		207		213
Other intangible assets, net of accumulated amortization of $86 and $71, respectively						Other intangible assets, net of accumulated amortization of $86 and $71, respectively	202		213

Investments in unconsolidated entities	Investments in unconsolidated entities	487		477		Investments in unconsolidated entities	509		477

Property, plant and equipment	Property, plant and equipment					Property, plant and equipment
In service and under construction	In service and under construction	13,857		13,659		In service and under construction	14,060		13,659
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	9,885		9,687		Less: Accumulated depreciation and amortization	9,952		9,687
Property, plant and equipment, net	Property, plant and equipment, net	3,972		3,972		Property, plant and equipment, net	4,108		3,972

Operating lease right-of-use assets	Operating lease right-of-use assets	1,021		998		Operating lease right-of-use assets	1,021		998

Other assets and deferred charges	Other assets and deferred charges	626		652		Other assets and deferred charges	648		652

Total assets1	Total assets1	$	12,780	$	12,525	Total assets1	$	13,446	$	12,525

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)


		June 30, 2021		December 31, 2020			September 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	$	6	$	5	Current portion of long-term debt	$	194	$	5
Accounts payable	Accounts payable	374		508		Accounts payable	466		508
Customer deposits and deferred revenues	Customer deposits and deferred revenues	199		193		Customer deposits and deferred revenues	207		193
Accrued interest	Accrued interest	13		16		Accrued interest	20		16
Accrued taxes	Accrued taxes	66		69		Accrued taxes	46		69
Accrued compensation	Accrued compensation	92		132		Accrued compensation	112		132
Short-term operating lease liabilities	Short-term operating lease liabilities	138		129		Short-term operating lease liabilities	139		129
Other current liabilities	Other current liabilities	98		101		Other current liabilities	104		101
Total current liabilities	Total current liabilities	986		1,153		Total current liabilities	1,288		1,153

Liabilities held for sale	Liabilities held for sale	0		1		Liabilities held for sale	—		1

Deferred liabilities and credits	Deferred liabilities and credits					Deferred liabilities and credits
Deferred income tax liability, net	Deferred income tax liability, net	903		863		Deferred income tax liability, net	919		863
Long-term operating lease liabilities	Long-term operating lease liabilities	951		940		Long-term operating lease liabilities	947		940
Other deferred liabilities and credits	Other deferred liabilities and credits	538		541		Other deferred liabilities and credits	750		541

Long-term debt, net	Long-term debt, net	3,335		3,424		Long-term debt, net	2,804		3,424

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0

Noncontrolling interests with redemption features	Noncontrolling interests with redemption features	10		10		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 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					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	2,462		2,482		Capital in excess of par value	2,478		2,482
Preferred Shares, par value $0.01 per share, $25,000 liquidation preference per share, .017 shares outstanding		406		0
Preferred Shares, par value $0.01 per share, $25,000 liquidation preference per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV)						Preferred Shares, par value $0.01 per share, $25,000 liquidation preference per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV)	1,074		—
Treasury shares, at cost, 18 and 19 Common Shares, respectively	Treasury shares, at cost, 18 and 19 Common Shares, respectively	(458)		(477)		Treasury shares, at cost, 18 and 19 Common Shares, respectively	(459)		(477)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2)		(4)		Accumulated other comprehensive loss	(2)		(4)
Retained earnings	Retained earnings	2,812		2,802		Retained earnings	2,819		2,802
Total TDS shareholders' equity	Total TDS shareholders' equity	5,221		4,804		Total TDS shareholders' equity	5,911		4,804

Noncontrolling interests	Noncontrolling interests	836		789		Noncontrolling interests	817		789

Total equity	Total equity	6,057		5,593		Total equity	6,728		5,593

Total liabilities and equity1	Total liabilities and equity1	$	12,780	$	12,525	Total liabilities and equity1	$	13,446	$	12,525

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

1The consolidated total assets as of ~~June~~September 30, 2021 and December 31, 2020, include assets held by consolidated variable interest entities (VIEs) of ~~$1,240~~$1,279 million and $1,042 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of ~~June~~September 30, 2021 and December 31, 2020, include certain liabilities of consolidated VIEs of $17 million and $18 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 1011 — Variable Interest Entities for additional information.

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


		TDS Shareholders																			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			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
(Dollars in millions, except per share amounts)																				(Dollars in millions, except per share amounts)
June 30, 2021																				June 30, 2021	$	1	$	2,462	$	406	$	(458)	$	(2)	$	2,812	$	5,221	$	836	$	6,057

Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	—		—		—		—		—		27		27		—		27		Net income attributable to TDS shareholders	—		—		—		—		—		40		40		—		40
Net income attributable to noncontrolling interests classified as equity	Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		0		7		7		Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		7		7
Other comprehensive income		—		—		—		—		1		—		1		—		1

TDS Common and Series A Common share dividends ($0.175 per share)	TDS Common and Series A Common share dividends ($0.175 per share)	—		—		—		—		—		(20)		(20)		—		(20)		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)

Issuance of TDS Preferred Shares, net of costs																				Issuance of TDS Preferred Shares, net of costs	—		—		668		—		—		—		668		—		668
TDS Preferred share dividends ($414 per Series UU share and $183 per Series VV share)																				TDS Preferred share dividends ($414 per Series UU share and $183 per Series VV share)	—		—		—		—		—		(12)		(12)		—		(12)
Repurchase of Common Shares																				Repurchase of Common Shares	—		—		—		(1)		—		—		(1)		—		(1)
Dividend reinvestment plan																				Dividend reinvestment plan	—		—		—		—		—		(1)		(1)		—		(1)
Incentive and compensation plans	Incentive and compensation plans	—		8		—		14		—		(18)		4		—		4		Incentive and compensation plans	—		3		—		—		—		—		3		—		3
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(34)		—		—		—		—		(34)		27		(7)		Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		13		—		—		—		—		13		(26)		(13)

June 30, 2021		$	1	$	2,462	$	406	$	(458)	$	(2)	$	2,812	$	5,221	$	836	$	6,057
September 30, 2021																				September 30, 2021	$	1	$	2,478	$	1,074	$	(459)	$	(2)	$	2,819	$	5,911	$	817	$	6,728

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


		TDS Shareholders																	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			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
(Dollars in millions, except per share amounts)																		(Dollars in millions, except per share amounts)
June 30, 2020																		June 30, 2020	$	1	$	2,472	$	(479)	$	(7)	$	2,751	$	4,738	$	765	$	5,503
Cumulative effect of accounting changes	Cumulative effect of accounting changes	—		—		—				(1)		(1)		—		(1)		Cumulative effect of accounting changes	—		—		—		—		1		1		—		1
Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	—		—		—		—		65		65		—		65		Net income attributable to TDS shareholders	—		—		—		—		78		78		—		78
Net income attributable to noncontrolling interests classified as equity	Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		0		13		13		Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		16		16
Other comprehensive income		—		—		—		1		—		1		—		1

TDS Common and Series A Common share dividends ($0.170 per share)	TDS Common and Series A Common share dividends ($0.170 per share)	—		—		—		—		(20)		(20)		—		(20)		TDS Common and Series A Common share dividends ($0.170 per share)	—		—		—		—		(19)		(19)		—		(19)
Repurchase of Common Shares		—		—		(8)		—		—		(8)		—		(8)

Dividend reinvestment plan																		Dividend reinvestment plan	—		1		1		—		(2)		—		—		—
Incentive and compensation plans	Incentive and compensation plans	—		5		9		—		(11)		3		—		3		Incentive and compensation plans	—		5		—		—		—		5		—		5
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(22)		—		—		—		(22)		23		1		Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		1		—		—		—		1		4		5

June 30, 2020		$	1	$	2,472	$	(479)	$	(7)	$	2,751	$	4,738	$	765	$	5,503
September 30, 2020																		September 30, 2020	$	1	$	2,479	$	(478)	$	(7)	$	2,809	$	4,804	$	785	$	5,589

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


		TDS Shareholders																			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			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)
(Dollars in millions, except per share amounts)																				(Dollars in millions, except per share amounts)
December 31, 2020	December 31, 2020	$	1	$	2,482	$	0	$	(477)	$	(4)	$	2,802	$	4,804	$	789	$	5,593	December 31, 2020	$	1	$	2,482	$	—	$	(477)	$	(4)	$	2,802	$	4,804	$	789	$	5,593

Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	—		—		—		—		—		86		86		—		86		Net income attributable to TDS shareholders	—		—		—		—		—		126		126		—		126
Net income attributable to noncontrolling interests classified as equity	Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		0		19		19		Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		26		26
Other comprehensive income	Other comprehensive income	—		—		—		—		2		—		2		—		2		Other comprehensive income	—		—		—		—		2		—		2		—		2
TDS Common and Series A Common share dividends ($0.350 per share)		—		—		—		—		—		(40)		(40)		—		(40)
TDS Common and Series A Common share dividends ($0.525 per share)																				TDS Common and Series A Common share dividends ($0.525 per share)	—		—		—		—		—		(60)		(60)		—		(60)
Issuance of TDS Preferred Shares, net of costs	Issuance of TDS Preferred Shares, net of costs	—		—		406		—		—		—		406		—		406		Issuance of TDS Preferred Shares, net of costs	—		—		1,074		—		—		—		1,074		—		1,074
TDS Preferred share dividends ($552.0833 per share)		—		—		—		—		—		(9)		(9)		—		(9)
TDS Preferred share dividends ($966 per Series UU share and $183 per Series VV share)																				TDS Preferred share dividends ($966 per Series UU share and $183 per Series VV share)	—		—		—		—		—		(21)		(21)		—		(21)
Repurchase of Common Shares	Repurchase of Common Shares	—		—		—		(3)		—		—		(3)		—		(3)		Repurchase of Common Shares	—		—		—		(5)		—		—		(5)		—		(5)
Dividend reinvestment plan	Dividend reinvestment plan	—		—		—		1		—		(1)		0		—		0		Dividend reinvestment plan	—		—		—		2		—		(2)		—		—		—
Incentive and compensation plans	Incentive and compensation plans	—		12		—		21		—		(26)		7		—		7		Incentive and compensation plans	—		15		—		21		—		(26)		10		—		10
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(32)		—		—		—		—		(32)		30		(2)		Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(19)		—		—		—		—		(19)		4		(15)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—		—		—		—		—		—		0		(2)		(2)		Distributions to noncontrolling interests	—		—		—		—		—		—		—		(2)		(2)
June 30, 2021		$	1	$	2,462	$	406	$	(458)	$	(2)	$	2,812	$	5,221	$	836	$	6,057
September 30, 2021																				September 30, 2021	$	1	$	2,478	$	1,074	$	(459)	$	(2)	$	2,819	$	5,911	$	817	$	6,728

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

Table of Contents

Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


		TDS Shareholders																	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			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)
(Dollars in millions, except per share amounts)																		(Dollars in millions, except per share amounts)
December 31, 2019	December 31, 2019	$	1	$	2,468	$	(479)	$	(9)	$	2,672	$	4,653	$	751	$	5,404	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	Net income attributable to TDS shareholders	—		—		—		—		135		135		—		135		Net income attributable to TDS shareholders	—		—		—		—		212		212		—		212
Net income attributable to noncontrolling interests classified as equity	Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		0		26		26		Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		43		43
Other comprehensive income	Other comprehensive income	—		—		—		2		—		2		—		2		Other comprehensive income	—		—		—		2		—		2		—		2
TDS Common and Series A Common share dividends ($0.340 per share)		—		—		—		—		(39)		(39)		—		(39)
TDS Common and Series A Common share dividends ($0.510 per share)																		TDS Common and Series A Common share dividends ($0.510 per share)	—		—		—		—		(58)		(58)		—		(58)
Repurchase of Common Shares	Repurchase of Common Shares	—		—		(14)		—		—		(14)		—		(14)		Repurchase of Common Shares	—		—		(14)		—		—		(14)		—		(14)
Dividend reinvestment plan	Dividend reinvestment plan	—		—		1		—		—		1		—		1		Dividend reinvestment plan	—		1		2		—		(1)		2		—		2
Incentive and compensation plans	Incentive and compensation plans	—		8		13		—		(16)		5		—		5		Incentive and compensation plans	—		14		13		—		(16)		11		—		11
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(4)		—		—		—		(4)		(11)		(15)		Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(4)		—		—		—		(4)		(7)		(11)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—		—		—		—		—		0		(1)		(1)		Distributions to noncontrolling interests	—		—		—		—		—		—		(2)		(2)
June 30, 2020		$	1	$	2,472	$	(479)	$	(7)	$	2,751	$	4,738	$	765	$	5,503
September 30, 2020																		September 30, 2020	$	1	$	2,479	$	(478)	$	(7)	$	2,809	$	4,804	$	785	$	5,589

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

Table of Contents

Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

Note 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 subsidiaries, TDS Telecommunications LLC and 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 ~~June~~September 30, 2021, are UScellular and TDS Telecom. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle-Straus). HMS’ and Suttle-Straus’ financial results were not significant to TDS’ operations. All of TDS’ segments operate only in the United States. See Note 1314 — Business Segment Information for summary financial information on each business segment.

The unaudited consolidated financial statements included herein have been prepared by TDS pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2020.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of ~~June~~September 30, 2021 and December 31, 2020 and its results of operations, comprehensive income and changes in equity for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, and its cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 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, 2020.

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 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 1314 — 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.


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Cash and cash equivalents	Cash and cash equivalents	$	385	$	1,429	Cash and cash equivalents	$	725	$	1,429
Restricted cash included in Other current assets	Restricted cash included in Other current assets	34		23		Restricted cash included in Other current assets	36		23
Cash, cash equivalents and restricted cash in the statement of cash flows	Cash, cash equivalents and restricted cash in the statement of cash flows	$	419	$	1,452	Cash, cash equivalents and restricted cash in the statement of cash flows	$	761	$	1,452

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Note 2 Revenue Recognition

Disaggregation of Revenue

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


Three Months Ended June 30, 2021		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Three Months Ended September 30, 2021										Three Months Ended September 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		$	686	$	0	$	0	$	686
Retail service1										Retail service1	$	699	$	—	$	—	$	699
Inbound roaming	Inbound roaming	28		0		0		28		Inbound roaming	30		—		—		30
Residential	Residential	0		160		0		160		Residential	—		162		—		162
Commercial	Commercial	0		46		0		46		Commercial	—		45		—		45
Wholesale	Wholesale	0		44		0		44		Wholesale	—		43		—		43
Other service	Other service	40		0		18		58		Other service	38		—		19		57
Service revenues from contracts with customers	Service revenues from contracts with customers	754		251		18		1,022		Service revenues from contracts with customers	767		251		19		1,037
Equipment and product sales	Equipment and product sales	240		0		22		262		Equipment and product sales	228		—		35		263
Total revenues from contracts with customers	Total revenues from contracts with customers	994		251		39		1,284		Total revenues from contracts with customers	995		251		54		1,300
Operating lease income	Operating lease income	20		1		6		27		Operating lease income	21		1		6		28
Total operating revenues	Total operating revenues	$	1,014	$	252	$	45	$	1,311	Total operating revenues	$	1,016	$	252	$	60	$	1,328

Three Months Ended June 30, 2020 UScellular TDS Telecom Corporate, Eliminations and Other Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service $ 658 $ 0 $ 0 $ 658
Inbound roaming 41 0 0 41
Residential 0 145 0 145
Commercial 0 48 0 48
Wholesale 0 46 0 46
Other service 35 0 17 52
Service revenues from contracts with customers 734 239 17 990
Equipment and product sales 220 0 27 247
Total revenues from contracts with customers 954 240 43 1,237
Operating lease income 19 1 6 26
Total operating revenues $ 973 $ 241 $ 49 $ 1,263


Three Months Ended September 30, 2020	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	674	$	—	$	—	$	674
Inbound roaming	42		—		—		42
Residential	—		152		—		152
Commercial	—		48		—		48
Wholesale	—		45		—		45
Other service	39		—		18		57
Service revenues from contracts with customers	755		246		18		1,019
Equipment and product sales	252		—		26		278
Total revenues from contracts with customers	1,007		246		44		1,297
Operating lease income	20		1		6		27
Total operating revenues	$	1,027	$	247	$	50	$	1,324

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Six Months Ended June 30, 2021		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Nine Months Ended September 30, 2021										Nine Months Ended September 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		$	1,371	$	0	$	0	$	1,371
Retail service1										Retail service1	$	2,069	$	—	$	—	$	2,069
Inbound roaming	Inbound roaming	56		0		0		56		Inbound roaming	86		—		—		86
Residential	Residential	0		317		0		317		Residential	—		479		—		479
Commercial	Commercial	0		93		0		93		Commercial	—		138		—		138
Wholesale	Wholesale	0		89		0		89		Wholesale	—		132		—		132
Other service	Other service	77		0		34		111		Other service	117		—		53		170
Service revenues from contracts with customers	Service revenues from contracts with customers	1,504		499		34		2,037		Service revenues from contracts with customers	2,272		749		53		3,074
Equipment and product sales	Equipment and product sales	492		1		45		538		Equipment and product sales	720		1		80		801
Total revenues from contracts with customers	Total revenues from contracts with customers	1,996		499		79		2,575		Total revenues from contracts with customers	2,992		750		133		3,875
Operating lease income	Operating lease income	41		1		12		54		Operating lease income	61		2		19		82
Total operating revenues	Total operating revenues	$	2,037	$	501	$	91	$	2,629	Total operating revenues	$	3,053	$	752	$	152	$	3,957



Six Months Ended June 30, 2020		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Nine Months Ended September 30, 2020										Nine Months Ended September 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	$	1,329	$	0	$	0	$	1,329	Retail service	$	2,004	$	—	$	—	$	2,004
Inbound roaming	Inbound roaming	77		0		0		77		Inbound roaming	119		—		—		119
Residential	Residential	0		289		0		289		Residential	—		441		—		441
Commercial	Commercial	0		98		0		98		Commercial	—		146		—		146
Wholesale	Wholesale	0		92		0		92		Wholesale	—		137		—		137
Other service	Other service	71		0		35		106		Other service	110		—		51		161
Service revenues from contracts with customers	Service revenues from contracts with customers	1,477		479		35		1,990		Service revenues from contracts with customers	2,233		725		51		3,009
Equipment and product sales	Equipment and product sales	422		1		59		482		Equipment and product sales	674		1		86		761
Total revenues from contracts with customers	Total revenues from contracts with customers	1,899		479		94		2,472		Total revenues from contracts with customers	2,907		726		137		3,770
Operating lease income	Operating lease income	38		2		12		52		Operating lease income	57		2		20		79
Total operating revenues	Total operating revenues	$	1,937	$	481	$	106	$	2,524	Total operating revenues	$	2,964	$	728	$	157	$	3,849
Numbers may not foot due to rounding.

Numbers may not foot due to rounding.

1During the three months ended September 30, 2021, UScellular recorded a $9 million out-of-period error related to the timing of recognition of regulatory fee billings. This adjustment had the impact of increasing Service revenue by $9 million for the three and nine months ended September 30, 2021. UScellular determined that this adjustment was not material to any of the periods impacted.

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Contract Balances

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Contract assets	Contract assets	$	13	$	13	Contract assets	$	12	$	13
Contract liabilities	Contract liabilities	$	229	$	216	Contract liabilities	$	243	$	216

Revenue recognized related to contract liabilities existing at January 1, 2021 was ~~$146~~$159 million for the ~~six~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 2021 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.


		Service Revenues			Service Revenues
(Dollars in millions)	(Dollars in millions)			(Dollars in millions)
Remainder of 2021	Remainder of 2021	$	262	Remainder of 2021	$	204
2022	2022	200		2022	216
Thereafter	Thereafter	207		Thereafter	238
Total	Total	$	669	Total	$	658

Contract Cost Assets

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


		June 30, 2021		December 31, 2020			September 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	$	136	$	139	Sales commissions	$	135	$	139
Fulfillment costs	Fulfillment costs					Fulfillment costs
Installation costs	Installation costs	10		10		Installation costs	10		10

Total contract cost assets	Total contract cost assets	$	146	$	149	Total contract cost assets	$	145	$	149

Amortization of contract cost assets was $29 million and ~~$59~~$87 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, and $30 million and ~~$61~~$91 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.

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Note 3 Fair Value Measurements

As of ~~June~~September 30, 2021 and December 31, 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	June 30, 2021				December 31, 2020					Level within the Fair Value Hierarchy	September 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)
Long-term debt	Long-term debt										Long-term debt
Retail	Retail	2	$	2,153	$	2,276	$	2,753	$	2,809	Retail	2	$	1,500	$	1,604	$	2,753	$	2,809
Institutional	Institutional	2	535		670		535		707		Institutional	2	535		679		535		707
Other	Other	2	720		720		230		230		Other	2	820		820		230		230

Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for ~~TDS and~~ UScellular Senior Notes, which are traded on the New York Stock Exchange. TDS’ “Institutional” debt consists of UScellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of senior term loan credit agreements ~~revolving credit agreement~~ and receivables securitization agreement. TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from ~~1.26%~~1.24% to ~~4.34%~~4.25% and 1.35% to 3.75% at ~~June~~September 30, 2021 and December 31, 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.

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Note 4 Equipment Installment Plans

UScellular sells devices to customers under equipment installment plans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.

The following table summarizes equipment installment plan receivables.


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Equipment installment plan receivables, gross	Equipment installment plan receivables, gross	$	1,015	$	1,007	Equipment installment plan receivables, gross	$	1,022	$	1,007

Allowance for credit losses	Allowance for credit losses	(72)		(78)		Allowance for credit losses	(70)		(78)
Equipment installment plan receivables, net	Equipment installment plan receivables, net	$	943	$	929	Equipment installment plan receivables, net	$	952	$	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)	$	598	$	590	Accounts receivable — Customers and agents (Current portion)	$	607	$	590
Other assets and deferred charges (Non-current portion)	Other assets and deferred charges (Non-current portion)	345		339		Other assets and deferred charges (Non-current portion)	345		339
Equipment installment plan receivables, net	Equipment installment plan receivables, net	$	943	$	929	Equipment installment plan receivables, net	$	952	$	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:


		June 30, 2021										December 31, 2020											September 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	$	836	$	95	$	24	$	6	$	961	$	819	$	98	$	22	$	9	$	948	Unbilled	$	840	$	93	$	23	$	6	$	962	$	819	$	98	$	22	$	9	$	948
Billed — current	Billed — current	35		4		1		0		40		36		5		1		1		43		Billed — current	36		5		1		—		42		36		5		1		1		43
Billed — past due	Billed — past due	7		4		2		1		14		8		5		2		1		16		Billed — past due	10		5		2		1		18		8		5		2		1		16
Total	Total	$	878	$	103	$	27	$	7	$	1,015	$	863	$	108	$	25	$	11	$	1,007	Total	$	886	$	103	$	26	$	7	$	1,022	$	863	$	108	$	25	$	11	$	1,007

The balance of the equipment installment plan receivables as of ~~June~~September 30, 2021 on a gross basis by year of origination were as follows:


		2018		2019		2020		2021		Total			2018		2019		2020		2021		Total
(Dollars in millions)	(Dollars in millions)											(Dollars in millions)
Lowest Risk	Lowest Risk	$	2	$	140	$	415	$	321	$	878	Lowest Risk	$	1	$	84	$	346	$	455	$	886
Lower Risk	Lower Risk	0		11		48		44		103		Lower Risk	—		6		36		61		103
Slight Risk	Slight Risk	0		2		8		17		27		Slight Risk	—		1		6		19		26
Higher Risk	Higher Risk	0		1		3		3		7		Higher Risk	—		—		2		5		7
Total	Total	$	2	$	154	$	474	$	385	$	1,015	Total	$	1	$	91	$	390	$	540	$	1,022

Activity for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, in the allowance for credit losses for equipment installment plan receivables was as follows:


		June 30, 2021		June 30, 2020			September 30, 2021		September 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	$	78	$	84	Allowance for credit losses, beginning of period	$	78	$	84
Bad debts expense	Bad debts expense	13		33		Bad debts expense	21		34
Write-offs, net of recoveries	Write-offs, net of recoveries	(19)		(35)		Write-offs, net of recoveries	(29)		(43)
Allowance for credit losses, end of period	Allowance for credit losses, end of period	$	72	$	82	Allowance for credit losses, end of period	$	70	$	75

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Note 5 Income Taxes

The effective tax rate on Income before income taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was ~~(48.9)%~~29.3% and ~~15.5%~~20.3%, respectively. ~~These~~The effective tax ~~rates were~~rate for the nine months ended September 30, 2021 was lower than normal due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.

The effective tax rate on Income before income taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2020 was ~~9.6%~~5.8% and ~~6.9%~~6.5%, respectively. These effective tax rates were lower than normal due primarily to the income tax benefits of the CARES Act.

Note 6 Earnings Per Share

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

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			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 common shareholders used in basic earnings per share	Net income attributable to TDS common shareholders used in basic earnings per share	$	20	$	65	$	77	$	135	Net income attributable to TDS common shareholders used in basic earnings per share	$	28	$	78	$	105	$	212
Adjustments to compute diluted earnings:	Adjustments to compute diluted earnings:									Adjustments to compute diluted earnings:
Noncontrolling interest adjustment	Noncontrolling interest adjustment	0		0		(1)		(2)		Noncontrolling interest adjustment	(1)		(2)		(2)		(3)
Net income attributable to TDS common shareholders used in diluted earnings per share	Net income attributable to TDS common shareholders used in diluted earnings per share	$	20	$	65	$	76	$	133	Net income attributable to TDS common shareholders used in diluted earnings per share	$	27	$	76	$	103	$	209

Weighted average number of shares used in basic earnings per share:	Weighted average number of shares used in basic earnings per share:									Weighted average number of shares used in basic earnings per share:
Common Shares	Common Shares	108		107		108		108		Common Shares	108		107		108		107
Series A Common Shares	Series A Common Shares	7		7		7		7		Series A Common Shares	7		7		7		7
Total	Total	115		114		115		115		Total	115		114		115		114

Effects of dilutive securities	Effects of dilutive securities	1		1		1		0		Effects of dilutive securities	1		1		1		1
Weighted average number of shares used in diluted earnings per share	Weighted average number of shares used in diluted earnings per share	116		115		116		115		Weighted average number of shares used in diluted earnings per share	116		115		116		115

Basic earnings per share attributable to TDS common shareholders	Basic earnings per share attributable to TDS common shareholders	$	0.18	$	0.57	$	0.67	$	1.18	Basic earnings per share attributable to TDS common shareholders	$	0.24	$	0.68	$	0.91	$	1.85

Diluted earnings per share attributable to TDS common shareholders	Diluted earnings per share attributable to TDS common shareholders	$	0.17	$	0.56	$	0.65	$	1.15	Diluted earnings per share attributable to TDS common shareholders	$	0.24	$	0.66	$	0.89	$	1.81

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 34 million for both the three and ~~six~~nine months ended ~~June~~September 30, 2021 ~~and 5 million~~ and 4 million for both the three and ~~six~~nine months ended ~~June~~September 30, ~~2020, respectively.~~2020.

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Note 7 Intangible Assets

Activity related to Licenses for the ~~six~~nine months ended ~~June~~September 30, 2021, is presented below:


	Licenses
(Dollars in millions)
Balance at December 31, 2020	$	2,638
Acquisitions	~~1,283~~1,464
Transferred to Assets held for sale	(1)



Capitalized interest	610
Balance at ~~June~~September 30, 2021	$	~~3,926~~4,111

In February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately ~~$178~~$181 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~~granted. In October 2021, UScellular paid $36 million related to the ~~period ended June 30, 2021.~~additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

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.


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Equity method investments	Equity method investments	$	465	$	456	Equity method investments	$	487	$	456
Measurement alternative method investments	Measurement alternative method investments	22		21		Measurement alternative method investments	22		21
Total investments in unconsolidated entities	Total investments in unconsolidated entities	$	487	$	477	Total investments in unconsolidated entities	$	509	$	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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Revenues	Revenues	$	1,748	$	1,586	$	3,482	$	3,249	Revenues	$	1,763	$	1,640	$	5,245	$	4,889
Operating expenses	Operating expenses	1,221		1,098		2,502		2,265		Operating expenses	1,250		1,142		3,752		3,407
Operating income	Operating income	527		488		980		984		Operating income	513		498		1,493		1,482
Other income (expense), net	Other income (expense), net	(2)		(2)		10		1		Other income (expense), net	5		(3)		15		(2)
Net income	Net income	$	525	$	486	$	990	$	985	Net income	$	518	$	495	$	1,508	$	1,480

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Note 9 Asset Retirement Obligations

Asset retirement obligations are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.

During the three months ended September 30, 2021, UScellular and TDS Telecom performed a review of the assumptions and estimated future costs related to asset retirement obligations. The results of the reviews and other changes in asset retirement obligations during the nine months ended September 30, 2021 were as follows:


	Asset Retirement Obligations
(Dollars in millions)
Balance at December 31, 2020	$	377
Additional liabilities accrued	26
Revisions in estimated cash outflows	43
Disposition of assets	(1)
Accretion expense	17
Balance at September 30, 2021	$	462

Note 10 Debt

Revolving Credit Agreements

The following table summarizes the revolving credit agreements as of ~~June~~September 30, 2021:


		TDS		UScellular			TDS		UScellular
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Maximum borrowing capacity	Maximum borrowing capacity	$	400	$	300	Maximum borrowing capacity	$	400	$	300
Letters of credit outstanding	Letters of credit outstanding	$	1	$	0	Letters of credit outstanding	$	1	$	—
Amount borrowed	Amount borrowed	$	125	$	0	Amount borrowed	$	—	$	—
Amount available for use	Amount available for use	$	274	$	300	Amount available for use	$	399	$	300

Borrowings under the TDS and UScellular revolving credit ~~agreement~~agreements 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 July 2021, TDS and UScellular amended and restated their revolving credit agreements. The maturity date of the agreements was extended to July 2026 and the consolidated leverage ratio, as defined in the agreements, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the revolving credit agreements.

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 September 30, 2021.

Term Loan Agreements

The following table summarizes the term loan credit agreements as of ~~June~~September 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 at a rate of LIBOR plus 2.0% and principal reductions are due and payable in quarterly installments of $0.5 million beginning in June 2021.


	TDS		UScellular
(Dollars in millions)
Maximum borrowing capacity	$	500	$	500
Amount borrowed	$	200	$	300
Amount available for use	$	300	$	200

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 beare 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 beare 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.

Table 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.Contents

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 beare 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 beare due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.

TDS and UScellular believe that they were in compliance with all of the financial covenants and other requirements set forth in their senior term loan credit agreements as of ~~June~~September 30, 2021.

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Receivables Securitization Agreement

At ~~June~~September 30, 2021, UScellular had a receivables securitization agreement for securitized borrowings using its equipment installment 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 ~~March 2021, UScellular borrowed $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 $450 million. In July 2021, UScellular amended the receivables securitization agreement and as a result, 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. During the nine months ended September 30, 2021, UScellular borrowed $500 million under its receivables securitization agreement and repaid $200 million of the outstanding borrowings. As of ~~June~~September 30, 2021, the outstanding borrowings under the agreement were ~~$100~~$325 million and the unused capacity under the agreement was ~~$350~~$125 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. UScellular believes that it was in compliance with all of the financial covenants and other requirements set forth in its receivables securitization agreement as of ~~June~~September 30, 2021. As of ~~June~~September 30, 2021, the USCC Master Note Trust held ~~$382~~$437 million of assets available to be pledged as collateral for the receivables securitization agreement.

In ~~July~~October 2021, UScellular ~~amended~~borrowed the ~~receivables securitization agreement. The consolidated leverage ratio, as defined in~~remaining $125 million under 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 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 5.5% Senior Notes due in June 2070, and received cash proceeds of $484 million after payment of debt issuance costs of $16 million. These funds will be used for general corporate purposes. Interest on these notes is payable quarterly beginning in September 2021. UScellular may redeem these notes, in whole or in part, at any time after June 2026 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest.

In ~~August~~September 2021, TDS ~~announced that it will redeem~~redeemed its outstanding $116 million of 6.625% Senior Notes due 2045 and UScellular ~~announced that it will redeem~~redeemed its outstanding $342 million of 6.95% Senior Notes due 2060. At time of redemption, $14 million of interest expense ~~will be~~was recorded related to unamortized debt issuance costs related to the notes. The notes ~~are expected to be~~were redeemed ~~on September 1, 2021,~~ at a ~~redemption~~ price of 100% of the principal amount, including accrued and unpaid interest to the redemption date.

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Note 1011 Variable Interest Entities

Consolidated VIEs

TDS consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. TDS reviews the criteria for a controlling financial interest at the time it enters into agreements and subsequently when events warranting reconsideration occur. These VIEs have risks similar to those described in the “Risk Factors” in this Form 10-Q and TDS’ Form 10-K for the year ended December 31, 2020.

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.

~~Table of Contents~~

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.

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


		June 30, 2021		December 31, 2020			September 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	$	31	$	18	Cash and cash equivalents	$	30	$	18
Short-term investments	Short-term investments	0		3		Short-term investments	—		3
Accounts receivable	Accounts receivable	647		638		Accounts receivable	658		638
Inventory, net	Inventory, net	3		3		Inventory, net	2		3
Other current assets	Other current assets	31		21		Other current assets	33		21

Licenses	Licenses	637		637		Licenses	637		637
Property, plant and equipment, net	Property, plant and equipment, net	98		99		Property, plant and equipment, net	101		99
Operating lease right-of-use assets	Operating lease right-of-use assets	39		37		Operating lease right-of-use assets	40		37
Other assets and deferred charges	Other assets and deferred charges	355		347		Other assets and deferred charges	353		347
Total assets	Total assets	$	1,841	$	1,803	Total assets	$	1,854	$	1,803

Liabilities	Liabilities					Liabilities
Current liabilities	Current liabilities	$	23	$	26	Current liabilities	$	24	$	26
Long-term operating lease liabilities	Long-term operating lease liabilities	35		34		Long-term operating lease liabilities	35		34
Other deferred liabilities and credits	Other deferred liabilities and credits	20		19		Other deferred liabilities and credits	21		19
Total liabilities1	Total liabilities1	$	78	$	79	Total liabilities1	$	80	$	79

1 Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 910 – 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 $4 million and $5 million at ~~both June~~September 30, 2021 and December 31, 2020, respectively, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities.

Other Related Matters

TDS made contributions, loans or advances to its VIEs totaling ~~$50~~$64 million and ~~$88~~$113 million, during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively, of which ~~$21~~$32 million in 2021 and ~~$67~~$79 million in 2020, are related to USCC EIP LLC as discussed above. TDS may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of wireless spectrum licenses granted in various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long-term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

~~Table of Contents~~

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 was not exercised during the first exercise period and will be exercisable again 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.

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Note 1112 Noncontrolling Interests

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


Six Months Ended June 30,		2021		2020
Nine Months Ended September 30,						Nine Months Ended September 30,	2021		2020
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
Net income attributable to TDS shareholders	Net income attributable to TDS shareholders	$	86	$	135	Net income attributable to TDS shareholders	$	126	$	212
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	(43)		(32)		Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares	(48)		(38)
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	1		14		Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares	11		14

Net transfers (to) from noncontrolling interests	Net transfers (to) from noncontrolling interests	(42)		(18)		Net transfers (to) from noncontrolling interests	(37)		(24)
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	Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests	$	89	$	188

Note 1213 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.

In August 2021, TDS issued 27,600 shares of TDS’ 6.000% Series VV Preferred Shares for $25,000 per Preferred Share, for total gross proceeds of $690 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 27,600,000 Depositary Shares, each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $668 million after payment of issuance costs of $22 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.~~year for the Series UU Preferred Shares and 6.000% for the Series VV Preferred Shares. As of ~~June~~September 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. The Series VV Preferred Shares rank on parity with the Series UU Preferred Shares. 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~~only if certain limited ~~conditions.~~conditions are met.

TDS may, at its option, redeem the Series UU Preferred ~~shares~~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.

TDS may, at its option, redeem the Series VV Preferred Shares (a) in whole or in part, on or after September 30, 2026 at a redemption price of $25,000 per Preferred Share, or (b) in whole but not in part, any time prior to September 30, 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 Series UU Preferred Share and 2,584.000 Common Shares for each Series VV 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.

5354

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Note 1314 Business Segment Information

UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, finance, and general management services. Such billings are based on expenses specifically identified to UScellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to UScellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if UScellular and TDS Telecom operated on a stand-alone basis. During the first quarter of 2021, TDS modified its reporting segment structure to combine its Wireline and Cable segments into a single reportable segment for TDS Telecom. TDS Telecom believes this presentation better articulates its progress and performance against its strategy, which includes a focus on overall broadband growth and future fiber deployment across its markets. This change also reflects TDS Telecom's progress in aligning its organizational, operational and support structures to leverage one cost base to better support its customers across all of its markets. Prior periods have been updated to conform to this revised presentation.

Financial data for TDS’ reportable segments for the three and ~~six~~nine month periods ended, or as of ~~June~~September 30, 2021 and 2020, is as follows. See Note 1 — Basis of Presentation for additional information.

Three Months Ended or as of June 30, 2021 UScellular TDS Telecom Corporate, Eliminations and Other Total
(Dollars in millions)
Operating revenues
Service $ 774 $ 251 $ 24 $ 1,049
Equipment and product sales 240 0 22 262
Total operating revenues 1,014 252 45 1,311
Cost of services (excluding Depreciation, amortization and accretion reported below) 204 101 19 324
Cost of equipment and products 258 0 18 276
Selling, general and administrative 334 73 9 416
Depreciation, amortization and accretion 180 49 5 234
(Gain) loss on asset disposals, net 2 1 0 3
Operating income (loss) 36 28 (6) 58
Equity in earnings of unconsolidated entities 47 0 1 48
Interest and dividend income 2 0 1 3
Interest expense (60) 1 (27) (86)
Income (loss) before income taxes 25 29 (31) 23
Income tax expense (benefit) (10) 7 (8) (11)
Net income (loss) 35 22 (23) 34
Add back:
Depreciation, amortization and accretion 180 49 5 234
(Gain) loss on asset disposals, net 2 1 0 3
Interest expense 60 (1) 27 86
Income tax expense (benefit) (10) 7 (8) (11)
Adjusted EBITDA1
$ 267 $ 78 $ 1 $ 346
Investments in unconsolidated entities $ 445 $ 4 $ 38 $ 487
Total assets $ 9,920 $ 2,433 $ 427 $ 12,780
Capital expenditures $ 148 $ 99 $ 3 $ 250

~~Table of Contents~~


Three Months Ended or as of June 30, 2020		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Three Months Ended or as of September 30, 2021										Three Months Ended or as of September 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	$	753	$	240	$	23	$	1,016	Service	$	788	$	251	$	26	$	1,065
Equipment and product sales	Equipment and product sales	220		0		27		247		Equipment and product sales	228		—		35		263
Total operating revenues	Total operating revenues	973		241		49		1,263		Total operating revenues	1,016		252		60		1,328
Cost of services (excluding Depreciation, amortization and accretion reported below)	Cost of services (excluding Depreciation, amortization and accretion reported below)	197		92		17		306		Cost of services (excluding Depreciation, amortization and accretion reported below)	205		102		20		327
Cost of equipment and products	Cost of equipment and products	218		0		23		241		Cost of equipment and products	252		—		30		282
Selling, general and administrative	Selling, general and administrative	323		66		9		398		Selling, general and administrative	346		72		11		429
Depreciation, amortization and accretion	Depreciation, amortization and accretion	178		51		7		236		Depreciation, amortization and accretion	160		49		4		213

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	4		0		0		4		(Gain) loss on asset disposals, net	8		1		(1)		8

Operating income (loss)	Operating income (loss)	53		31		(6)		78		Operating income (loss)	45		27		(3)		69
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	44		0		0		44		Equity in earnings of unconsolidated entities	48		—		—		48
Interest and dividend income	Interest and dividend income	1		1		0		2		Interest and dividend income	1		—		2		3

Interest expense	Interest expense	(25)		1		(14)		(38)		Interest expense	(45)		1		(10)		(54)

Income (loss) before income taxes	Income (loss) before income taxes	73		33		(20)		86		Income (loss) before income taxes	49		28		(11)		66
Income tax expense (benefit)	Income tax expense (benefit)	4		5		(1)		8		Income tax expense (benefit)	14		7		(2)		19
Net income (loss)	Net income (loss)	69		28		(19)		78		Net income (loss)	35		21		(9)		47
Add back:	Add back:									Add back:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	178		51		7		236		Depreciation, amortization and accretion	160		49		4		213
(Gain) loss on asset disposals, net										(Gain) loss on asset disposals, net	8		1		(1)		8

(Gain) loss on asset disposals, net		4		0		0		4

Interest expense	Interest expense	25		(1)		14		38		Interest expense	45		(1)		10		54
Income tax expense (benefit)	Income tax expense (benefit)	4		5		(1)		8		Income tax expense (benefit)	14		7		(2)		19
Adjusted EBITDA1	Adjusted EBITDA1	$	280	$	83	$	1	$	364	Adjusted EBITDA1	$	262	$	77	$	2	$	341

Investments in unconsolidated entities	Investments in unconsolidated entities	$	445	$	4	$	37	$	486	Investments in unconsolidated entities	$	466	$	4	$	39	$	509
Total assets	Total assets	$	8,500	$	2,210	$	451	$	11,161	Total assets	$	10,144	$	2,493	$	809	$	13,446
Capital expenditures	Capital expenditures	$	168	$	75	$	4	$	247	Capital expenditures	$	185	$	91	$	3	$	279

Table of Contents


Six Months Ended or as of June 30, 2021		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Three Months Ended or as of September 30, 2020										Three Months Ended or as of September 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	$	1,545	$	500	$	46	$	2,091	Service	$	775	$	247	$	24	$	1,046
Equipment and product sales	Equipment and product sales	492		1		45		538		Equipment and product sales	252		—		26		278
Total operating revenues	Total operating revenues	2,037		501		91		2,629		Total operating revenues	1,027		247		50		1,324
Cost of services (excluding Depreciation, amortization and accretion reported below)	Cost of services (excluding Depreciation, amortization and accretion reported below)	389		199		35		623		Cost of services (excluding Depreciation, amortization and accretion reported below)	203		100		18		321
Cost of equipment and products	Cost of equipment and products	533		0		37		570		Cost of equipment and products	257		—		21		278
Selling, general and administrative	Selling, general and administrative	639		143		22		804		Selling, general and administrative	335		69		11		415
Depreciation, amortization and accretion	Depreciation, amortization and accretion	350		98		9		457		Depreciation, amortization and accretion	161		49		7		217

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	7		1		0		8		(Gain) loss on asset disposals, net	6		—		—		6
(Gain) loss on sale of business and other exit costs, net		(1)		0		0		(1)

Operating income (loss)	Operating income (loss)	120		60		(12)		168		Operating income (loss)	65		28		(6)		87
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	88		0		2		90		Equity in earnings of unconsolidated entities	48		—		—		48
Interest and dividend income	Interest and dividend income	3		0		3		6		Interest and dividend income	2		1		1		4
Gain (loss) on investments										Gain (loss) on investments	3		—		—		3
Interest expense										Interest expense	(29)		1		(15)		(43)

Interest expense		(97)		2		(43)		(138)
Other, net		0		0		(1)		(1)
Income (loss) before income taxes	Income (loss) before income taxes	114		62		(51)		125		Income (loss) before income taxes	89		29		(19)		99
Income tax expense (benefit)1		17		15		(12)		20
Income tax expense (benefit)										Income tax expense (benefit)	4		4		(2)		6
Net income (loss)	Net income (loss)	97		46		(38)		105		Net income (loss)	85		25		(17)		93
Add back:	Add back:									Add back:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	350		98		9		457		Depreciation, amortization and accretion	161		49		7		217

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	7		1		0		8		(Gain) loss on asset disposals, net	6		—		—		6
(Gain) loss on sale of business and other exit costs, net		(1)		0		0		(1)

Gain (loss) on investments										Gain (loss) on investments	(3)		—		—		(3)
Interest expense	Interest expense	97		(2)		43		138		Interest expense	29		(1)		15		43
Income tax expense (benefit)1		17		15		(12)		20
Adjusted EBITDA2		$	567	$	158	$	2	$	727
Income tax expense (benefit)										Income tax expense (benefit)	4		4		(2)		6
Adjusted EBITDA1										Adjusted EBITDA1	$	282	$	78	$	2	$	362

Investments in unconsolidated entities										Investments in unconsolidated entities	$	467	$	4	$	37	$	508
Total assets										Total assets	$	9,180	$	2,250	$	465	$	11,895
Capital expenditures	Capital expenditures	$	273	$	169	$	4	$	446	Capital expenditures	$	216	$	92	$	2	$	310

Table of Contents


Six Months Ended or as of June 30, 2020		UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
Nine Months Ended or as of September 30, 2021										Nine Months Ended or as of September 30, 2021	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Operating revenues	Operating revenues									Operating revenues
Service	Service	$	1,515	$	480	$	47	$	2,042	Service	$	2,333	$	751	$	72	$	3,156
Equipment and product sales	Equipment and product sales	422		1		59		482		Equipment and product sales	720		1		80		801
Total operating revenues	Total operating revenues	1,937		481		106		2,524		Total operating revenues	3,053		752		152		3,957
Cost of services (excluding Depreciation, amortization and accretion reported below)	Cost of services (excluding Depreciation, amortization and accretion reported below)	377		188		34		599		Cost of services (excluding Depreciation, amortization and accretion reported below)	594		301		55		950
Cost of equipment and products	Cost of equipment and products	435		0		52		487		Cost of equipment and products	786		—		66		852
Selling, general and administrative	Selling, general and administrative	659		130		20		809		Selling, general and administrative	984		216		32		1,232
Depreciation, amortization and accretion	Depreciation, amortization and accretion	354		103		13		470		Depreciation, amortization and accretion	510		147		13		670

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	8		0		0		8		(Gain) loss on asset disposals, net	15		2		—		17

(Gain) loss on sale of business and other exit costs, net										(Gain) loss on sale of business and other exit costs, net	(1)		—		—		(1)

Operating income (loss)	Operating income (loss)	104		59		(12)		151		Operating income (loss)	165		87		(15)		237
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	89		0		1		90		Equity in earnings of unconsolidated entities	137		—		1		138
Interest and dividend income	Interest and dividend income	5		4		(1)		8		Interest and dividend income	5		1		3		9

Interest expense	Interest expense	(49)		2		(28)		(75)		Interest expense	(144)		3		(52)		(193)
Other, net	Other, net	0		(1)		0		(1)		Other, net	—		(1)		—		(1)
Income (loss) before income taxes	Income (loss) before income taxes	149		64		(40)		173		Income (loss) before income taxes	163		90		(63)		190
Income tax expense (benefit)1		8		8		(4)		12
Income tax expense (benefit)										Income tax expense (benefit)	31		22		(15)		38
Net income (loss)	Net income (loss)	141		56		(36)		161		Net income (loss)	132		68		(48)		152
Add back:	Add back:									Add back:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	354		103		13		470		Depreciation, amortization and accretion	510		147		13		670

(Gain) loss on asset disposals, net	(Gain) loss on asset disposals, net	8		0		0		8		(Gain) loss on asset disposals, net	15		2		—		17
(Gain) loss on sale of business and other exit costs, net										(Gain) loss on sale of business and other exit costs, net	(1)		—		—		(1)

Interest expense	Interest expense	49		(2)		28		75		Interest expense	144		(3)		52		193
Income tax expense (benefit)1		8		8		(4)		12
Adjusted EBITDA2		$	560	$	165	$	1	$	726
Income tax expense (benefit)										Income tax expense (benefit)	31		22		(15)		38
Adjusted EBITDA1										Adjusted EBITDA1	$	831	$	235	$	3	$	1,069

Capital expenditures	Capital expenditures	$	405	$	128	$	6	$	539	Capital expenditures	$	458	$	260	$	8	$	726

Table of Contents



Nine Months Ended or as of September 30, 2020	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	2,290	$	727	$	71	$	3,088
Equipment and product sales	674		1		86		761
Total operating revenues	2,964		728		157		3,849
Cost of services (excluding Depreciation, amortization and accretion reported below)	580		287		52		919
Cost of equipment and products	692		1		72		765
Selling, general and administrative	994		200		33		1,227
Depreciation, amortization and accretion	516		152		17		685

(Gain) loss on asset disposals, net	14		1		—		15


Operating income (loss)	168		87		(17)		238
Equity in earnings of unconsolidated entities	137		—		1		138
Interest and dividend income	6		4		2		12
Gain (loss) on investments	3		—		—		3
Interest expense	(76)		3		(46)		(119)
Other, net	—		(1)		—		(1)
Income (loss) before income taxes	238		94		(61)		271
Income tax expense (benefit)	11		13		(7)		17
Net income (loss)	227		81		(54)		254
Add back:
Depreciation, amortization and accretion	516		152		17		685

(Gain) loss on asset disposals, net	14		1		—		15


Gain (loss) on investments	(3)		—		—		(3)
Interest expense	76		(3)		46		119
Income tax expense (benefit)	11		13		(7)		17
Adjusted EBITDA1	$	841	$	243	$	3	$	1,087

Capital expenditures	$	621	$	221	$	7	$	849

Numbers may not foot due to rounding.

1Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of assessing 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.

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Telephone and Data Systems, Inc.

Additional Required Information

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As required by SEC Rules 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of ~~June~~September 30, 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 three months ended ~~June~~September 30, 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 in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed TDS and UScellular that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. TDS and UScellular believe that UScellular’s arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, TDS cannot predict the outcome of any proceeding.

Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2020, for additional information. There have been no material changes to such information since December 31, 2020.

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Unregistered Sales of Equity Securities and Use of Proceeds

On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the ~~second~~third quarter of 2021.

The ~~maximum dollar value of shares that may yet be purchased under this program was $182 million as of June 30, 2021. There were no~~following table provides certain information with respect to all purchases made by or on behalf of TDS, and noany open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.

~~Other Information~~

In July 2021, TDS amended and restated its term loan agreement to allow for an additional $300 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.5 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $300 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.

In July 2021, UScellular amended and restated its term loan agreement to allow for an additional $200 million of borrowing capacity. Principal reductions on the existing borrowings are due and payable in quarterly installments of $0.75 million beginning in December 2021. Amounts borrowed under the existing term loan agreement will bear interest at a rate of LIBOR plus 2.0% and be due and payable in July 2028. Borrowings under the additional $200 million borrowing capacity will bear interest at a rate of LIBOR plus 2.50% and be due and payable in July 2031. Principal reductions on any new borrowings will be due and payable in quarterly installments beginning in December 2022 at a rate of 0.25% of the initial outstanding principal balance through September 2026 and at a rate of 0.625% of the initial outstanding principal balance from December 2026 through the maturity date. Additionally, the consolidated leverage ratio, as defined in the agreement, may not be greater than 3.75 to 1.00 as of the end of any fiscal quarter. There were no significant changes to other terms of the term loan agreement.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2021	—	$	—	—	$	182,026,239
August 1 - 31, 2021	29,589	$	19.85	29,589	$	181,438,828
September 1 - 30, 2021	47,900	$	19.58	47,900	$	180,500,777
Total for or as of the end of the quarter ended September 30, 2021	77,489	$	19.69	77,489	$	180,500,777

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Exhibits


Exhibit Number			Description of Documents

Exhibit 4.1			Certificate of Designations of Telephone and Data Systems, Inc., including Form of ~~Eleventh Supplemental Indenture dated as~~Stock Certificate evidencing the 6.000% Series VV Cumulative Redeemable Perpetual Preferred Stock, filed on August 13, 2021 with the Secretary of ~~May 17, 2021, between UScellular~~the State of Delaware designating the preferences, limitations, voting powers and ~~The Bank~~relative rights of New York Mellon Trust Company, N.A., related to $500,000,000 of UScellular's 5.5% Senior Notes due 2070 is hereby incorporated by reference to Exhibit 2 to UScellular's Registration Statement on Form 8-A dated May 17, 2021.

~~Exhibit 4.2~~			~~First Amended and Restated Credit Agreement, among TDS, Wells Fargo National Association, as administrative agent, and~~ the ~~other lenders thereto, dated as of July 20, 2021, including the form of subsidiary Guaranty,~~Series VV Preferred Stock is hereby incorporated by reference to Exhibit 4.1 to TDS' Current Report on Form 8-K dated ~~July 20,~~August 13, 2021.

Exhibit ~~4.3~~4.2			~~First Amended and Restated Credit~~Deposit Agreement, ~~among UScellular, Toronto Dominion (Texas) LLC, as administrative agent, and the other lenders thereto,~~including Form of Depositary Receipt, dated as of ~~July 20,~~August 16, 2021, ~~including~~among Telephone and Data Systems, Inc., and Computershare Trust Company, N.A., as depositary, and the ~~form~~holders from time to time of ~~subsidiary Guaranty and Subordination Agreement,~~the depositary receipts issued thereunder is hereby incorporated by reference to Exhibit ~~4.1~~4.2 to ~~UScellular's~~TDS' Current Report on Form 8-K dated ~~July 20, 2021.~~

~~Exhibit 4.4~~			Supplemental Indenture No. 3 by and among USCC Master Note Trust, USCC Services LLC, U.S. Bank National Association, as Indenture Trustee, dated July 21, 2021, is hereby incorporated by reference to Exhibit 4.3 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2021.

~~Exhibit 4.5~~			~~Amended and Restated Credit Agreement, among TDS, CoBank, ACB, as administrative agent, and the other lenders thereto, dated as of July 30, 2021.~~

~~Exhibit 4.6~~			Third Amended and Restated Credit Agreement, among UScellular, CoBank, ACB, as administrative agent, and the other lenders thereto, dated as of July 30, 2021, is hereby incorporated by reference to Exhibit 4.4 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2021.

~~Exhibit 10.1~~			Form of UScellular 2013 Long-Term Incentive Plan 2021 Performance Award Agreement is hereby incorporated by reference to Exhibit 10.1 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2021.

~~Exhibit 10.2~~			Form of UScellular 2013 Long-Term Incentive Plan Restricted Stock Unit Award Agreement for awards issued after 2020 is hereby incorporated by reference to Exhibit 10.2 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2021.

~~Exhibit 10.3~~			~~Form of TDS 2020 Long-Term Incentive Plan 2021 Performance Share Award Agreement~~

~~Exhibit 10.4~~			~~Consulting Agreement between TDS and Scott H. Williamson dated June 7, 2021.~~

~~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 June 29, 2021, is hereby incorporated by reference to Exhibit 10.3 from UScellular's Form 10-Q for the period ended June 30,August 13, 2021.

Exhibit 31.1			Principal executive officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit 31.2			Principal financial officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit 32.1			Principal executive officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Exhibit 32.2			Principal financial officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.


Exhibit 101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH			Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.PRE			Inline XBRL Taxonomy Presentation Linkbase Document

Exhibit 101.CAL			Inline XBRL Taxonomy Calculation Linkbase Document

Exhibit 101.LAB			Inline XBRL Taxonomy Label Linkbase Document

Exhibit 101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104			Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the inline document.

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Form 10-Q Cross Reference Index

Item Number

Page No.

Item Number

Page No.

Part I.

Financial Information

Part I.

Financial Information

Item 1.

Financial Statements (Unaudited)

Item 1.

Financial Statements (Unaudited)

Notes to Consolidated Financial Statements

Item 2.

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

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Item 4.

Controls and Procedures

Part II.

Other Information

Part II.

Other Information

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

6162

SIGNATURES

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

TELEPHONE AND DATA SYSTEMS, INC.

(Registrant)

Date:

~~August 6,~~November 4, 2021

/s/ LeRoy T. Carlson, Jr.

LeRoy T. Carlson, Jr.

President and Chief Executive Officer

(principal executive officer)

Date:

~~August 6,~~November 4, 2021

/s/ Peter L. Sereda

Peter L. Sereda

Executive Vice President and Chief Financial Officer

(principal financial officer)

Date:

~~August 6,~~November 4, 2021

/s/ Anita J. Kroll

Anita J. Kroll

Vice President - Controller and Chief Accounting Officer

(principal accounting officer)

6263


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