TELEPHONE & DATA SYSTEMS INC /DE/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the quarterly period ended
September 30, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the transition period from to
Commission file number
001-14157
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
(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 | ||||||||||||||||||
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| 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. |
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☒ | No | ☐ | |||||||||||||||||||
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). |
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☒ | No | ☐ | |||||||||||||||||||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |||||||||||||||||||||||
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☒ | Accelerated filer | ☐ | ||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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| 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 |
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No
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The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2024, is
106
million Common Shares, $.01 par value, and
7
million Series A Common Shares, $.01 par value.
Telephone and Data Systems, Inc.
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2024
| Index | Page No. | ||||
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Telephone and Data Systems, Inc.
Management’s Discussion and Analysis of
Financial Condition
and Results of Operations
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Executive Overview
The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and nine months ended September 30, 2024, to the three and nine months ended September 30, 2023. 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, 2023. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers.
This report contains statements that are not based on historical facts, which may be identified by words such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “will” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See the disclosure under the heading Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement elsewhere in this report for additional information.
The accounting policies of TDS conform to accounting principles generally accepted in the United States of America (GAAP). However, TDS uses certain “non-GAAP financial measures” in the MD&A and the business segment information. A discussion of the reasons TDS determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with GAAP are included in the disclosure under the heading Supplemental Information Relating to Non-GAAP Financial Measures within the MD&A of this report.
General
TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide as of September 30, 2024. TDS provides wireless services through its 83%-owned subsidiary, United States Cellular Corporation (UScellular). TDS also provides broadband, video and voice services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). TDS operates entirely in the United States.
During the second quarter of 2024, TDS and UScellular modified their reporting structure due to the planned disposal of the UScellular wireless operations and, as a result, disaggregated the UScellular operations into two reportable segments - Wireless and Towers. This presentation reflects how TDS' and UScellular's chief operating decision maker allocates resources and evaluates operating performance following this strategic shift. Prior periods have been updated to conform to the new reportable segments. See Note 14 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments.
1
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. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities. TDS continues to make progress on developing and enhancing its Environmental, Social and Governance (ESG) program, including the publication of the most recent TDS ESG Report in August 2024, which is available on the TDS website.
TDS’ historical long-term strategy has been to re-invest the majority of its operating capital in its businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders primarily through the payment of a regular quarterly cash dividend. In the second quarter of 2024, TDS reset its approach to capital allocation and declared dividends in both the second and third quarters of 2024 at approximately 20% of the first quarter of 2024 dividend for TDS Common and Series A shares. This shift in approach is expected to free up additional capital that can be used to support TDS' fiber program, among other purposes.
TDS plans to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused services and products. Strategic efforts include:
▪
UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as device protection plans and from services such as fixed wireless home internet. In addition, UScellular is focused on expanding its solutions available to business and government customers.
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UScellular continues to enhance its network capabilities, including by deploying 5G technology to help address customers’ growing demand for data services and create opportunities for new services requiring high speed and reliability as well as low latency. In 2019-2023, UScellular focused on 5G coverage and predominantly used low-band spectrum to launch 5G services in portions of substantially all of its markets. During 2023 and 2024, UScellular has focused on deploying 5G over its mid-band spectrum, largely overlapping areas already covered with low-band 5G service to enhance speed and capacity for UScellular’s mobility and fixed wireless services. Investments in the next several years are expected to be focused on continued mid-band spectrum deployment to enhance speed and capacity needs, building on the existing 5G coverage across UScellular’s footprint.
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UScellular seeks to grow revenue in its Towers segment primarily through increasing third-party colocations on existing towers through providing unique tower locations, attractive terms and streamlined implementation to third-party wireless operators.
▪
TDS Telecom strives to provide high-quality broadband services in its markets with the ability to provide value-added bundling with video and voice service options. TDS Telecom focuses on driving growth by investing in fiber deployment primarily in its expansion markets and also in its incumbent and cable markets that have historically utilized copper and coaxial cable technologies.
▪
TDS Telecom seeks to grow its operations by creating clusters of markets in attractive, growing locations and may seek to acquire and/or divest of assets to support its strategy.
Announced Transactions and Strategic Alternatives Review
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. On May 28, 2024, UScellular announced that its Board of Directors unanimously approved the execution of a Securities Purchase Agreement (Securities Purchase Agreement) by and among TDS, UScellular, T-Mobile US, Inc. (T-Mobile) and USCC Wireless Holdings, LLC, pursuant to which, among other things, UScellular agreed to sell its wireless operations and select spectrum assets to T-Mobile for a purchase price, subject to adjustment as specified in the Securities Purchase Agreement, of $4,400 million, which is payable in a combination of cash and the assumption of up to approximately $2,000 million in debt. The Securities Purchase Agreement also contemplates, among other things, a Short-Term Spectrum Manager Lease Agreement that will become effective at the closing date, which provides T-Mobile with an exclusive license to use certain UScellular spectrum assets at no cost for up to one-year for the purpose of providing continued, uninterrupted service to customers. The transactions are expected to close in mid-2025, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.
On October 17, 2024, UScellular, and certain subsidiaries of UScellular, entered into a License Purchase Agreement (Verizon Purchase Agreement) with Verizon Communications Inc. (Verizon) to sell certain AWS, Cellular and PCS wireless spectrum licenses and agreed to grant Verizon certain rights to lease such licenses prior to the transaction close for total proceeds of $1,000 million. As of September 30, 2024, UScellular's book value of the wireless spectrum licenses to be sold was $586 million. The transaction is subject to regulatory approval and other customary closing conditions, and is contingent on the closing of the T-Mobile transaction and the termination of the T-Mobile Short-Term Spectrum Manager Lease Agreement.
The strategic alternatives review process is ongoing as UScellular seeks to opportunistically monetize its spectrum assets that are not subject to the Securities Purchase Agreement or the Verizon Purchase Agreement.
2
TDS incurred third-party expenses related to the announced transactions and strategic alternatives review of $11 million and $43 million for the three and nine months ended September 30, 2024, respectively, and $4 million for both the three and nine months ended September 30, 2023.
Significant Financial Matter
Net loss attributable to TDS common shareholders was $83 million and $86 million for the three and nine months ended September 30, 2024, respectively. Such net losses include a non-cash charge related to the UScellular impairment of certain wireless spectrum licenses in the amount of $136 million ($102 million, net of tax impacts), which was recorded during the three months ended September 30, 2024. The conclusion that this impairment was required was made in connection with the review and preparation of the September 30, 2024 financial statements. See Note 8 — Intangible Assets for a detailed discussion regarding this impairment. Refer to Supplemental Information to Non-GAAP Financial Measures within this MD&A for a reconciliation of the wireless spectrum license impairment, net of tax.
3
Terms Used by TDS
The following is a list of definitions of certain industry terms that are used throughout this document:
▪
5G
– fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
▪
Alternative Connect America Cost Model (ACAM)
– a USF support mechanism for certain carriers, which provides revenue support through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations.
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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.
▪
Broadband Connections
– refers to the individual customers provided internet access through various transmission
technologies, including fiber, coaxial and copper.
▪
Broadband Penetration
– metric which is calculated by dividing total broadband connections by total service addresses.
▪
Cable Markets
– markets where TDS provides service as the cable provider using coaxial cable and fiber technologies.
▪
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.
▪
Colocations
– represents instances where a third-party wireless carrier rents or leases space on a company-owned tower.
▪
Connected Devices
– non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, fixed wireless, and hotspots.
▪
EBITDA
– refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪
Enhanced Alternative Connect America Cost Model (E-ACAM)
– a USF support mechanism for certain carriers, which provides revenue support through 2038. This support comes with an obligation to provide 100 megabits per second (Mbps) of download speed and 20 Mbps of upload speed (100/20 Mbps) to a certain number of locations.
▪
Expansion Markets
– markets utilizing fiber networks in areas where TDS does not serve as the incumbent service provider.
▪
Free Cash Flow
– non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
▪
Gross Additions
– represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
▪
Incumbent Markets
– markets where TDS is positioned as the traditional local telephone company.
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IPTV
– internet protocol television.
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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.
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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.
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Retail Connections
– individual lines of service associated with each device activated by a postpaid or prepaid customer. Connections are associated with all types of devices that connect directly to the UScellular network.
▪
Service Addresses
– number of single residence homes, multi-dwelling units, and business locations that are capable of being connected to the TDS network, based on best available information.
▪
Tower Tenancy Rate
– average number of tenants that lease space on company-owned towers, measured on a per-tower basis.
▪
Universal Service Fund (USF)
– a system of telecommunications collected fees and support payments managed by the Federal Communications Commission (FCC) intended to promote universal access to telecommunications services in the United States.
▪
Video Connections
– represents the individual customers provided video services.
▪
Voice Connections
– refers to the individual circuits connecting a customer to TDS' central office facilities that provide voice services or the billable number of lines into a building for voice services.
4
Results of Operations — TDS Consolidated
The following discussion and analysis compares financial results for the three and nine months ended September 30, 2024, to the three and nine months ended September 30, 2023.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||||
| UScellular | $ | 922 | $ | 963 | (4) | % | $ | 2,799 | $ | 2,906 | (4) | % | |||||||||||||||||||||||
| TDS Telecom | 263 | 256 | 2 | % | 797 | 767 | 4 | % | |||||||||||||||||||||||||||
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All other
1
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39 | 59 | (33) | % | 128 | 175 | (27) | % | |||||||||||||||||||||||||||
| Total operating revenues | 1,224 | 1,278 | (4) | % | 3,724 | 3,848 | (3) | % | |||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| UScellular | 1,012 | 906 | 12 | % | 2,802 | 2,789 | — | ||||||||||||||||||||||||||||
| TDS Telecom | 252 | 256 | (1) | % | 741 | 752 | (1) | % | |||||||||||||||||||||||||||
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All other
1
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40 | 68 | (43) | % | 154 | 197 | (22) | % | |||||||||||||||||||||||||||
| Total operating expenses | 1,304 | 1,230 | 6 | % | 3,697 | 3,738 | (1) | % | |||||||||||||||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||||||||||||||
| UScellular | (90) | 57 | N/M | (3) | 117 | N/M | |||||||||||||||||||||||||||||
| TDS Telecom | 10 | — | N/M | 56 | 15 | N/M | |||||||||||||||||||||||||||||
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All other
1
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— | (9) | N/M | (26) | (22) | (18) | % | ||||||||||||||||||||||||||||
| Total operating income (loss) | (80) | 48 | N/M | 27 | 110 | (76) | % | ||||||||||||||||||||||||||||
| Investment and other income (expense) | |||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 43 | 40 | 9 | % | 125 | 122 | 3 | % | |||||||||||||||||||||||||||
| Interest and dividend income | 8 | 5 | 51 | % | 20 | 16 | 25 | % | |||||||||||||||||||||||||||
| Interest expense | (76) | (62) | (22) | % | (208) | (178) | (17) | % | |||||||||||||||||||||||||||
| Other, net | 1 | — | N/M | 3 | 1 | N/M | |||||||||||||||||||||||||||||
| Total investment and other expense | (24) | (17) | (41) | % | (60) | (39) | (52) | % | |||||||||||||||||||||||||||
| Income (loss) before income taxes | (104) | 31 | N/M | (33) | 71 | N/M | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | (25) | 27 | N/M | 1 | 55 | (98) | % | ||||||||||||||||||||||||||||
| Net income (loss) | (79) | 4 | N/M | (34) | 16 | N/M | |||||||||||||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests, net of tax | (13) | 4 | N/M | — | 10 | N/M | |||||||||||||||||||||||||||||
| Net income (loss) attributable to TDS shareholders | (66) | — | N/M | (34) | 6 | N/M | |||||||||||||||||||||||||||||
| TDS Preferred Share dividends | 17 | 17 | — | 52 | 52 | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to TDS common shareholders | $ | (83) | $ | (17) | N/M | $ | (86) | $ | (46) | (86) | % | ||||||||||||||||||||||||
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Adjusted OIBDA (Non-GAAP)
2
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$ | 297 | $ | 283 | 5 | % | $ | 925 | $ | 817 | 13 | % | |||||||||||||||||||||||
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Adjusted EBITDA (Non-GAAP)
2
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$ | 349 | $ | 328 | 6 | % | $ | 1,073 | $ | 956 | 12 | % | |||||||||||||||||||||||
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Capital expenditures
3
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$ | 199 | $ | 285 | (30) | % | $ | 663 | $ | 906 | (27) | % | |||||||||||||||||||||||
Numbers may not foot due to rounding.
N/M - Percentage change not meaningful
1
Consists of corporate and other operations and intercompany eliminations.
2
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
3
Refer 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.
5
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for using the equity method or the net asset value practical expedient. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $16 million and $14 million for the three months ended September 30, 2024 and 2023, respectively and $48 million and $52 million for the nine months ended September 30, 2024 and 2023, respectively. See Note 9 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Interest expense
Interest expense increased for the three and nine months ended September 30, 2024 due primarily to an increase in borrowings under the TDS term loan agreements, partially offset by a decrease in the average principal balance outstanding on the receivables securitization agreement. See Market Risk for additional information regarding maturities of long-term debt and weighted average interest rates.
Income tax expense
Income tax expense decreased for the three and nine months ended September 30, 2024 due primarily to the deferred tax benefit on the impairment of certain wireless spectrum licenses recorded in the third quarter of 2024.
TDS calculated income taxes for the three and nine months ended September 30, 2024, based on an estimated year-to-date tax rate. The effective tax rates are expected to vary
in the fourth quarter and the annual period of 2024 due primarily to fluctuations in Income before income taxes, the impairment of wireless spectrum licenses in the third quarter of 2024, and tax impacts of divestiture activities. See Note 7 — Divestitures in the Notes to Consolidated Financial Statements for additional information.
Net income (loss) attributable to noncontrolling interests, net of tax
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Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| UScellular noncontrolling public shareholders’ | $ | (14) | $ | 4 | $ | (8) | $ | 7 | |||||||||||||||
| Noncontrolling shareholders’ or partners’ | 1 | — | 8 | 3 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests, net of tax | $ | (13) | $ | 4 | $ | — | $ | 10 | |||||||||||||||
Net income (loss) 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.
6
Earnings
(Dollars in millions)
Three Months Ended
Net income (loss) decreased due primarily to the impairment of UScellular wireless spectrum licenses and lower operating revenues, partially offset by lower cash operating and tax expenses. Adjusted EBITDA increased due primarily to lower operating expenses, partially offset by lower operating revenues.
Nine Months Ended
Net income (loss) decreased due primarily to the impairment of UScellular wireless spectrum licenses as well as lower operating revenues and higher interest expense, partially offset by lower cash operating and tax expenses. Adjusted EBITDA increased due primarily to lower operating expenses, partially offset by lower operating revenues.
*Represents a non-GAAP financial measure. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
7
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UScellular OPERATIONS | ||||
Business Overview
UScellular provides wireless service throughout its footprint, and leases tower space to third-party carriers on UScellular-owned towers. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. UScellular is an 83%-owned subsidiary of TDS.
OPERATIONS
▪
Serves customers with 4.5 million retail connections including 4.0 million postpaid and 0.5 million prepaid connections
▪
Operates in 21 states
▪
Employs approximately 4,200 associates
▪
Owns 4,407 towers
▪
Operates 7,007 cell sites in service
8
Financial Overview — UScellular
The following discussion and analysis compares financial results for the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023.
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Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||||||||||||||
| Wireless | $ | 896 | $ | 938 | (4) | % | $ | 2,722 | $ | 2,831 | (4) | % | |||||||||||||||||||||||
| Towers | 59 | 57 | 2 | % | 175 | 170 | 3 | % | |||||||||||||||||||||||||||
| Intra-company eliminations | (33) | (32) | (3) | % | (98) | (95) | (3) | % | |||||||||||||||||||||||||||
| Total operating revenues | 922 | 963 | (4) | % | 2,799 | 2,906 | (4) | % | |||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Wireless | 1,005 | 900 | 12 | % | 2,784 | 2,770 | 1 | % | |||||||||||||||||||||||||||
| Towers | 40 | 38 | 4 | % | 116 | 114 | 1 | % | |||||||||||||||||||||||||||
| Intra-company eliminations | (33) | (32) | (3) | % | (98) | (95) | (3) | % | |||||||||||||||||||||||||||
| Total operating expenses | 1,012 | 906 | 12 | % | 2,802 | 2,789 | — | ||||||||||||||||||||||||||||
| Operating income (loss) | $ | (90) | $ | 57 | N/M | $ | (3) | $ | 117 | N/M | |||||||||||||||||||||||||
| Net income (loss) | $ | (78) | $ | 23 | N/M | $ | (37) | $ | 43 | N/M | |||||||||||||||||||||||||
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Adjusted OIBDA (Non-GAAP)
1
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$ | 222 | $ | 220 | 1 | % | $ | 678 | $ | 624 | 9 | % | |||||||||||||||||||||||
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Adjusted EBITDA (Non-GAAP)
1
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$ | 269 | $ | 263 | 3 | % | $ | 810 | $ | 753 | 8 | % | |||||||||||||||||||||||
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Capital expenditures
2
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$ | 120 | $ | 111 | 8 | % | $ | 415 | $ | 462 | (10) | % | |||||||||||||||||||||||
N/M - Percentage change not meaningful
1
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2
Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
9
Wireless Operations
| As of September 30, | 2024 | 2023 | |||||||||||||||
| Retail Connections – End of Period | |||||||||||||||||
| Postpaid | 3,999,000 | 4,159,000 | |||||||||||||||
| Prepaid | 452,000 | 462,000 | |||||||||||||||
| Total | 4,451,000 | 4,621,000 | |||||||||||||||
| Q3 2024 | Q3 2023 | Q3 2024 vs. Q3 2023 | YTD 2024 | YTD 2023 | YTD 2024 vs. YTD 2023 | |||||||||||||||||||||||||||
| Postpaid Activity and Churn | ||||||||||||||||||||||||||||||||
| Gross Additions | ||||||||||||||||||||||||||||||||
| Handsets | 84,000 | 84,000 | — | 220,000 | 260,000 | (15) | % | |||||||||||||||||||||||||
| Connected Devices | 39,000 | 44,000 | (11) | % | 126,000 | 129,000 | (2) | % | ||||||||||||||||||||||||
| Total Gross Additions | 123,000 | 128,000 | (4) | % | 346,000 | 389,000 | (11) | % | ||||||||||||||||||||||||
| Net Additions (Losses) | ||||||||||||||||||||||||||||||||
| Handsets | (28,000) | (38,000) | 26 | % | (104,000) | (92,000) | (13) | % | ||||||||||||||||||||||||
| Connected Devices | — | 3,000 | N/M | 9,000 | 4,000 | N/M | ||||||||||||||||||||||||||
| Total Net Additions (Losses) | (28,000) | (35,000) | 20 | % | (95,000) | (88,000) | (8) | % | ||||||||||||||||||||||||
| Churn | ||||||||||||||||||||||||||||||||
| Handsets | 1.07 | % | 1.11 | % | 1.02 | % | 1.06 | % | ||||||||||||||||||||||||
| Connected Devices | 2.47 | % | 2.64 | % | 2.49 | % | 2.69 | % | ||||||||||||||||||||||||
| Total Churn | 1.25 | % | 1.30 | % | 1.21 | % | 1.26 | % | ||||||||||||||||||||||||
N/M - Percentage change not meaningful
Total postpaid handset net losses decreased for the three months ended September 30, 2024, when compared to the same period last year due primarily to lower defections as a result of improvements in churn.
Total postpaid handset net losses increased for the nine months ended September 30, 2024 when compared to the same period last year due to lower gross additions as a result of a decrease in the pool of available customers and continued aggressive industry-wide competition. This was partially offset by lower defections as a result of improvements in churn.
Total postpaid connected device net additions decreased for the three months ended September 30, 2024, when compared to the same period last year due to lower demand for home internet and connected watches. This was offset by a decrease in tablet churn.
Total postpaid connected device net additions increased for the nine months ended September 30, 2024, when compared to the same period last year due to a decrease in tablet, hotspot and home phone defections as a result of improvements in churn.
Postpaid Revenue
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
|
Average Revenue Per User (ARPU)
|
$ | 52.04 | $ | 51.11 | 2 % | $ | 51.81 | $ | 50.81 | 2 % | |||||||||||||||||||||||||
|
Average Revenue Per Account (ARPA)
|
$ | 131.81 | $ | 130.91 | 1 % | $ | 131.39 | $ | 130.64 | 1 % | |||||||||||||||||||||||||
Postpaid ARPU and ARPA increased for the three and nine months ended September 30, 2024, when compared to the same period last year, due to an increase in favorable plan and product offering mix and cost recovery surcharges.
10
Financial Overview — Wireless
The following discussion and analysis compares financial results for the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Retail service | $ | 669 | $ | 687 | (3) | % | $ | 2,014 | $ | 2,065 | (2) | % | |||||||||||||||||||||||
| Other | 52 | 50 | 5 | % | 154 | 149 | 4 | % | |||||||||||||||||||||||||||
| Service revenues | 721 | 737 | (2) | % | 2,168 | 2,214 | (2) | % | |||||||||||||||||||||||||||
| Equipment sales | 175 | 201 | (13) | % | 554 | 617 | (10) | % | |||||||||||||||||||||||||||
| Total operating revenues | 896 | 938 | (4) | % | 2,722 | 2,831 | (4) | % | |||||||||||||||||||||||||||
| System operations (excluding Depreciation, amortization and accretion reported below) | 193 | 199 | (3) | % | 582 | 597 | (2) | % | |||||||||||||||||||||||||||
| Cost of equipment sold | 203 | 228 | (11) | % | 630 | 708 | (11) | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 316 | 324 | (3) | % | 953 | 995 | (4) | % | |||||||||||||||||||||||||||
| Depreciation, amortization and accretion | 155 | 148 | 5 | % | 466 | 456 | 2 | % | |||||||||||||||||||||||||||
| Loss on impairment of licenses | 136 | — | N/M | 136 | — | N/M | |||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net | 4 | 1 | N/M | 13 | 14 | (1) | % | ||||||||||||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | N/M | 4 | — | N/M | |||||||||||||||||||||||||||||
| Total operating expenses | 1,005 | 900 | 12 | % | 2,784 | 2,770 | 1 | % | |||||||||||||||||||||||||||
| Operating income (loss) | $ | (109) | $ | 38 | N/M | $ | (62) | $ | 61 | N/M | |||||||||||||||||||||||||
|
Adjusted OIBDA (Non-GAAP)
1
|
$ | 191 | $ | 190 | 1 | % | $ | 583 | $ | 534 | 9 | % | |||||||||||||||||||||||
|
Adjusted EBITDA (Non-GAAP)
1
|
$ | 191 | $ | 190 | 1 | % | $ | 583 | $ | 534 | 9 | % | |||||||||||||||||||||||
|
Capital expenditures
2
|
$ | 114 | $ | 106 | 7 | % | $ | 400 | $ | 452 | (12) | % | |||||||||||||||||||||||
N/M - Percentage change not meaningful
1
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2
Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
11
Operating Revenues
Three Months Ended September 30, 2024 and 2023
(Dollars in millions)
Operating Revenues
Nine Months Ended September 30, 2024 and 2023
(Dollars in millions)
Service revenues consist of:
▪
Retail Service - Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges
▪
Other Service - Amounts received from the Federal USF, inbound roaming, miscellaneous other service revenues and Internet of Things (IoT)
Equipment revenues consist of
:
▪
Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors
Key components of changes in the statement of operations line items were as follows:
Total operating revenues
Retail service revenues decreased for the three and nine months ended September 30, 2024, primarily as a result of a decrease in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU as previously discussed in the Operational Overview section.
Equipment sales revenues decreased for the three months ended September 30, 2024, due primarily to a decline in smartphone devices sold due to lower upgrades.
Equipment sales revenues decreased for the nine months ended September 30, 2024, due primarily to a decline in smartphone devices sold due to lower upgrades and gross additions, partially offset by a higher average price of new smartphone sales.
Wireless service providers have been aggressive promotionally and on price to attract and retain customers. This includes both traditional carriers and cable wireless companies. UScellular expects promotional aggressiveness by traditional carriers to continue and pricing pressures from cable wireless companies and new entrants to increase into the foreseeable future. Additionally, other wireless service providers have more developed networks and coverage as well as lower costs per subscriber than UScellular, which has negatively affected and may continue to negatively affect UScellular's ability to compete over time. Operating revenues and Operating income (loss) have been negatively impacted by these factors in current and prior periods, and are expected to be negatively impacted in future periods.
12
Total operating expenses
Total operating expenses for the nine months ended September 30, 2023 include $9 million of severance and related expenses associated with a reduction in workforce that was recorded in the first quarter of 2023. These severance expenses are included in System operations expenses and Selling, general and administrative expenses.
System operations expenses
System operations expenses decreased for the three and nine months ended September 30, 2024, due primarily to a decrease in expenses driven by the shutdown of the 3G Code Division Multiple Access (CDMA) network in the first quarter of 2024, partially offset by increases in outbound roaming usage and maintenance, utilities, and cell site expenses.
Cost of equipment sold
Cost of equipment sold decreased for the three months ended September 30, 2024, due primarily to a decline in smartphone devices sold due to lower upgrades.
Cost of equipment sold decreased for the nine months ended September 30, 2024, due primarily to a decline in smartphone devices sold due to lower upgrades and gross additions, partially offset by a higher average price of new smartphone sales.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased for the three and nine months ended September 30, 2024, due to decreases in various general and administrative expenses, sales related expenses and bad debts expense, partially offset by an increase related to the strategic alternatives review expenses of $4 million and $23 million, respectively.
Loss on impairment of licenses
Loss on impairment of licenses increased for the three and nine months ended September 30, 2024, due to the impairment of certain wireless spectrum licenses recorded during the third quarter of 2024. See Note 8 — Intangible Assets for a detailed discussion regarding this impairment.
13
Towers Operations
| As of September 30, | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||
| Owned towers | 4,407 | 4,356 | 1 | % | |||||||||||||
| Number of colocations | 2,418 | 2,406 | — | ||||||||||||||
| Tower tenancy rate | 1.55 | 1.55 | — | ||||||||||||||
Number of colocations
Number of colocations increased for the period ended September 30, 2024 when compared to the same period last year due to an increase in new tenant and equipment change executions partially offset by terminations.
Financial Overview — Towers
The following discussion and analysis compares financial results for the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Third-party revenues | $ | 26 | $ | 25 | 1 | % | $ | 77 | $ | 75 | 2 | % | |||||||||||||||||||||||
| Intra-company revenues | 33 | 32 | 3 | % | 98 | 95 | 3 | % | |||||||||||||||||||||||||||
| Total tower revenues | 59 | 57 | 2 | % | 175 | 170 | 3 | % | |||||||||||||||||||||||||||
| System operations (excluding Depreciation, amortization and accretion reported below) | 20 | 18 | 10 | % | 58 | 55 | 4 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 8 | 9 | (14) | % | 24 | 25 | (7) | % | |||||||||||||||||||||||||||
| Depreciation, amortization and accretion | 12 | 11 | 7 | % | 33 | 34 | (1) | % | |||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net | — | — | N/M | 1 | — | N/M | |||||||||||||||||||||||||||||
| Total operating expenses | 40 | 38 | 4 | % | 116 | 114 | 1 | % | |||||||||||||||||||||||||||
| Operating income | $ | 19 | $ | 19 | (1) | % | $ | 59 | $ | 56 | 7 | % | |||||||||||||||||||||||
|
Adjusted OIBDA (Non-GAAP)
1
|
$ | 31 | $ | 30 | 3 | % | $ | 95 | $ | 90 | 6 | % | |||||||||||||||||||||||
|
Adjusted EBITDA (Non-GAAP)
1
|
$ | 31 | $ | 30 | 3 | % | $ | 95 | $ | 90 | 6 | % | |||||||||||||||||||||||
| Capital expenditures | $ | 6 | $ | 5 | 33 | % | $ | 15 | $ | 10 | 61 | % | |||||||||||||||||||||||
N/M - Percentage change not meaningful
1
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
Key components of changes in the statement of operations line items were as follows:
Intra-company revenues
Intra-company revenues increased for the three and nine months ended September 30, 2024, primarily as a result of an increase in the intra-company rate charged by Towers to Wireless and an increase in the number of owned towers.
Upon closing of the transaction to dispose of the wireless operations and select spectrum assets to T-Mobile, UScellular expects an increase in Third-party revenues that will be recognized under the Master License Agreement that will go into effect under the Securities Purchase Agreement. However, at such time Intra-company revenues would cease, resulting in significantly lower Total tower revenues in periods following the close.
14
Total operating expenses
Total operating expenses increased for the three and nine months ended September 30, 2024 due primarily to increases in System operations expenses as a result of increases in cell site ground rent and maintenance expenses.
Upon closing of the transaction to dispose of the wireless operations and select spectrum assets to T-Mobile, UScellular expects expenses may be incurred to effect the separation including costs to decommission certain towers and record remaining ground lease obligations on such decommissioned towers. These factors and other uncertainties in how the ongoing tower operations will be supported in the long-term may significantly impact operating expenses recorded in periods following the close.
15
|
TDS TELECOM OPERATIONS | ||||
Business Overview
TDS Telecom owns, operates and invests in high-quality networks, services and products in a mix of small to mid-sized urban, suburban and rural communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers, with the constant focus on delivering outstanding customer service.
OPERATIONS
|
||
▪
Serves 1.1 million connections in 32 states
▪
Employs approximately 3,400 associates
16
Operational Overview — TDS Telecom
Total Service Address Mix
As of September 30,
TDS Telecom increased its service addresses 9% from a year ago to 1.8 million as of September 30, 2024 through network expansion.
TDS Telecom offers 1Gig+ service to 74% of its total footprint as of September 30, 2024, compared to 69% a year ago.
|
As of September 30,
|
2024 | 2023 | 2024 vs. 2023 | ||||||||||||||
| Residential connections | |||||||||||||||||
| Broadband | |||||||||||||||||
| Incumbent | 241,500 | 248,800 | (3) | % | |||||||||||||
| Expansion | 115,300 | 79,400 | 45 | % | |||||||||||||
| Cable | 195,900 | 204,400 | (4) | % | |||||||||||||
| Total Broadband | 552,700 | 532,600 | 4 | % | |||||||||||||
| Video | 122,100 | 132,400 | (8) | % | |||||||||||||
| Voice | 271,300 | 284,000 | (4) | % | |||||||||||||
| Total Residential Connections | 946,100 | 949,000 | — | ||||||||||||||
| Commercial connections | 197,200 | 217,400 | (9) | % | |||||||||||||
| Total connections | 1,143,300 | 1,166,400 | (2) | % | |||||||||||||
Numbers may not foot due to rounding.
Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) connections declines, partially offset by broadband connection growth.
17
Residential Broadband Connections by Speed
As of September 30,
Residential broadband customers continue to choose higher speeds with 79%
taking speeds of 100 Mbps or greater and 20% choosing 1Gig+.
Residential Revenue per Connection
Total residential revenue per connection increased 5% and 6% for the three and nine months ended September 30, 2024, respectively, due primarily to price increases.
18
Financial Overview — TDS Telecom
The following discussion and analysis compares financial results for the three and nine months ended September 30, 2024, to the three and nine months ended September 30, 2023.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||
| Incumbent | $ | 90 | $ | 89 | 1 | % | $ | 269 | $ | 264 | 2 | % | |||||||||||||||||||||||
| Expansion | 29 | 20 | 46 | % | 83 | 52 | 58 | % | |||||||||||||||||||||||||||
| Cable | 67 | 68 | (2) | % | 206 | 204 | 1 | % | |||||||||||||||||||||||||||
| Total residential | 186 | 177 | 5 | % | 558 | 521 | 7 | % | |||||||||||||||||||||||||||
| Commercial | 36 | 38 | (4) | % | 110 | 118 | (7) | % | |||||||||||||||||||||||||||
| Wholesale | 40 | 42 | (3) | % | 128 | 127 | 1 | % | |||||||||||||||||||||||||||
| Total service revenues | 262 | 256 | 2 | % | 796 | 766 | 4 | % | |||||||||||||||||||||||||||
| Equipment revenues | — | — | (6) | % | 1 | 1 | (10) | % | |||||||||||||||||||||||||||
| Total operating revenues | 263 | 256 | 2 | % | 797 | 767 | 4 | % | |||||||||||||||||||||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) | 101 | 107 | (6) | % | 297 | 319 | (7) | % | |||||||||||||||||||||||||||
| Cost of equipment and products | — | — | 26 | % | 1 | — | 4 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 81 | 82 | (1) | % | 236 | 244 | (3) | % | |||||||||||||||||||||||||||
| Depreciation, amortization and accretion | 68 | 61 | 11 | % | 199 | 180 | 11 | % | |||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net | 3 | 6 | (52) | % | 8 | 8 | — | ||||||||||||||||||||||||||||
| Total operating expenses | 252 | 256 | (1) | % | 741 | 752 | (1) | % | |||||||||||||||||||||||||||
| Operating income | $ | 10 | $ | — | N/M | $ | 56 | $ | 15 | N/M | |||||||||||||||||||||||||
| Net income | $ | 9 | $ | 4 | N/M | $ | 51 | $ | 19 | N/M | |||||||||||||||||||||||||
|
Adjusted OIBDA (Non-GAAP)
1
|
$ | 81 | $ | 67 | 20 | % | $ | 263 | $ | 203 | 30 | % | |||||||||||||||||||||||
|
Adjusted EBITDA (Non-GAAP)
1
|
$ | 83 | $ | 68 | 21 | % | $ | 269 | $ | 207 | 30 | % | |||||||||||||||||||||||
|
Capital expenditures
2
|
$ | 78 | $ | 172 | (55) | % | $ | 242 | $ | 434 | (44) | % | |||||||||||||||||||||||
N/M - Percentage change not meaningful
Numbers may not foot due to rounding.
1
Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2
Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
19
Operating Revenues
Three Months Ended September 30, 2024 and 2023
(Dollars in millions)
Numbers may not foot due to rounding.
Operating Revenues
Nine Months Ended September 30, 2024 and 2023
(Dollars in millions)
Residential revenues consist of:
•
Broadband services
•
Video services, including IPTV, traditional cable programming and satellite offerings
•
Voice services
Commercial revenues consist of:
•
High-speed and dedicated business internet services
•
Video services
•
Voice services
Wholesale revenues consist of:
•
Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom's networks
•
Federal and state regulatory support, including E-ACAM
Key components of changes in the statement of operations items were as follows:
Total operating revenues
Residential revenues increased for the three and nine months ended September 30, 2024, due primarily to price increases and growth in broadband connections, partially offset by a decline in video and voice connections.
Commercial revenues decreased for the three and nine months ended September 30, 2024, due primarily to declining connections in CLEC markets.
Cost of services
Cost of services decreased for the three and nine months ended September 30, 2024, due primarily to a decrease in employee-related expenses and lower plant and maintenance costs.
Selling, general and administrative
Selling, general and administrative expenses decreased for the three and nine months ended September 30, 2024, due primarily to a decrease in employee-related expenses.
20
Depreciation, amortization and accretion
Depreciation, amortization and accretion increased for the three and nine months ended September 30, 2024, due primarily to capital expenditures on new fiber assets.
21
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 financing agreements, preferred share offerings, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets, pay dividends and to fund acquisitions. There is no assurance that this will be the case in the future. TDS has incurred negative free cash flow at times in past periods, and this could occur in future periods.
TDS believes that existing cash and investment balances, funds available under its financing agreements, its ability to obtain future external financing, potential dispositions and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its day-to-day operating needs and debt service requirements. In addition, TDS retains the ability, as described below, to reduce its capital and operating expenditures at TDS Telecom to lower its funding needs.
TDS may require substantial additional funding for, among other uses, capital expenditures, making additional investments including new technologies, fiber deployments and E-ACAM builds, agreements to purchase goods or services, leases, repurchases of shares, or payment of dividends. It may be necessary from time to time to increase the size of its existing credit facilities, to amend existing or put in place new credit agreements, to obtain other forms of financing, issue equity securities, or to divest assets in order to fund potential expenditures. TDS' liquidity would be adversely affected if it is unable to obtain short or long-term financing on acceptable terms.
TDS will continue to monitor the rapidly changing business and market conditions and is taking and intends to take appropriate actions, as necessary, to meet its liquidity needs. Due to its smaller scale, UScellular has higher costs per subscriber than its competitors and is balancing the timing of investments, such as its 5G deployment, with liquidity considerations. TDS Telecom has entered into and may continue to enter into agreements to divest of certain non-strategic assets, including in certain cases the associated E-ACAM build-out obligations, as well as slow the pace of and reprioritze its fiber deployment plans and reduce or defer planned capital expenditures as a means to lower its funding needs and meet its obligations. It is possible that TDS Telecom will be required, if it is unable to access capital on acceptable terms, to substantially reduce its plans for fiber deployment, in both the short and long-term.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. TDS does not have direct access to UScellular cash.
Cash and Cash Equivalents
(Dollars in millions)
The majority of TDS’ Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.
22
In addition to Cash and cash equivalents, TDS and UScellular had available undrawn borrowing capacity from the following debt facilities at September 30, 2024. See the Financing section below for further details.
| TDS | UScellular | ||||||||||
| (Dollars in millions) | |||||||||||
| Revolving Credit Agreement | $ | 399 | $ | 300 | |||||||
| Term Loan Agreements | 75 | — | |||||||||
| Receivables Securitization Agreement | — | 448 | |||||||||
| Total available undrawn borrowing capacity | $ | 474 | $ | 748 | |||||||
Financing
Revolving Credit Agreements
TDS has a revolving credit agreement with maximum borrowing capacity of $400 million. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the nine months ended September 30, 2024, TDS borrowed $100 million and repaid $200 million under the agreement. As of September 30, 2024, there were no outstanding borrowings and the unused borrowing capacity was $399 million.
Receivables Securitization Agreement
UScellular, through its subsidiaries, has a receivables securitization agreement that permits securitized borrowings using its equipment installment plan receivables. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until September 2025. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. During the nine months ended September 30, 2024, UScellular borrowed $40 million and repaid $188 million under the agreement. As of September 30, 2024, the outstanding borrowings under the agreement were $2 million and the unused borrowing capacity was $448 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.
Term Loan Agreements
In May 2024, TDS entered into a $375 million unsecured term loan credit agreement. At closing, $300 million was drawn, less original issue discount, and the remaining $75 million may be drawn until November 2025. The maturity date of the agreement is May 2029. As of September 30, 2024, the outstanding borrowings under the agreement were $299 million.
In October 2024, UScellular repaid $40 million under its term loan agreement due July 2026.
Debt Covenants
The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. TDS and UScellular are required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.00 to 1.00 from April 1, 2024 through March 31, 2025; 3.75 to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe that they were in compliance as of September 30, 2024 with all such financial covenants.
The term loan agreement entered into in May 2024 requires TDS to comply with certain affirmative and negative covenants, which includes a financial covenant that may restrict the borrowing capacity available. TDS is required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.50 to 1.00 from April 1, 2024 through March 31, 2025; 4.25 to 1.00 from April 1, 2025 and thereafter. TDS believes that it was in compliance as of September 30, 2024 with such financial covenant.
Other Long-Term Financing
TDS has an effective shelf registration statement on Form S-3 to issue senior or subordinated securities, common shares, preferred shares and depositary shares.
UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.
See Note 11 — Debt in the Notes to Consolidated Financial Statements for additional information related to the financing agreements.
Credit Ratings
Following the execution of the Securities Purchase Agreement in May 2024, Moody’s placed TDS and UScellular's issuer credit ratings on a review for downgrade. There was no change to the Ba1 rating issued by Moody’s in October 2023. At the same time, Fitch Ratings placed TDS and UScellular’s issuer credit ratings on rating watch negative. There was no change to the BB+ rating issued by Fitch Ratings in October 2023. There was no change to the Standard & Poor’s credit ratings or outlook.
23
Capital Expenditures
Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the nine months ended September 30, 2024 and 2023, were as follows:
Capital Expenditures
(Dollars in millions)
UScellular’s capital expenditures for the nine months ended September 30, 2024 and 2023, were $415 million and $462 million, respectively.
Capital expenditures for the full year 2024 are expected to be between $550 million and $600 million. These expenditures are expected to be used principally for the following purposes:
▪
Continued deployment of 5G with a focus on network deployment that uses mid-band spectrum to provide additional speed and capacity to accommodate increased data usage by current customers; and
▪
Invest in information technology to support existing and new services and products.
TDS Telecom’s capital expenditures for the nine months ended September 30, 2024 and 2023, were $242 million and $434 million, respectively.
Capital expenditures for the full year 2024 are expected to be between $310 million and $340 million. These expenditures are expected to be used principally for the following purposes:
▪
Continue to expand fiber deployment primarily in expansion markets;
▪
Support broadband growth and success-based spending; and
▪
Maintain and enhance existing infrastructure including build-out requirements of state broadband and E-ACAM programs.
TDS intends to finance its capital expenditures for 2024 using primarily Cash flows from operating activities, existing cash balances and additional debt financing from its existing agreements and/or other forms of available financing.
Divestitures
TDS is engaged and may in the future be engaged in negotiations (subject to all applicable regulations) relating to the divestiture of companies, properties and assets. In general, TDS does not disclose such transactions until there is a definitive agreement.
See Note 7 — Divestitures in the Notes to Consolidated Financial Statements for additional information related to divestitures.
Other Obligations
TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; preferred stock dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; E-ACAM obligations; agreements for software licensing; long-term marketing programs; and other agreements to purchase goods or services. TDS has taken and expects to continue to take steps to reduce and defer capital expenditures to lower its funding needs. Refer to Liquidity and Capital Resources within this MD&A for additional information.
Variable Interest Entities
TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 12 — 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 to fund their operations.
24
Common Share Repurchase Program
During the nine months ended September 30, 2024, UScellular repurchased 474,074 Common Shares for $26 million at an average cost per share of $54.94. As of September 30, 2024, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 1,452,867.
25
Consolidated Cash Flow Analysis
TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and to construct and upgrade communications networks and facilities with a goal of creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. Revenues from certain of these investments are long-term and in some cases are uncertain. To meet its cash-flow needs, TDS may need to delay or reduce certain investments, dividend payments or sell assets. Refer to Liquidity and Capital Resources within this MD&A and Note 7 — Divestitures in the Notes to Consolidated Financial Statements for additional information. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes TDS' cash flow activities for the nine months ended September 30, 2024 and 2023.
2024 Commentary
TDS’ Cash, cash equivalents and restricted cash increased $202 million. Net cash provided by operating activities was $933 million due to net loss of $34 million adjusted for non-cash items of $841 million, distributions received from unconsolidated entities of $106 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $20 million. The working capital changes were primarily driven by reduced receivable and inventory balances, partially offset by payments of associate bonuses and agent rebates and commissions.
Cash flows used for investing activities were $580 million, due primarily to payments for property, plant and equipment of $655 million partially offset by proceeds received from the divestiture of the hosted and managed services (HMS) operations. See Note 7 — Divestitures in the Notes to Consolidated Financial Statements for additional information.
Cash flows used for financing activities were $151 million, due primarily to $300 million borrowed under TDS term loan agreements, $100 million borrowed under the TDS revolving credit agreement and a $40 million borrowing under the UScellular receivables securitization agreement. These were partially offset by $200 million in repayments on the TDS revolving credit agreement, $188 million in repayments on the UScellular receivables securitization agreement, the payment of $83 million in dividends, cash paid for software license agreements of $32 million and the repurchase of $26 million of UScellular Common Shares.
2023 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $106 million. Net cash provided by operating activities was $923 million due to net income of $16 million adjusted for non-cash items of $727 million, distributions received from unconsolidated entities of $97 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $83 million. The working capital changes were primarily driven by reduced inventory and receivable balances and a federal income tax refund of $57 million received during the second quarter of 2023, partially offset by timing of vendor payments and payment of associate bonuses.
Cash flows used for investing activities were $922 million, due primarily to payments for property, plant and equipment of $906 million.
Cash flows used by financing activities were $107 million, due primarily to $385 million in repayments on the UScellular receivables securitization agreement, $265 million in repayments on the TDS revolving credit agreement, a $60 million repayment on the UScellular EIP receivables repurchase agreement, the payment of $114 million in dividends and cash paid for software license agreements of $29 million. These were partially offset by $300 million borrowed under the TDS secured term loan agreement, $265 million borrowed under the TDS revolving credit agreement, $115 million borrowed under the UScellular receivables securitization agreement and $100 million borrowed under the TDS export credit agreement.
26
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 2024 were as follows:
Inventory, net
Inventory, net decreased $41 million due primarily to the sell through of inventory on hand which was elevated at the end of 2023 to support holiday promotions and ensure adequate device supply.
Accrued compensation
Accrued compensation decreased $42 million due primarily to associate bonus payments in March 2024.
Other current liabilities
Other current liabilities decreased $38 million due primarily to decreases in agent rebate and commission liabilities as a result of lower sales volume and payments of Auction 107 relocation fees.
27
Supplemental Information Relating to Non-GAAP Financial Measures
TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this report:
▪
EBITDA
▪
Adjusted EBITDA
▪
Adjusted OIBDA
▪
Free cash flow
▪
Licenses impairment, net of tax
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 14 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.
Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ operating results before significant recurring non-cash charges, nonrecurring expenses, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, gains and losses, and expenses related to the strategic alternatives review of UScellular, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The following tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income (loss) and/or Operating income (loss). Income and expense items below Operating income (loss) are not provided at the individual segment level for UScellular Wireless and UScellular Towers; therefore, the reconciliations begin with EBITDA and the most directly comparable GAAP measure is Operating income (loss) rather than Net income (loss) at the segment level.
28
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| TDS - CONSOLIDATED | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income (loss) (GAAP) | $ | (79) | $ | 4 | $ | (34) | $ | 16 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income tax expense (benefit) | (25) | 27 | 1 | 55 | |||||||||||||||||||
| Interest expense | 76 | 62 | 208 | 178 | |||||||||||||||||||
| Depreciation, amortization and accretion | 238 | 225 | 704 | 681 | |||||||||||||||||||
| EBITDA (Non-GAAP) | 210 | 318 | 879 | 930 | |||||||||||||||||||
| Add back or deduct: | |||||||||||||||||||||||
| Expenses related to strategic alternatives review | 11 | 4 | 43 | 4 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 6 | 6 | 23 | 22 | |||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net | (12) | — | (12) | — | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Adjusted EBITDA (Non-GAAP) | 349 | 328 | 1,073 | 956 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 43 | 40 | 125 | 122 | |||||||||||||||||||
| Interest and dividend income | 8 | 5 | 20 | 16 | |||||||||||||||||||
| Other, net | 1 | — | 3 | 1 | |||||||||||||||||||
| Adjusted OIBDA (Non-GAAP) | 297 | 283 | 925 | 817 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 238 | 225 | 704 | 681 | |||||||||||||||||||
| Expenses related to strategic alternatives review | 11 | 4 | 43 | 4 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 6 | 6 | 23 | 22 | |||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net | (12) | — | (12) | — | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Operating income (loss) (GAAP) | $ | (80) | $ | 48 | $ | 27 | $ | 110 | |||||||||||||||
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| UScellular | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income (loss) (GAAP) | $ | (78) | $ | 23 | $ | (37) | $ | 43 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income tax expense (benefit) | (14) | 27 | 29 | 56 | |||||||||||||||||||
| Interest expense | 49 | 50 | 137 | 147 | |||||||||||||||||||
| Depreciation, amortization and accretion | 167 | 159 | 499 | 490 | |||||||||||||||||||
| EBITDA (Non-GAAP) | 124 | 259 | 628 | 736 | |||||||||||||||||||
| Add back or deduct: | |||||||||||||||||||||||
| Expenses related to strategic alternatives review | 7 | 3 | 28 | 3 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 4 | 1 | 14 | 14 | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Adjusted EBITDA (Non-GAAP) | 269 | 263 | 810 | 753 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 43 | 40 | 123 | 121 | |||||||||||||||||||
| Interest and dividend income | 4 | 3 | 9 | 8 | |||||||||||||||||||
| Adjusted OIBDA (Non-GAAP) | 222 | 220 | 678 | 624 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 167 | 159 | 499 | 490 | |||||||||||||||||||
| Expenses related to strategic alternatives review | 7 | 3 | 28 | 3 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 4 | 1 | 14 | 14 | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Operating income (loss) (GAAP) | $ | (90) | $ | 57 | $ | (3) | $ | 117 | |||||||||||||||
29
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| UScellular Wireless | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 46 | $ | 186 | $ | 404 | $ | 517 | |||||||||||||||
| Add back or deduct: | |||||||||||||||||||||||
| Expenses related to strategic alternatives review | 7 | 3 | 26 | 3 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 4 | 1 | 13 | 14 | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Adjusted EBITDA and Adjusted OIBDA (Non-GAAP) | 191 | 190 | 583 | 534 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 155 | 148 | 466 | 456 | |||||||||||||||||||
| Expenses related to strategic alternatives review | 7 | 3 | 26 | 3 | |||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 4 | 1 | 13 | 14 | |||||||||||||||||||
| (Gain) loss on license sales and exchanges, net | (2) | — | 4 | — | |||||||||||||||||||
| Operating income (loss) (GAAP) | $ | (109) | $ | 38 | $ | (62) | $ | 61 | |||||||||||||||
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| UScellular Towers | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 31 | $ | 30 | $ | 92 | $ | 90 | |||||||||||||||
| Add back or deduct: | |||||||||||||||||||||||
| Expenses related to strategic alternatives review | — | — | 2 | — | |||||||||||||||||||
| (Gain) loss on asset disposals | — | — | 1 | — | |||||||||||||||||||
| Adjusted EBITDA and Adjusted OIBDA (Non-GAAP) | 31 | 30 | 95 | 90 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 12 | 11 | 33 | 34 | |||||||||||||||||||
| Expenses related to strategic alternatives review | — | — | 2 | — | |||||||||||||||||||
| (Gain) loss on asset disposals, net | — | — | 1 | — | |||||||||||||||||||
| Operating income (GAAP) | $ | 19 | $ | 19 | $ | 59 | $ | 56 | |||||||||||||||
30
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
|
TDS TELECOM
|
2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
|
(Dollars in millions)
|
|||||||||||||||||||||||
|
Net income (GAAP)
|
$ | 9 | $ | 4 | $ | 51 | $ | 19 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income tax expense | 4 | — | 15 | 6 | |||||||||||||||||||
| Interest expense | (1) | (2) | (4) | (6) | |||||||||||||||||||
| Depreciation, amortization and accretion | 68 | 61 | 199 | 180 | |||||||||||||||||||
| EBITDA (Non-GAAP) | 80 | 63 | 261 | 199 | |||||||||||||||||||
| Add back or deduct: | |||||||||||||||||||||||
| (Gain) loss on asset disposals, net | 3 | 6 | 8 | 8 | |||||||||||||||||||
| Adjusted EBITDA (Non-GAAP) | 83 | 68 | 269 | 207 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Interest and dividend income | 1 | 1 | 4 | 3 | |||||||||||||||||||
| Other, net | 1 | — | 3 | 1 | |||||||||||||||||||
| Adjusted OIBDA (Non-GAAP) | 81 | 67 | 263 | 203 | |||||||||||||||||||
| Deduct: | |||||||||||||||||||||||
| Depreciation, amortization and accretion | 68 | 61 | 199 | 180 | |||||||||||||||||||
| (Gain) loss on asset disposals, net | 3 | 6 | 8 | 8 | |||||||||||||||||||
|
Operating income (GAAP)
|
$ | 10 | $ | — | $ | 56 | $ | 15 | |||||||||||||||
Numbers may not foot due to rounding.
Free Cash Flow
The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and Cash paid for software license agreements. Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment and Cash paid for software license agreements.
|
Nine Months Ended
September 30, |
|||||||||||
| 2024 | 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Cash flows from operating activities (GAAP) | $ | 933 | $ | 923 | |||||||
| Cash paid for additions to property, plant and equipment | (655) | (906) | |||||||||
| Cash paid for software license agreements | (32) | (29) | |||||||||
| Free cash flow (Non-GAAP) | $ | 246 | $ | (12) | |||||||
31
Licenses impairment, net of tax
The following non-GAAP financial measure isolates the total effects on net income of the current period Loss on impairment of licenses at UScellular, including tax impacts. TDS believes this measure may be useful to investors and other users of its financial information to assist in comparing the current period financial results with periods that were not impacted by such a charge.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net loss attributable to TDS common shareholders (GAAP) | $ | (83) | $ | (17) | $ | (86) | $ | (46) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Loss on impairment of licenses | 136 | — | 136 | — | |||||||||||||||||||
| Deferred tax benefit on the tax-amortizable portion of the impaired licenses | (34) | — | (34) | — | |||||||||||||||||||
| UScellular noncontrolling public shareholders' portion of the impaired licenses | (17) | — | (17) | — | |||||||||||||||||||
| Subtotal of Non-GAAP adjustments | 85 | — | 85 | — | |||||||||||||||||||
| Net income (loss) attributable to TDS common shareholders excluding licenses impairment charge (Non-GAAP) | $ | 2 | $ | (17) | $ | (1) | $ | (46) | |||||||||||||||
32
Application of Critical Accounting Policies and Estimates
TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements included in TDS' Form 10-K for the year ended December 31, 2023. TDS’ application of critical accounting policies and estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in TDS’ Form 10-K for the year ended December 31, 2023 and updated below based on developments since the TDS Form 10-K was filed.
Wireless Spectrum License Impairment – UScellular
Wireless spectrum licenses represent a significant component of TDS' consolidated assets. Wireless spectrum licenses are considered to be indefinite-lived assets, and therefore, are not amortized but are tested for impairment annually or more frequently if there are events or circumstances that cause UScellular to believe that their carrying values exceed their fair values. Wireless spectrum licenses are tested for impairment at the level of reporting referred to as a unit of accounting.
As a result of executing the Securities Purchase Agreement with T-Mobile during the second quarter of 2024, UScellular bifurcated its historical single unit of accounting into two units of accounting – wireless spectrum licenses to be sold under the Securities Purchase Agreement and wireless spectrum licenses to be retained. During the third quarter of 2024, UScellular’s efforts to monetize its spectrum assets not subject to the Securities Purchase Agreement provided new evidence that the highest and best use of the retained spectrum to current buyers would be in separate tranches. As a result, UScellular further divided its wireless spectrum licenses units of accounting from one retained unit into eleven units, resulting in twelve total units of accounting. UScellular concluded that there were events and circumstances in the third quarter of 2024 that caused UScellular to believe the carrying values of five of the units of accounting may exceed their respective fair values (i.e. triggering event), and accordingly a quantitative impairment assessment was performed for those units. There was no triggering event for the other units of accounting.
A market approach was used for purposes of the quantitative impairment assessment to value the wireless spectrum licenses for the five units tested, using a range of values established largely through industry benchmarks, FCC auction data, and precedent transactions. The midpoint of the range was established as the estimate of fair value for each unit of accounting. Based on this valuation, the fair value of the wireless spectrum licenses exceeded their respective carrying values by amounts ranging from 9% to 80% for three of the units of accounting. For two of the units of accounting, the fair value of the wireless spectrum licenses was less than the respective carrying value, and a $
136
million impairment was recorded to Loss on impairment of licenses in the Consolidated Statement of Operations within UScellular’s Wireless segment during the third quarter of 2024. The impairment loss was substantially all related to the retained high-band spectrum unit of accounting which includes the 28 GHz, 37 GHz and 39 GHz frequency bands, the carrying value of which was $161 million as of September 30, 2024 after the impairment loss. The impairment loss is driven by the change in the units of accounting described above combined with lower fair value primarily attributed to high-band spectrum as a result of industry-wide challenges encountered related to the operationalization of this spectrum.
33
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, 2023 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, 2023, 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.
Announced Transactions and Strategic Alternatives Review Risk Factors
▪
TDS and UScellular entered into a Securities Purchase Agreement dated as of May 24, 2024 with T-Mobile and USCC Wireless Holdings, LLC, pursuant to which, among other things, UScellular has agreed to sell its wireless operations and select spectrum assets to T-Mobile. In addition, UScellular, and certain subsidiaries of UScellular, entered into the Verizon Purchase Agreement on October 17, 2024 to sell certain wireless spectrum licenses. There is no guarantee that the transactions contemplated by the Securities Purchase Agreement or the Verizon Purchase Agreement will be able to be consummated or that UScellular will be able to find buyers at mutually agreeable prices for its spectrum assets not subject to the Securities Purchase Agreement or the Verizon Purchase Agreement.
Operational Risk Factors
▪
Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect TDS’ revenues or increase its costs to compete.
▪
TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS has caused and could continue to cause TDS to be unable to compete successfully, which has adversely affected and could continue to adversely affect its business, financial condition or results of operations.
▪
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.
▪
An inability to attract diverse people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.
▪
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.
▪
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.
▪
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.
34
▪
A failure by TDS to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
▪
Difficulties involving third parties with which TDS does business, including changes in TDS’ relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third-party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.
▪
A failure by TDS to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
Financial Risk Factors
▪
Uncertainty in TDS’ or UScellular's future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in TDS’ or UScellular's performance or market conditions, changes in TDS’ or UScellular's credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which has required and is expected in the future to require TDS to reduce or delay its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, divest assets or businesses, and/or reduce or cease share repurchases and/or the payment of common shareholder dividends.
▪
TDS has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
▪
TDS has entered into a Senior Secured Credit Agreement that imposes certain restrictions on its business and operations that may affect its ability to operate its business and make payments on its indebtedness.
▪
TDS’ assets and revenue are concentrated primarily in the U.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
▪
TDS has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.
Regulatory, Legal and Governance Risk Factors
▪
Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.
▪
TDS receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on TDS’ business, financial condition or results of operations.
▪
Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.
▪
The possible development of adverse precedent in litigation or conclusions in professional or environmental studies to the effect that potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals or due to contamination from network cabling, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, or may interfere with various electronic medical devices or frequencies used by other industries, could have an adverse effect on TDS’ wireless and/or wireline business, financial condition or results of operations.
▪
Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.
▪
Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of TDS or have other consequences.
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.
35
▪
The impact of public health emergencies on TDS' business is uncertain, but depending on duration and severity could have a material adverse effect on TDS' business, financial condition or results of operations.
36
Risk Factors
In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2023, 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, 2023, may not be the only risks that could affect TDS. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect TDS’ business, financial condition and/or operating results. Subject to the foregoing and other than the risk factors set forth below, TDS has not identified for disclosure any material changes to the risk factors as previously disclosed in TDS’ Annual Report on Form 10-K for the year ended December 31, 2023.
TDS and UScellular entered into a Securities Purchase Agreement dated as of May 24, 2024 with T-Mobile and USCC Wireless Holdings, LLC, pursuant to which, among other things, UScellular has agreed to sell its wireless operations and select spectrum assets to T-Mobile. In addition, UScellular, and certain subsidiaries of UScellular, entered into the Verizon Purchase Agreement on October 17, 2024 to sell certain wireless spectrum licenses. There is no guarantee that the transactions contemplated by the Securities Purchase Agreement or the Verizon Purchase Agreement will be able to be consummated or that UScellular will be able to find buyers at mutually agreeable prices for its spectrum assets not subject to the Securities Purchase Agreement or the Verizon Purchase Agreement.
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. As part of this review, on May 28, 2024, UScellular announced that its Board of Directors unanimously approved the execution of the Securities Purchase Agreement pursuant to which, among other things, UScellular has agreed to sell its wireless operations and select spectrum assets to T-Mobile. The Securities Purchase Agreement also contemplates, among other things, a Short-Term Spectrum Manager Lease Agreement that will become effective at the closing date, which provides T-Mobile with an exclusive license to use certain UScellular spectrum assets at no cost for up to one-year for the purpose of providing continued, uninterrupted service to customers.
On October 17, 2024, UScellular, and certain subsidiaries of UScellular, entered into the Verizon Purchase Agreement to sell certain AWS, Cellular and PCS wireless spectrum licenses and agreed to grant Verizon certain rights to lease such licenses prior to the transaction close.
The transactions resulting from the strategic alternatives review are subject to regulatory approval, which UScellular may not be able to obtain on the terms or timeline currently contemplated, or at all. Similarly, UScellular may not be able to satisfy the other closing conditions applicable to each of the transactions, which in the case of the Verizon transaction include the closing of the T-Mobile transaction and the termination of the T-Mobile Short-Term Spectrum Manager Lease Agreement. In addition, UScellular may be unable to find buyers at mutually agreeable prices for its spectrum assets not subject to the Securities Purchase Agreement or the Verizon Purchase Agreement.
The uncertainty regarding the transactions and continued strategic alternatives review process could result in: a diversion of management's attention from UScellular's existing business; a failure to achieve financial and operating objectives; adverse effects on UScellular's financial condition or results of operations; a failure to retain key personnel, customers, business partners or contracts; and volatility in TDS' and UScellular's stock price.
In addition, the strategic alternatives review process has already resulted in the incurrence of significant expense - this is expected to continue. The execution of the Securities Purchase Agreement impacted UScellular's units of accounting and asset groups for purposes of assessing wireless spectrum licenses and property, plant and equipment for impairment, but did not require an impairment assessment to be performed during the second quarter of 2024. During the third quarter of 2024, there were events and circumstances that impacted the units of accounting for purposes of assessing wireless spectrum licenses for impairment. UScellular performed a quantitative impairment assessment on certain units of accounting and recorded an impairment in the third quarter of 2024. There may be future events that could require an impairment assessment to be performed which may result in additional impairments. There can be no assurance that such comprehensive process, which is ongoing, will result in the transactions or any strategic alternative of any kind being successfully completed or that the process or any outcomes of the process will not have an adverse impact on UScellular's business or financial statements.
37
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 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.
Telecommunications companies may be designated by states, or in some cases by the FCC, as an Eligible Telecommunications Carrier (ETC) to receive universal service support payments if they provide specified services in “high-cost” areas. UScellular has been designated as an ETC in certain states and received $92 million in high-cost support for service to high-cost areas in 2023. While there is uncertainty, UScellular expects regulatory support payments to decline in future periods, and there is no assurance that UScellular will qualify for future regulatory support programs. TDS Telecom also received support under the Connect America Fund support program. The ACAM and E-ACAM programs have build-out requirements that may not be met, which would result in penalties, loss of support and/or deferral of future revenues. In 2023, TDS Telecom received $110 million under all federal regulatory support programs. There is no assurance that regulatory support payments will continue for TDS Telecom, and no assurance that TDS Telecom will qualify for future regulatory support programs. If regulatory support is discontinued or reduced from current levels, or if receipt of future regulatory support is contingent upon making certain network-related expenditures, this could have an adverse effect on TDS’ business, financial condition or operating results and cash flows. Adding to this uncertainty are a series of court cases challenging the constitutionality of the universal service fund program that establishes and administers these regulatory support payments. On July 24, 2024, differing from earlier decisions at the Sixth and Eleventh Circuits, the U.S. Court of Appeals for the Fifth Circuit sitting in en banc review ruled that the universal service fund program is unconstitutional as currently administered, and remanded the case to the FCC. The FCC has filed a petition for certiorari with the Supreme Court. In addition, a working group within Congress is considering legislative reform of the universal service funding program, but has not yet released legislative text. This ruling may have significant adverse effects on the funding that each of UScellular and TDS Telecom receives from programs like USF high-cost support and E-ACAM. Additionally, the ruling may have significant adverse effects on federal government supported programs that many of UScellular’s and TDS Telecom’s customers benefit from.
Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services, including USF fees and common carrier regulatory fees. The division of services between interstate services and intrastate services, including the divisions associated with Federal USF fees, is a matter of interpretation and in the future may be contested by the FCC or state authorities. The FCC in the future also may change the basis on which Federal USF fees are charged. The Federal government and many states also apply transaction-based taxes to sales of telecommunications services and products and to purchases of telecommunications services from various carriers. In addition, state regulators and local governments have imposed and may continue to impose various surcharges, taxes and fees on telecommunications services. The applicability of these surcharges and fees to TDS’ services is uncertain in many cases and periodically, state and federal regulators may increase or change the surcharges and fees TDS currently pays. In some instances, TDS passes through these charges to its customers. However, Congress, the FCC, state regulatory agencies or state legislatures may limit the ability to pass through transaction-based tax liabilities, regulatory surcharges and regulatory fees imposed on TDS to customers. TDS may or may not be able to recover some or all of those taxes from its customers and the amount of taxes may deter demand for its services or increase its cost to provide service.
38
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
As of September 30, 2024, approximately 50% of TDS' long-term debt was in fixed-rate senior notes and approximately 50% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt.
The following table presents the scheduled principal payments on long-term debt, lease obligations, and the related weighted average interest rates by maturity dates at September 30, 2024.
| Principal Payments Due by Period | |||||||||||
|
Long-Term Debt Obligations
1
|
Weighted-Avg. Interest Rates on Long-Term Debt Obligations
2
|
||||||||||
| (Dollars in millions) | |||||||||||
| Remainder of 2024 | $ | 7 | 7.3 | % | |||||||
| 2025 | 29 | 7.3 | % | ||||||||
| 2026 | 579 | 6.8 | % | ||||||||
| 2027 | 322 | 6.7 | % | ||||||||
| 2028 | 485 | 7.0 | % | ||||||||
| Thereafter | 2,786 | 6.9 | % | ||||||||
| Total | $ | 4,208 | 6.9 | % | |||||||
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, unamortized discounts related to UScellular's 6.7% Senior Notes, and outstanding borrowings under the receivables securitization agreement, which principal repayments are not scheduled but are instead based on actual receivable collections.
2
Represents the weighted average stated interest rates at September 30, 2024, for debt maturing in the respective periods.
See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of September 30, 2024.
39
Financial Statements
Telephone and Data Systems, Inc.
Consolidated Statement of Operations
(Unaudited)
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars and shares in millions, except per share amounts) | |||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||
| Service | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equipment and product sales |
|
|
|
|
|||||||||||||||||||
| Total operating revenues |
|
|
|
|
|||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) |
|
|
|
|
|||||||||||||||||||
| Cost of equipment and products |
|
|
|
|
|||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|||||||||||||||||||
| Loss on impairment of licenses |
|
|
|
|
|||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net |
(
|
|
(
|
|
|||||||||||||||||||
| (Gain) loss on license sales and exchanges, net |
(
|
|
|
|
|||||||||||||||||||
| Total operating expenses |
|
|
|
|
|||||||||||||||||||
| Operating income (loss) |
(
|
|
|
|
|||||||||||||||||||
| Investment and other income (expense) | |||||||||||||||||||||||
| Equity in earnings of unconsolidated entities |
|
|
|
|
|||||||||||||||||||
| Interest and dividend income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Other, net |
|
|
|
|
|||||||||||||||||||
| Total investment and other expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Income (loss) before income taxes |
(
|
|
(
|
|
|||||||||||||||||||
| Income tax expense (benefit) |
(
|
|
|
|
|||||||||||||||||||
| Net income (loss) |
(
|
|
(
|
|
|||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests, net of tax |
(
|
|
|
|
|||||||||||||||||||
| Net income (loss) attributable to TDS shareholders |
(
|
|
(
|
|
|||||||||||||||||||
| TDS Preferred Share dividends |
|
|
|
|
|||||||||||||||||||
| Net loss attributable to TDS common shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Basic weighted average shares outstanding |
|
|
|
|
|||||||||||||||||||
| Basic earnings (loss) per share attributable to TDS common shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Diluted weighted average shares outstanding |
|
|
|
|
|||||||||||||||||||
| Diluted earnings (loss) per share attributable to TDS common shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
40
Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
|
Nine Months Ended
September 30, |
|||||||||||
| 2024 | 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ |
(
|
$ |
|
|||||||
| Add (deduct) adjustments to reconcile net income (loss) to net cash flows from operating activities | |||||||||||
| Depreciation, amortization and accretion |
|
|
|||||||||
| Bad debts expense |
|
|
|||||||||
| Stock-based compensation expense |
|
|
|||||||||
| Deferred income taxes, net |
(
|
|
|||||||||
| Equity in earnings of unconsolidated entities |
(
|
(
|
|||||||||
| Distributions from unconsolidated entities |
|
|
|||||||||
| Loss on impairment of licenses |
|
|
|||||||||
| (Gain) loss on asset disposals, net |
|
|
|||||||||
| (Gain) loss on sale of business and other exit costs, net |
(
|
|
|||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|||||||||
| Other operating activities |
|
|
|||||||||
| Changes in assets and liabilities from operations | |||||||||||
| Accounts receivable |
|
|
|||||||||
| Equipment installment plans receivable |
|
|
|||||||||
| Inventory |
|
|
|||||||||
| Accounts payable |
|
(
|
|||||||||
| Customer deposits and deferred revenues |
(
|
(
|
|||||||||
| Accrued taxes |
|
|
|||||||||
| Accrued interest |
|
|
|||||||||
| Other assets and liabilities |
(
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| Cash flows from investing activities | |||||||||||
| Cash paid for additions to property, plant and equipment |
(
|
(
|
|||||||||
| Cash paid for licenses |
(
|
(
|
|||||||||
| Cash received from divestitures |
|
|
|||||||||
| Other investing activities |
|
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| Cash flows from financing activities | |||||||||||
| Issuance of long-term debt |
|
|
|||||||||
| Repayment of long-term debt |
(
|
(
|
|||||||||
| Repayment of short-term debt |
|
(
|
|||||||||
| Tax payments for TDS stock-based compensation awards |
(
|
(
|
|||||||||
| Tax payments for UScellular stock-based compensation awards |
(
|
(
|
|||||||||
| Repurchase of TDS Common Shares |
|
(
|
|||||||||
| Repurchase of UScellular Common Shares |
(
|
|
|||||||||
| Dividends paid to TDS shareholders |
(
|
(
|
|||||||||
| Payment of debt issuance costs |
(
|
(
|
|||||||||
| Distributions to noncontrolling interests |
(
|
(
|
|||||||||
| Cash paid for software license agreements |
(
|
(
|
|||||||||
| Other financing activities |
(
|
|
|||||||||
| Net cash used in financing activities |
(
|
(
|
|||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
|
(
|
|||||||||
| Cash, cash equivalents and restricted cash | |||||||||||
| Beginning of period |
|
|
|||||||||
| End of period | $ |
|
$ |
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
41
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — Assets
(Unaudited)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Accounts receivable | |||||||||||
|
Customers and agents, less allowances of $
|
|
|
|||||||||
|
Other, less allowances of $
|
|
|
|||||||||
| Inventory, net |
|
|
|||||||||
| Prepaid expenses |
|
|
|||||||||
| Income taxes receivable |
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Assets held for sale |
|
|
|||||||||
| Licenses |
|
|
|||||||||
|
Other intangible assets, net of accumulated amortization of $
|
|
|
|||||||||
| Investments in unconsolidated entities |
|
|
|||||||||
| Property, plant and equipment | |||||||||||
| In service and under construction |
|
|
|||||||||
| Less: Accumulated depreciation and amortization |
|
|
|||||||||
| Property, plant and equipment, net |
|
|
|||||||||
| Operating lease right-of-use assets |
|
|
|||||||||
| Other assets and deferred charges |
|
|
|||||||||
|
Total assets
1
|
$ |
|
$ |
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
42
Telephone and Data Systems, Inc.
Consolidated Balance Sheet — Liabilities and Equity
(Unaudited)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars and shares in millions, except per share amounts) | |||||||||||
| Current liabilities | |||||||||||
| Current portion of long-term debt | $ |
|
$ |
|
|||||||
| Accounts payable |
|
|
|||||||||
| Customer deposits and deferred revenues |
|
|
|||||||||
| Accrued interest |
|
|
|||||||||
| Accrued taxes |
|
|
|||||||||
| Accrued compensation |
|
|
|||||||||
| Short-term operating lease liabilities |
|
|
|||||||||
| Other current liabilities |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Liabilities held for sale |
|
|
|||||||||
| Deferred liabilities and credits | |||||||||||
| Deferred income tax liability, net |
|
|
|||||||||
| Long-term operating lease liabilities |
|
|
|||||||||
| Other deferred liabilities and credits |
|
|
|||||||||
| Long-term debt, net |
|
|
|||||||||
| Commitments and contingencies |
|
|
|||||||||
| Noncontrolling interests with redemption features |
|
|
|||||||||
| Equity | |||||||||||
| TDS shareholders’ equity | |||||||||||
| Series A Common and Common Shares | |||||||||||
|
Authorized
|
|||||||||||
|
Issued
|
|||||||||||
|
Outstanding
|
|||||||||||
|
Par Value ($
|
|
|
|||||||||
| Capital in excess of par value |
|
|
|||||||||
|
Preferred Shares,
|
|
|
|||||||||
|
Treasury shares, at cost,
|
(
|
(
|
|||||||||
| Accumulated other comprehensive income |
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Total TDS shareholders' equity |
|
|
|||||||||
| Noncontrolling interests |
|
|
|||||||||
| Total equity |
|
|
|||||||||
|
Total liabilities and equity
1
|
$ |
|
$ |
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
The consolidated total assets as of September 30, 2024 and December 31, 2023, include assets held by consolidated variable interest entities (VIEs) of $
1,018
million and $
1,188
million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of September 30, 2024 and December 31, 2023, include certain liabilities of consolidated VIEs of $
22
million and $
23
million
, respectively
, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 12 — Variable Interest Entities for additional information.
43
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| TDS Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
Capital in
excess of
par value
|
Preferred Shares |
Treasury
shares
|
Accumulated
other comprehensive income |
Retained
earnings
|
Total TDS
shareholders'
equity
|
Noncontrolling
interests |
Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2024 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to TDS shareholders | — | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests classified as equity | — | — | — | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Common and Series A Common share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Preferred share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Incentive and compensation plans
|
— |
|
— |
|
— |
(
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
| Adjust investment in subsidiaries for issuances and other compensation plans | — |
|
— | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2024 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
44
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| TDS Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
Capital in
excess of
par value
|
Preferred Shares |
Treasury
shares
|
Accumulated
other comprehensive income |
Retained
earnings
|
Total TDS
shareholders'
equity
|
Noncontrolling
interests
|
Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests classified as equity | — | — | — | — | — | — |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Common and Series A Common share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Preferred share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Dividend reinvestment plan
|
— | — | — |
|
— |
(
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Incentive and compensation plans
|
— |
|
— | — | — | — |
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans
|
— |
|
— | — | — | — |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
45
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| TDS Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
Capital in
excess of
par value
|
Preferred Shares |
Treasury
shares
|
Accumulated
other comprehensive income |
Retained
earnings
|
Total TDS
shareholders'
equity
|
Noncontrolling
interests
|
Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to TDS shareholders | — | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests classified as equity | — | — | — | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Common and Series A Common share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Preferred share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Dividend reinvestment plan | — | — | — |
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Incentive and compensation plans
|
— |
|
— |
|
— |
(
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
| Adjust investment in subsidiaries for issuances and other compensation plans | — |
(
|
— | — | — | — |
(
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2024 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
46
Telephone and Data Systems, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
| TDS Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series A
Common and
Common
shares
|
Capital in
excess of
par value
|
Preferred Shares |
Treasury
shares
|
Accumulated
other comprehensive income |
Retained
earnings
|
Total TDS
shareholders'
equity
|
Noncontrolling
interests
|
Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to TDS shareholders | — | — | — | — | — |
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Net income attributable to noncontrolling interests classified as equity
|
— | — | — | — | — | — |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Common and Series A Common share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
TDS Preferred share dividends ($
|
— | — | — | — | — |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | — | — |
(
|
— | — |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Dividend reinvestment plan
|
— |
|
— |
|
— |
(
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Incentive and compensation plans
|
— |
|
— |
|
— |
(
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans
|
— |
(
|
— | — | — | — |
(
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — |
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
47
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
Note 1 Basis of Presentation
The accounting policies of Telephone and Data Systems, Inc. (TDS) conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Unless otherwise specified, references to accounting provisions and GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements include the accounts of TDS and subsidiaries in which it has a controlling financial interest, including TDS’
83
%-owned subsidiary, United States Cellular Corporation (UScellular) and TDS’ wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that requires consolidation into the TDS financial statements under GAAP. Intercompany accounts and transactions have been eliminated.
TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended September 30, 2024, are UScellular Wireless, UScellular Towers 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. The HMS operations were sold to a third-party on September 3, 2024. See Note 7 — Divestitures for additional information. All of TDS’ segments operate only in the United States. See Note 14 — Business Segment Information for summary financial information on each business segment.
Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2023.
The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of September 30, 2024 and December 31, 2023, its results of operations and changes in equity for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three and nine months ended September 30, 2024 and 2023, doesn't materially differ from net income. 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, 2023.
Change in Reportable Segments
Software License Agreements
Certain software licenses are recorded as acquisitions of property, plant and equipment and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition, and are treated as non-cash activity in the Consolidated Statement of Cash Flows. Such acquisitions of software licenses that are not reflected as Cash paid for additions to property, plant and equipment were $
11
million and $
18
million for the nine months ended September 30, 2024 and 2023, respectively.
Restricted Cash
TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 11 — Debt for additional information related to the receivables securitization agreement.
The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Restricted cash included in Other current assets |
|
|
|||||||||
| Cash, cash equivalents and restricted cash in the statement of cash flows | $ |
|
$ |
|
|||||||
48
Note 2 Revenue Recognition
Disaggregation of Revenue
In the following table, TDS' revenues are disaggregated by type of service, which represents the relevant categorization of revenues for TDS' reportable segments, and timing of recognition. Service revenues are recognized over time and Equipment and product sales are recognized at a point in time.
| Three Months Ended September 30, 2024 | UScellular | TDS Telecom | Corporate, Eliminations and Other | Total | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Revenues from contracts with customers: | |||||||||||||||||||||||
| Type of service: | |||||||||||||||||||||||
| Retail service | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residential |
|
|
|
|
|||||||||||||||||||
| Commercial |
|
|
|
|
|||||||||||||||||||
| Wholesale |
|
|
|
|
|||||||||||||||||||
| Other service |
|
|
|
|
|||||||||||||||||||
| Service revenues from contracts with customers |
|
|
|
|
|||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|||||||||||||||||||
|
Total revenues from contracts with customers
1
|
|
|
|
|
|||||||||||||||||||
|
Operating lease income
1
|
|
|
|
|
|||||||||||||||||||
| Total operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Three Months Ended September 30, 2023 | UScellular | TDS Telecom | Corporate, Eliminations and Other | Total | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Revenues from contracts with customers: | |||||||||||||||||||||||
| Type of service: | |||||||||||||||||||||||
| Retail service | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residential |
|
|
|
|
|||||||||||||||||||
| Commercial |
|
|
|
|
|||||||||||||||||||
| Wholesale |
|
|
|
|
|||||||||||||||||||
| Other service |
|
|
|
|
|||||||||||||||||||
| Service revenues from contracts with customers |
|
|
|
|
|||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|||||||||||||||||||
|
Total revenues from contracts with customers
1
|
|
|
|
|
|||||||||||||||||||
|
Operating lease income
1
|
|
|
|
|
|||||||||||||||||||
| Total operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
49
| Nine Months Ended September 30, 2024 | UScellular | TDS Telecom | Corporate, Eliminations and Other | Total | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Revenues from contracts with customers: | |||||||||||||||||||||||
| Type of service: | |||||||||||||||||||||||
| Retail service | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residential |
|
|
|
|
|||||||||||||||||||
| Commercial |
|
|
|
|
|||||||||||||||||||
| Wholesale |
|
|
|
|
|||||||||||||||||||
| Other service |
|
|
|
|
|||||||||||||||||||
| Service revenues from contracts with customers |
|
|
|
|
|||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|||||||||||||||||||
|
Total revenues from contracts with customers
1
|
|
|
|
|
|||||||||||||||||||
|
Operating lease income
1
|
|
|
|
|
|||||||||||||||||||
| Total operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Nine Months Ended September 30, 2023 | UScellular | TDS Telecom | Corporate, Eliminations and Other | Total | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Revenues from contracts with customers: | |||||||||||||||||||||||
| Type of service: | |||||||||||||||||||||||
| Retail service | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Residential |
|
|
|
|
|||||||||||||||||||
| Commercial |
|
|
|
|
|||||||||||||||||||
| Wholesale |
|
|
|
|
|||||||||||||||||||
| Other service |
|
|
|
|
|||||||||||||||||||
| Service revenues from contracts with customers |
|
|
|
|
|||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|||||||||||||||||||
|
Total revenues from contracts with customers
1
|
|
|
|
|
|||||||||||||||||||
|
Operating lease income
1
|
|
|
|
|
|||||||||||||||||||
| Total operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Numbers may not foot due to rounding.
1
UScellular's Total revenues from contracts with customers represents revenues related to the Wireless segment and Operating lease income represents revenues related to the Towers segment.
Contract Balances
The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Contract assets | $ |
|
$ |
|
|||||||
| Contract liabilities | $ |
|
$ |
|
|||||||
Revenue recognized related to contract liabilities existing at January 1, 2024 was $
222
million for the nine months ended September 30, 2024.
50
Transaction price allocated to the remaining performance obligations
The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of September 30, 2024 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.
A significant portion of TDS Telecom's residential revenue is derived from customers who may generally cancel their subscriptions at any time without penalty. For these contracts, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from TDS Telecom's existing customer base and therefore is excluded from these estimates.
| Service Revenues | |||||
| (Dollars in millions) | |||||
| Remainder of 2024 | $ |
|
|||
| 2025 |
|
||||
| Thereafter |
|
||||
|
Total
|
$ |
|
|||
Contract Cost Assets
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Costs to obtain contracts | |||||||||||
| Sales commissions | $ |
|
$ |
|
|||||||
| Fulfillment costs | |||||||||||
| Installation costs |
|
|
|||||||||
| Total contract cost assets | $ |
|
$ |
|
|||||||
Amortization of contract cost assets was $
24
million and $
74
million for the three and nine months ended September 30, 2024, respectively, and $
27
million and $
82
million for the three and nine months ended September 30, 2023, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.
51
Note 3 Fair Value Measurements
As of September 30, 2024 and December 31, 2023, 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.
As of September 30, 2024 UScellular recorded a net written call option at fair value, which was considered Level 3 within the fair value hierarchy. See Note 7 — Divestitures for additional information.
TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.
| Level within the Fair Value Hierarchy | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| Book Value | Fair Value | Book Value | Fair Value | ||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| Long-term debt | 2 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||
Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of Long-term debt was estimated using various methods, including quoted market prices and discounted cash flow analyses.
The fair values of Cash and cash equivalents, restricted cash and short-term debt approximate their book values due to the short-term nature of these financial instruments.
Note 4 Equipment Installment Plans
UScellular sells devices to customers under equipment installment plans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.
The following table summarizes equipment installment plan receivables.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Equipment installment plan receivables, gross | $ |
|
$ |
|
|||||||
| Allowance for credit losses |
(
|
(
|
|||||||||
| Equipment installment plan receivables, net | $ |
|
$ |
|
|||||||
| Net balance presented in the Consolidated Balance Sheet as: | |||||||||||
| Accounts receivable — Customers and agents (Current portion) | $ |
|
$ |
|
|||||||
| Other assets and deferred charges (Non-current portion) |
|
|
|||||||||
| Equipment installment plan receivables, net | $ |
|
$ |
|
|||||||
52
UScellular uses various inputs to evaluate the credit profiles of its customers, including internal data, information from credit bureaus and other sources. From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days.
The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Lowest Risk
|
Lower Risk
|
Slight Risk
|
Higher Risk
|
Total
|
Lowest Risk
|
Lower Risk
|
Slight Risk
|
Higher Risk
|
Total
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unbilled | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
| Billed — current |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Billed — past due |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
The balance of the equipment installment plan receivables as of September 30, 2024 on a gross basis by year of origination were as follows:
| 2021 | 2022 | 2023 | 2024 |
Total
|
|||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| Lowest Risk | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Lower Risk |
|
|
|
|
|
||||||||||||||||||||||||
| Slight Risk |
|
|
|
|
|
||||||||||||||||||||||||
| Higher Risk |
|
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
The write-offs, net of recoveries for the nine months ended September 30, 2024 on a gross basis by year of origination were as follows:
| 2021 | 2022 | 2023 | 2024 |
Total
|
|||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| Write-offs, net of recoveries | $ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
Activity for the nine months ended September 30, 2024 and 2023, in the allowance for credit losses for equipment installment plan receivables was as follows:
| September 30, 2024 | September 30, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Allowance for credit losses, beginning of period | $ |
|
$ |
|
|||||||
| Bad debts expense |
|
|
|||||||||
| Write-offs, net of recoveries |
(
|
(
|
|||||||||
| Allowance for credit losses, end of period | $ |
|
$ |
|
|||||||
Note 5 Income Taxes
The effective tax rate on Income before income (loss) taxes for the three and nine months ended September 30, 2024 was
24.2
% and (
2.5
)%, respectively. These effective tax rates reflect the impacts of recurring tax adjustments including nondeductible interest and compensation expenses as well as the discrete impact of the impairment of certain wireless spectrum licenses and tax impacts of divesting the HMS operations.
The effective tax rate on Income before income taxes for the three and nine months ended September 30, 2023 was
86.0
% and
77.4
%, respectively. These effective tax rates were higher than normal due primarily to the relatively low amount of Income before income taxes which increased the effective tax rate impact of recurring tax adjustments including nondeductible interest and compensation expenses, as well as discrete increases in state valuation allowances which reduced the net value of deferred tax assets.
53
Note 6 Earnings Per Share
Basic earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period. Diluted earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units, as calculated using the treasury stock method.
The amounts used in computing basic and diluted earnings (loss) per share attributable to TDS common shareholders were as follows:
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars and shares in millions, except per share amounts) | |||||||||||||||||||||||
| Net income (loss) attributable to TDS common shareholders used in basic earnings (loss) per share | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Adjustments to compute diluted earnings: | |||||||||||||||||||||||
| Noncontrolling interest adjustment |
|
(
|
|
|
|||||||||||||||||||
| Net income (loss) attributable to TDS shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Weighted average number of shares used in basic and diluted earnings (loss) per share: | |||||||||||||||||||||||
| Common Shares |
|
|
|
|
|||||||||||||||||||
| Series A Common Shares |
|
|
|
|
|||||||||||||||||||
| Total |
|
|
|
|
|||||||||||||||||||
| Basic earnings (loss) per share attributable to TDS common shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Diluted earnings (loss) per share attributable to TDS common shareholders | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings (loss) per share attributable to TDS common shareholders because their effects were antidilutive. The number of such Common Shares excluded was
5
million and
6
million for the three and nine months ended September 30, 2024, respectively, and
6
million and
5
million for the three and nine months ended September 30, 2023, respectively.
54
Note 7 Divestitures
UScellular
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. On May 28, 2024, UScellular announced that its Board of Directors unanimously approved the execution of a Securities Purchase Agreement (Securities Purchase Agreement) by and among TDS, UScellular, T-Mobile US, Inc. (T-Mobile) and USCC Wireless Holdings, LLC, pursuant to which, among other things, UScellular has agreed to sell its wireless operations and select spectrum assets to T-Mobile for a purchase price, subject to adjustment as specified in the Securities Purchase Agreement, of $
4,400
million, which is payable in a combination of cash and the assumption of up to approximately $
2,000
million in debt. The Securities Purchase Agreement also contemplates, among other things, a Short-Term Spectrum Manager Lease Agreement that will become effective at the closing date, which provides T-Mobile with an exclusive license to use certain UScellular spectrum assets at no cost for up to one-year for the purpose of providing continued, uninterrupted service to customers. UScellular expects to present the wireless operations and select spectrum assets sold to T-Mobile as discontinued operations if and when the accounting criteria is met. The transactions are expected to close in mid-2025, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.
On October 17, 2024, UScellular, and certain subsidiaries of UScellular, entered into a License Purchase Agreement (Verizon Purchase Agreement) with Verizon Communications Inc. (Verizon) to sell certain AWS, Cellular and PCS wireless spectrum licenses and agreed to grant Verizon certain rights to lease such licenses prior to the transaction close for total proceeds of $
1,000
million. As of September 30, 2024, UScellular's book value of the wireless spectrum licenses to be sold was $
586
million. The transaction is subject to regulatory approval and other customary closing conditions, and is contingent on the closing of the T-Mobile transaction and the termination of the T-Mobile Short-Term Spectrum Manager Lease Agreement.
The strategic alternatives review process is ongoing as UScellular seeks to opportunistically monetize its spectrum assets that are not subject to the Securities Purchase Agreement or the Verizon Purchase Agreement.
TDS incurred third-party expenses related to the announced transactions and strategic alternatives review of
$
11
million
and $
43
million for the three and nine months ended September 30, 2024, respectively, and $
4
million for both the three and nine months ended September 30, 2023, which are included in Selling, general and administrative expenses.
UScellular also assessed whether the execution of the Securities Purchase Agreement constituted a significant change in the way it expects to operate its long-lived assets. Specifically, given the Securities Purchase Agreement, and UScellular's plan to divest of its wireless operations, UScellular expects to generate cash flows from the wireless operations separately from the retained business. Therefore, in the second quarter of 2024, UScellular bifurcated the historical single asset group into
two
asset groups – wireless and towers. At that time, UScellular also assessed whether an impairment test of its long-lived assets was required and determined that there was no triggering event present due to the factors just described that required a recoverability test to be performed. In the third quarter of 2024, UScellular re-assessed whether an impairment test of its long-lived assets was required considering the wireless spectrum license impairment and determined that there was no triggering event that required a recoverability test to be performed.
As part of the transaction, UScellular entered into a Put/Call Agreement with T-Mobile whereby T-Mobile has the right to call certain spectrum assets and UScellular has the right to put certain spectrum assets to T-Mobile for an aggregate agreed upon price of $
106
million. The call option notice period started on May 24, 2024, and the put exercise period starts at the close of the broader transaction. There was no cash exchanged at the inception of the Put/Call Agreement. All license transfers pursuant to any put/call are subject to Federal Communications Commission (FCC) approval. UScellular accounts for this instrument as a net written call option and records such option at fair value each reporting period unless/until such option is exercised or terminated. UScellular estimated the fair value of the net written call option at $
6
million as of September 30, 2024, which was recorded to Other deferred liabilities and credits in the Consolidated Balance Sheet. The change in fair value is recorded to (Gain) loss on license sales and exchanges, net in the Consolidated Statement of Operations.
TDS Telecom
On May 31, 2024, TDS Telecom entered into an agreement with a third-party to sell certain incumbent markets in Virginia for a purchase price of $
31
million. The assets and liabilities of the markets being sold have been classified as held for sale in the Consolidated Balance Sheet as of September 30, 2024. The transaction is expected to close in the fourth quarter of 2024, subject to customary closing conditions.
On August 19, 2024, TDS Telecom entered into agreements with third-parties to sell certain assets and liabilities of its cable operations in Texas for a price of $
26
million. The assets and liabilities of the operations being sold have been classified as held for sale in the Consolidated Balance Sheet as of September 30, 2024. The transaction is expected to close in the fourth quarter of 2024, subject to customary closing conditions.
55
Other
On May 31, 2024, TDS entered into an agreement to sell its HMS operations, which operated through wholly-owned subsidiaries OneNeck IT Solutions LLC and OneNeck Data Center Holdings LLC to a third-party for a purchase price, subject to adjustment as specified in the agreement, of $
101
million, with an additional $
9
million of contingent proceeds. The transaction closed on September 3, 2024, and TDS received proceeds of $
91
million and recognized a book gain of $
12
million in (Gain) loss on sale of business and other exit costs, net in the Consolidated State
ment of Operations.
Note 8 Intangible Assets
Wireless Spectrum License Impairment – UScellular
Wireless spectrum licenses represent a significant component of TDS' consolidated assets. Wireless spectrum licenses are considered to be indefinite-lived assets, and therefore, are not amortized but are tested for impairment annually or more frequently if there are events or circumstances that cause UScellular to believe that their carrying values exceed their fair values. Wireless spectrum licenses are tested for impairment at the level of reporting referred to as a unit of accounting.
As a result of executing the Securities Purchase Agreement with T-Mobile during the second quarter of 2024, UScellular bifurcated its historical single unit of accounting into
two
units of accounting – wireless spectrum licenses to be sold under the Securities Purchase Agreement and wireless spectrum licenses to be retained. During the third quarter of 2024, UScellular’s efforts to monetize its spectrum assets not subject to the Securities Purchase Agreement provided new evidence that the highest and best use of the retained spectrum to current buyers would be in separate tranches. As a result, UScellular further divided its wireless spectrum licenses units of accounting from one retained unit into eleven units, resulting in
twelve
total units of accounting. UScellular concluded that there were events and circumstances in the third quarter of 2024 that caused UScellular to believe the carrying values of five of the units of accounting may exceed their respective fair values (i.e. triggering event), and accordingly a quantitative impairment assessment was performed for those units. There was no triggering event for the other units of accounting.
A market approach was used for purposes of the quantitative impairment assessment to value the wireless spectrum licenses for the five units tested, using a range of values established largely through industry benchmarks, FCC auction data, and precedent transactions. The midpoint of the range was established as the estimate of fair value for each unit of accounting. Based on this valuation, the fair value of the wireless spectrum licenses exceeded their respective carrying values by amounts ranging from
9
% to
80
% for three of the units of accounting. For two of the units of accounting, the fair value of the wireless spectrum licenses was less than the respective carrying value, and a $
136
million impairment was recorded to Loss on impairment of licenses in the Consolidated Statement of Operations within UScellular’s Wireless segment during the third quarter of 2024. The impairment loss was substantially all related to the retained high-band spectrum unit of accounting which includes the 28 GHz, 37 GHz and 39 GHz frequency bands, the carrying value of which was $
161
million as of September 30, 2024, after the impairment loss. The impairment loss is driven by the change in the units of accounting described above combined with lower fair value primarily attributed to high-band spectrum as a result of industry-wide challenges encountered related to the operationalization of this spectrum.
56
Note 9 Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest.
TDS’ Investments in unconsolidated entities are accounted for using the equity method, measurement alternative method or net asset value practical expedient method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Equity method investments | $ |
|
$ |
|
|||||||
| Measurement alternative method investments |
|
|
|||||||||
| Investments recorded using the net asset value practical expedient |
|
|
|||||||||
| Total investments in unconsolidated entities | $ |
|
$ |
|
|||||||
The following table, which is based on unaudited information provided in part by third parties, summarizes the combined results of operations of TDS’ equity method investments.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Operating expenses |
|
|
|
|
|||||||||||||||||||
| Operating income |
|
|
|
|
|||||||||||||||||||
| Other income (expense), net |
|
(
|
|
(
|
|||||||||||||||||||
| Net income | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Note 10 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, 2024, 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, 2024 were as follows:
| Asset Retirement Obligations | |||||
| (Dollars in millions) | |||||
| Balance at December 31, 2023 | $ |
|
|||
| Additional liabilities accrued |
|
||||
| Revisions in estimated cash outflows |
|
||||
| Disposition of assets |
(
|
||||
| Accretion expense |
|
||||
| Balance at September 30, 2024 | $ |
|
|||
57
Note 11 Debt
Revolving Credit Agreements
TDS has a revolving credit agreement with maximum borrowing capacity of $
400
million. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the nine months ended September 30, 2024, TDS borrowed $
100
million and repaid $
200
million under its revolving credit agreement. Borrowings under the TDS revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus
1.60
%. As of September 30, 2024, there were
no
outstanding borrowings and the unused borrowing capacity was $
399
million.
Receivables Securitization Agreement
UScellular, through its subsidiaries, has a receivables securitization agreement that permits securitized borrowings using its equipment installment plan receivables. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until September 2025. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. The outstanding borrowings bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus
1.15
%. During the nine months ended September 30, 2024, UScellular borrowed $
40
million and repaid $
188
million under its receivables securitization agreement. As of September 30, 2024, the outstanding borrowings under the agreement were $
2
million and the unused borrowing capacity was $
448
million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of September 30, 2024, the USCC Master Note Trust held $
132
million of assets available to be pledged as collateral for the receivables securitization agreement.
Term Loan Agreements
In May 2024, TDS entered into a $
375
million unsecured term loan credit agreement. At closing, $
300
million was drawn, less original issue discount, and the remaining $
75
million may be drawn until November 2025. The maturity date of the agreement is May 2029. The agreement requires TDS to make prepayments of the outstanding borrowings to the extent TDS receives cash proceeds in excess of prescribed thresholds from certain transactions as more fully described in the agreement. Borrowings under the agreement bear interest at a rate of SOFR plus
7.00
%. Quarterly payments of the outstanding borrowings multiplied by
0.25
% were required beginning in September 2024, with the amount increasing if the remaining available capacity is drawn. As of September 30, 2024, the outstanding borrowings under the agreement were $
299
million.
In October 2024, UScellular repaid $
40
million under its term loan agreement due July 2026.
Debt Covenants
The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. TDS and UScellular are required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following:
4.00
to 1.00 from April 1, 2024 through March 31, 2025;
3.75
to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than
3.00
to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe they were in compliance as of September 30, 2024 with all such financial covenants.
The term loan agreement entered into in May 2024 requires TDS to comply with certain affirmative and negative covenants, which includes a financial covenant that may restrict the borrowing capacity available. TDS is required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following:
4.50
to 1.00 from April 1, 2024 through March 31, 2025;
4.25
to 1.00 from April 1, 2025 and thereafter. TDS believes that it was in compliance as of September 30, 2024 with such financial covenant.
58
Note 12 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, 2023.
UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs, and therefore consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables.
The following VIEs were formed to participate in FCC auctions of wireless spectrum licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions:
▪
Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and
▪
King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.
These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect TDS subsidiary, to sell or lease certain wireless spectrum licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated into the TDS financial statements.
TDS also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, UScellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships also are recognized as VIEs and are consolidated into the TDS financial statements under the variable interest model.
59
The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in TDS’ Consolidated Balance Sheet.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Dollars in millions) | |||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Accounts receivable |
|
|
|||||||||
| Inventory, net |
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Licenses |
|
|
|||||||||
| Property, plant and equipment, net |
|
|
|||||||||
| Operating lease right-of-use assets |
|
|
|||||||||
| Other assets and deferred charges |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
| Liabilities | |||||||||||
| Current liabilities | $ |
|
$ |
|
|||||||
| Long-term operating lease liabilities |
|
|
|||||||||
| Other deferred liabilities and credits |
|
|
|||||||||
|
Total liabilities
1
|
$ |
|
$ |
|
|||||||
1
Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 11 – Debt for additional information.
Unconsolidated VIEs
TDS manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities, and therefore does not consolidate them into the TDS financial statements under the variable interest model.
TDS’ total investment in these unconsolidated entities was $
5
million and $
6
million at September 30, 2024 and December 31, 2023, 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 $
295
million and $
276
million during the nine months ended September 30, 2024 and 2023, respectively, of which $
253
million in 2024 and $
244
million in 2023, are related to USCC EIP LLC as discussed above. TDS may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for their operations or the development of wireless spectrum licenses granted in various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long-term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.
The limited partnership agreement of Advantage Spectrum also provided 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 put option was not exercised during the exercise period.
Note 13 Noncontrolling Interests
The following schedule discloses the effects of Net income attributable to TDS shareholders and changes in TDS’ ownership interest in UScellular on TDS’ equity:
| Nine Months Ended September 30, | 2024 | 2023 | |||||||||
| (Dollars in millions) | |||||||||||
| Net income (loss) attributable to TDS shareholders | $ |
(
|
$ |
|
|||||||
| Transfers (to) from noncontrolling interests | |||||||||||
| Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares |
(
|
(
|
|||||||||
| Net transfers (to) from noncontrolling interests |
(
|
(
|
|||||||||
| Net income (loss) attributable to TDS shareholders after transfers (to) from noncontrolling interests | $ |
(
|
$ |
(
|
|||||||
60
Note 14 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.
During the second quarter of 2024, TDS and UScellular modified their reporting structure due to the planned disposal of the UScellular wireless operations and, as a result, disaggregated the UScellular operations into two reportable segments - Wireless and Towers. This presentation reflects how TDS' and UScellular's chief operating decision maker allocates resources and evaluates operating performance following this strategic shift. The Towers segment records rental revenue and the Wireless segment records a related expense when the Wireless segment uses company-owned towers to locate its network equipment, using estimated market pricing - this revenue and expense is eliminated in consolidation. Prior periods have been updated to conform to the new reportable segments.
61
Financial data for TDS’ reportable segments for the three and nine month periods ended, or as of September 30, 2024 and 2023, is as follows. See Note 1 — Basis of Presentation for additional information.
| UScellular | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended or as of September 30, 2024 | Wireless | Towers | Intra-company eliminations | UScellular Total | TDS Telecom | Corporate, Eliminations and Other | Total | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||||||||||
| Service | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total operating revenues |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
Cost of services (excluding Depreciation, amortization and accretion reported below)
|
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of equipment and products |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Loss on impairment of licenses |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on license sales and exchanges, net |
(
|
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||
| Operating income (loss) |
(
|
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||
|
Equity in earnings of unconsolidated entities
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest and dividend income
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Other, net
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
| Net income (loss) |
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Expenses related to strategic alternatives review |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Loss on impairment of licenses |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on license sales and exchanges, net |
(
|
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
|
(
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Adjusted EBITDA
2
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||
|
Investments in unconsolidated entities
1
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||
|
Total assets
3
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
62
| UScellular | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended or as of September 30, 2023 | Wireless | Towers | Intra-company eliminations | UScellular Total | TDS Telecom | Corporate, Eliminations and Other | Total | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||||||||||
| Service | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total operating revenues |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of equipment and products |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
| Operating income (loss) |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
|
Equity in earnings of unconsolidated entities
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest and dividend income
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Net income (loss) |
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Expenses related to strategic alternatives review |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
|
(
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Adjusted EBITDA
2
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||
|
Investments in unconsolidated entities
1
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||
|
Total assets
3
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
63
| UScellular | |||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended or as of September 30, 2024 | Wireless | Towers | Intra-company eliminations | UScellular Total | TDS Telecom | Corporate, Eliminations and Other | Total | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||||||||||
| Service | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total operating revenues |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of equipment and products |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Loss on impairment of licenses |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Operating income (loss) |
(
|
|
|
(
|
|
(
|
|
||||||||||||||||||||||||||||||||||
|
Equity in earnings of unconsolidated entities
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest and dividend income
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Other, net
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
| Net income (loss) |
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Expenses related to strategic alternatives review |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Loss on impairment of licenses |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on sale of business and other exit costs, net |
|
|
|
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
|
(
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
|
Adjusted EBITDA
2
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
64
| UScellular | |||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended or as of September 30, 2023 | Wireless | Towers | Intra-company eliminations | UScellular Total | TDS Telecom | Corporate, Eliminations and Other | Total | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||||||||||
| Service | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Equipment and product sales |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total operating revenues |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) |
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Cost of equipment and products |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Operating income (loss) |
|
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
|
Equity in earnings of unconsolidated entities
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest and dividend income
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
|
Other, net
1
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
| Net income (loss) |
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Expenses related to strategic alternatives review |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
Interest expense
1
|
|
(
|
|
|
|||||||||||||||||||||||||||||||||||||
|
Income tax expense (benefit)
1
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||
|
Adjusted EBITDA
2
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||
| Capital expenditures | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
Numbers may not foot due to rounding.
1
Income and expense items below Operating income are not provided at the individual segment level for Wireless and Towers. These items are not included in the evaluation of operating performance of the segments, and therefore are reported for "UScellular Total".
2
Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.
3
Assets are not provided at the individual segment level for Wireless and Towers. The UScellular segments operate under a common capital structure, and management has historically considered its assets collectively as part of a combined wireless network.
65
Telephone and Data Systems, Inc.
Additional Required Information
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
TDS maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to TDS’ management, including its principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As required by SEC Rules 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of September 30, 2024, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal controls over financial reporting that have occurred during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting.
Legal Proceedings
On May 2, 2023, a putative stockholder class action was filed against TDS and UScellular and certain current and former officers and directors in the United States District Court for the Northern District of Illinois. An Amended Complaint was filed on September 1, 2023, which names TDS, UScellular, and certain current UScellular officers and directors as defendants, and alleges that certain public statements made between May 6, 2022 and November 3, 2022 (the potential class period) regarding, among other things, UScellular’s business strategies to address subscriber demand, violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934. The plaintiff seeks to represent a class of stockholders who purchased TDS equity securities during the potential class period and demands unspecified monetary damages.
On June 18, 2024, a stockholder derivative lawsuit was filed in the Circuit Court of Cook County, Illinois, Chancery Division against UScellular, certain TDS and UScellular directors and officers, and nominal defendant TDS. The derivative lawsuit takes issue with the same public statements made between May 6, 2022 and November 3, 2022, alleging that the fact that the statements were made was a breach of fiduciary duty on the part of the officer and director defendants, and bringing claims for indemnification and contribution against the officer and director defendants and UScellular. In addition to indemnification and contribution, the plaintiff seeks money damages and the implementation of certain governance proposals.
TDS is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition, or cash flows. TDS intends to contest plaintiffs’ claims vigorously on the merits.
Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2023, for additional information. Other than as described above, there have been no material changes to such information since December 31, 2023.
Unregistered Sales of Equity Securities and Use of Proceeds
On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the third quarter of 2024.
The maximum dollar value of shares that may yet be purchased under this program was $132 million as of September 30, 2024. There were no purchases made by or on behalf of TDS, and no open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.
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Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, none of TDS’ directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) has
adopted
or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5–1 trading arrangement (each as defined in Item 408 of Regulation S-K under the 1934 Act).
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Exhibits
| Exhibit Number | Description of Documents | ||||
| Exhibit 31.1 | |||||
| Exhibit 31.2 | |||||
| Exhibit 32.1 | |||||
| Exhibit 32.2 | |||||
| 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. | ||||
*Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits, schedules and similar attachments have been omitted; exhibits, schedules and other attachments will be provided to the Securities and Exchange Commission upon request.
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Form 10-Q Cross Reference Index
| Item Number | Page No. | ||||||||||||||||
| Part I. | Financial Information | ||||||||||||||||
| - | |||||||||||||||||
| - | |||||||||||||||||
| - | |||||||||||||||||
| Part II. | Other Information | ||||||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TELEPHONE AND DATA SYSTEMS, INC. | |||||||||||||||||
| (Registrant) | |||||||||||||||||
| Date: | November 1, 2024 | /s/ LeRoy T. Carlson, Jr. | |||||||||||||||
|
LeRoy T. Carlson, Jr.
President and Chief Executive Officer (principal executive officer) |
|||||||||||||||||
| Date: | November 1, 2024 | /s/ Vicki L. Villacrez | |||||||||||||||
|
Vicki L. Villacrez
Executive Vice President and Chief Financial Officer (principal financial officer) |
|||||||||||||||||
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TABLE OF CONTENTS
Note 1 Basis Of PresentationNote 2 Revenue RecognitionNote 3 Fair Value MeasurementsNote 4 Equipment Installment PlansNote 5 Income TaxesNote 6 Earnings Per ShareNote 7 DivestituresNote 8 Intangible AssetsNote 9 Investments in Unconsolidated EntitiesNote 10 Asset Retirement ObligationsNote 11 DebtNote 12 Variable Interest EntitiesNote 13 Noncontrolling InterestsNote 14 Business Segment Information