TELEPHONE & DATA SYSTEMS INC /DE/ (Form: 10-Q, Received: 08/04/2022 16:40:14)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2022


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

For the transition period from to

Commission file number 001-14157


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

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

(Address of principal executive offices) (Zip code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, $.01 par value

TDS

New York Stock Exchange

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

TDSPrU

New York Stock Exchange

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

TDSPrV

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

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

Yes

☒

☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

☐

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

Yes

☐

☒

The number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 2022, is 106,528,800 Common Shares, $.01 par value, and 7,364,100 Series A Common Shares, $.01 par value.

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q

For the Period Ended June 30, 2022


Index			Page No.

Management Discussion and Analysis of Financial Condition and Results of Operations			1
Executive Overview			1
Terms Used by TDS			3
Results of Operations – TDS Consolidated			4
UScellular Operations			7
TDS Telecom Operations			12
Liquidity and Capital Resources			18
Consolidated Cash Flow Analysis			22
Consolidated Balance Sheet Analysis			23
Supplemental Information Relating to Non-GAAP Financial Measures			24
Application of Critical Accounting Policies and Estimates			27

Regulatory Matters			27
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement			28

Risk Factors			30

Quantitative and Qualitative Disclosures About Market Risk			30

Financial Statements (Unaudited)			31
Consolidated Statement of Operations			31
Consolidated Statement of Comprehensive Income			32
Consolidated Statement of Cash Flows			33
Consolidated Balance Sheet			34
Consolidated Statement of Changes in Equity			36
Notes to Consolidated Financial Statements			40

Controls and Procedures			56

Legal Proceedings			56

Unregistered Sales of Equity Securities and Use of Proceeds			57

Exhibits			58

Form 10-Q Cross Reference Index			59

Signatures			60

Table of Contents


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

Executive Overview

The following discussion and analysis compares Telephone and Data Systems, Inc.’s (TDS) financial results for the three and six months ended June 30, 2022, to the three and six months ended June 30, 2021. It should be read in conjunction with TDS’ interim consolidated financial statements and notes included herein, and with the description of TDS’ business, its audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2021. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers.

This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.

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

General

TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide. TDS provides wireless services through its 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.

Table of Contents

TDS Mission and Strategy

TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, support the communities it serves, and build value over the long-term for its shareholders. Across all of its businesses, TDS is focused on providing exceptional customer experiences through best-in-class services and products and superior customer service. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities. TDS continues to make progress on developing and enhancing its Environmental, Social and Governance (ESG) program, including the publication of the first TDS ESG Report in 2021.

TDS’ long-term strategy calls for the majority of its operating capital to be reinvested in its businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders primarily through the payment of a regular quarterly cash dividend.

TDS plans to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused services and products. Strategic efforts include:

▪UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as device protection plans and from new services such as fixed wireless home internet. In addition, UScellular is focused on increasing revenues from prepaid plans, tower rent revenues and expanding its solutions available to business and government customers.

▪UScellular continues to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. UScellular's 5G deployment is initially focused on mobility services using its low band spectrum. UScellular has acquired high-band and mid-band spectrum, deployed high-band spectrum on a limited basis, and will further deploy high-band and mid-band in the future to further enable the delivery of 5G services. UScellular has launched 5G services in portions of substantially all of UScellular’s markets and will continue to launch in additional areas in the coming years.

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

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

▪TDS Telecom seeks to grow its operations by creating new clusters of markets in attractive locations and may seek to acquire businesses that support and complement its existing markets. Fiber deployments in strategically selected locations allow TDS Telecom to target attractive, growing markets to expand its total footprint.

Table of Contents

Terms Used by TDS

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

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

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

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

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

▪Auctions 105, 107, 108 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 was an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that started in October 2021 and concluded in January 2022. Auction 108 is an FCC auction of 2.5 GHz wireless spectrum licenses that began in July 2022.

▪Broadband Connections – refers to the individual customers provided high-speed internet access through various transmission technologies, including fiber, coaxial and copper.

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

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

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

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

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

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

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

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

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

▪IPTV – internet protocol television.

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

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

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

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

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

▪Retail Connections – individual lines of service associated with each device activated by a postpaid or prepaid customer. Connections are associated with all types of devices that connect directly to the 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.

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

▪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.

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Results of Operations — TDS Consolidated


	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022 vs. 2021		2022		2021		2022 vs. 2021
(Dollars in millions)
Operating revenues
UScellular	$	1,027	$	1,014	1	%	$	2,037	$	2,037	–
TDS Telecom	256		252		2	%	507		501		1	%
All other1	66		45		47	%	120		91		32	%
Total operating revenues	1,349		1,311		3	%	2,664		2,629		1	%
Operating expenses
UScellular	987		978		1	%	1,926		1,917		–
TDS Telecom	233		224		4	%	456		441		3	%
All other1	66		51		29	%	124		103		21	%
Total operating expenses	1,286		1,253		3	%	2,506		2,461		2	%
Operating income (loss)
UScellular	40		36		10	%	111		120		(8)	%
TDS Telecom	23		28		(18)	%	51		60		(14)	%
All other1	—		(6)		N/M		(4)		(12)		65	%
Total operating income	63		58		8	%	158		168		(6)	%
Investment and other income (expense)
Equity in earnings of unconsolidated entities	38		48		(21)	%	83		90		(8)	%
Interest and dividend income	5		3		77	%	7		6		7	%

Interest expense	(40)		(86)		53	%	(72)		(138)		48	%
Other, net	—		—		N/M		—		(1)		N/M
Total investment and other income (expense)	3		(35)		N/M		18		(43)		N/M

Income before income taxes	66		23		N/M		176		125		41	%
Income tax expense (benefit)	27		(11)		N/M		65		20		N/M

Net income	39		34		15	%	111		105		6	%
Less: Net income attributable to noncontrolling interests, net of tax	4		7		(35)	%	15		19		(20)	%
Net income attributable to TDS shareholders	35		27		28	%	96		86		11	%
TDS Preferred Share dividends	17		7		N/M		35		9		N/M
Net income attributable to TDS common shareholders	$	18	$	20	(13)	%	$	61	$	77	(20)	%

Adjusted OIBDA (Non-GAAP)2	$	302	$	295	2	%	$	626	$	632	(1)	%
Adjusted EBITDA (Non-GAAP)2	$	345	$	346	–		$	716	$	727	(2)	%
Capital expenditures3	$	391	$	250	57	%	$	633	$	446	42	%

Numbers may not foot due to rounding.

N/M - Percentage change not meaningful

1Consists of corporate and other operations and intercompany eliminations.

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

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

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

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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 $22 million for the three months ended June 30, 2022 and 2021, respectively and $34 million and $41 million for the six months ended June 30, 2022 and 2021, respectively. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Interest expense

Interest expense decreased for the three and six months ended June 30, 2022, due primarily to the write-off of unamortized debt issuance costs related to Senior Notes redeemed during 2021 and replaced by other debt facilities with lower interest rates.

Income tax expense

The effective tax rate on Income before income taxes for the three months ended June 30, 2022 and 2021 was 40.4% and (48.9)%, respectively. The effective tax rate on Income before income taxes for the six months ended June 30, 2022 and 2021 was 36.7% and 15.5%, respectively. The increase to the effective tax rates in the three and six months ended June 30, 2022 is due primarily to the 2021 reduction of tax accruals resulting from expiration of state statute of limitations of prior tax years, which did not recur in 2022.

During the six months ended June 30, 2022, TDS received a federal income tax refund of $125 million related to the 2020 net operating loss carryback enabled by the CARES Act.

Net income attributable to noncontrolling interests, net of tax


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars in millions)
UScellular noncontrolling public shareholders’	$	4	$	6	$	12	$	17
Noncontrolling shareholders’ or partners’	—		1		3		2
Net income attributable to noncontrolling interests, net of tax	$	4	$	7	$	15	$	19

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

TDS Preferred Share dividends

TDS Preferred Share dividends increased for the three and six months ended June 30, 2022, due to quarterly dividends for Series UU Preferred Shares issued in March 2021 and Series VV Preferred Shares issued in August 2021.

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Earnings

(Dollars in millions)

Three Months Ended

Net income increased due primarily to higher operating revenues and lower interest expense, partially offset by higher operating and income tax expenses and lower investment income. Adjusted EBITDA was relatively flat year-over-year as higher operating revenues were offset by higher operating expenses and lower investment income.

Six Months Ended

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

*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.

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			UScellular OPERATIONS

Business Overview

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

OPERATIONS

▪Serves customers with 4.8 million retail connections including 4.3 million postpaid and 0.5 million prepaid connections

▪Operates in 21 states

▪Employs approximately 4,700 associates

▪4,323 owned towers

▪6,916 cell sites in service

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Operational Overview — UScellular





As of June 30,		2022	2021
Retail Connections – End of Period
	Postpaid	4,296,000	4,399,000
	Prepaid	490,000	507,000
	Total	4,786,000	4,906,000


	Q2 2022		Q2 2021		Q2 2022 vs. Q2 2021		YTD 2022		YTD 2021		YTD 2022 vs. YTD 2021
Postpaid Activity and Churn
Gross Additions
Handsets	94,000		101,000		(7)	%	185,000		204,000		(9)	%
Connected Devices	34,000		40,000		(15)	%	69,000		79,000		(13)	%
Total Gross Additions	128,000		141,000		(9)	%	254,000		283,000		(10)	%
Net Additions (Losses)
Handsets	(31,000)		(1,000)		N/M		(67,000)		(4,000)		N/M
Connected Devices	(9,000)		(5,000)		(80)	%	(17,000)		(8,000)		N/M
Total Net Additions (Losses)	(40,000)		(6,000)		N/M		(84,000)		(12,000)		N/M
Churn
Handsets	1.10	%	0.88	%			1.10	%	0.90	%
Connected Devices	2.73	%	2.69	%			2.72	%	2.61	%
Total Churn	1.30	%	1.11	%			1.30	%	1.12	%

N/M - Percentage change not meaningful

Total postpaid handset net losses increased for the three and six months ended June 30, 2022, when compared to the same period last year due to lower gross additions and higher defections resulting from aggressive industry-wide competition and an increase in non-pay defections.

Total postpaid connected device net losses increased for the three and six months ended June 30, 2022, when compared to the same period last year due primarily to lower demand for connected watches and lower tablet additions.

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

Postpaid Revenue


	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022 vs. 2021		2022		2021		2022 vs. 2021
Average Revenue Per User (ARPU)	$	50.07	$	47.74	5	%	$	49.88	$	47.70	5	%


Average Revenue Per Account (ARPA)	$	130.43	$	125.25	4	%	$	130.17	$	125.25	4	%

Postpaid ARPU and Postpaid ARPA increased for the three and six months ended June 30, 2022, when compared to the same period last year, due to (i) favorable plan and product offering mix, (ii) an increase in cost recovery surcharges and (iii) an increase in device protection plan revenues. These increases were partially offset by an increase in promotional discounts.

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Financial Overview — UScellular


	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022 vs. 2021		2022		2021		2022 vs. 2021
(Dollars in millions)
Retail service1	$	700	$	684	2	%	$	1,402	$	1,367	3	%
Inbound roaming	18		28		(36)	%	39		56		(31)	%
Other1	65		62		5	%	129		122		6	%
Service revenues	783		774		1	%	1,570		1,545		2	%
Equipment sales	244		240		2	%	467		492		(5)	%
Total operating revenues	1,027		1,014		1	%	2,037		2,037		–

System operations (excluding Depreciation, amortization and accretion reported below)	192		204		(6)	%	377		389		(3)	%
Cost of equipment sold	275		258		7	%	533		533		–
Selling, general and administrative	339		334		2	%	663		639		4	%
Depreciation, amortization and accretion	172		180		(4)	%	342		350		(2)	%
Loss on impairment of licenses	3		—		N/M		3		—		N/M
(Gain) loss on asset disposals, net	6		2		N/M		8		7		7	%
(Gain) loss on sale of business and other exit costs, net	—		—		N/M		—		(1)		52	%

Total operating expenses	987		978		1	%	1,926		1,917		–

Operating income	$	40	$	36	10	%	$	111	$	120	(8)	%

Net income	$	22	$	35	(37)	%	$	74	$	97	(24)	%
Adjusted OIBDA (Non-GAAP)2	$	221	$	218	2	%	$	464	$	476	(2)	%
Adjusted EBITDA (Non-GAAP)2	$	261	$	267	(2)	%	$	550	$	567	(3)	%
Capital expenditures3	$	268	$	148	81	%	$	405	$	273	48	%

N/M - Percentage change not meaningful

1For the three and six months ended June 30, 2021, amounts have been adjusted to reclassify $2 million and $4 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other.

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

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

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Operating Revenues

Three Months Ended June 30, 2022 and 2021

(Dollars in millions)

Operating Revenues

Six Months Ended June 30, 2022 and 2021

(Dollars in millions)

Service revenues consist of:

▪Retail Service - Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges

▪Inbound Roaming - Charges to other wireless carriers whose customers use UScellular’s wireless systems when roaming

▪Other Service - Amounts received from the Federal USF, tower rental revenues, Internet of Things (IoT), and miscellaneous other service revenues

Equipment revenues consist of:

▪Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors

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

Total operating revenues

Retail service revenues increased for the three and six months ended June 30, 2022, primarily as a result of an increase in Postpaid ARPU as previously discussed in the Operational Overview section, partially offset by a decrease in average postpaid connections.

Inbound roaming revenues decreased for the three and six months ended June 30, 2022, primarily driven by lower data revenues resulting from lower usage and lower rates. UScellular expects inbound roaming revenues to continue to decline during 2022 relative to prior year levels.

Other service revenues increased for the three and six months ended June 30, 2022, resulting from increases in tower rental revenues and IoT revenues.

Equipment sales revenues increased for the three months ended June 30, 2022, due primarily to an increase in average price per unit of new smartphone sales, partially offset by higher promotional activity. Equipment sales revenues decreased for the six months ended June 30, 2022 due primarily to higher promotional activity and a decrease in volume of new smartphone and accessory sales.

In recent periods, wireless service providers have increased promotional aggressiveness to attract new customers and retain existing customers. Operating revenues and Operating income may be negatively impacted in future periods by the competitive response to offer increased promotional discounts to new and existing customers.

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Systems operations expenses

System operations expenses decreased for the three and six months ended June 30, 2022, due primarily to decreases in roaming and customer usage expenses.

Cost of equipment sold

Cost of equipment sold increased for the three months ended June 30, 2022, due primarily to an increase in average cost per unit of new smartphone sales. Cost of equipment sold was flat for the six months ended June 30, 2022 as an increase in average cost per unit was offset by a decrease in volume of smartphones and accessories.

Selling, general and administrative expenses

Selling, general and administrative expenses increased for the three and six months ended June 30, 2022, due primarily to increases in bad debts expense driven by an increase in non-pay customers and a shift to higher priced devices that result in higher bad debts expense per uncollectible account.

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			TDS TELECOM OPERATIONS

Business Overview

TDS Telecom owns, operates and invests in communications services in a mix of rural and suburban communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers. TDS Telecom's strategy is to be the preferred broadband provider in the markets it serves. TDS Telecom invests in high-quality networks, services and products, with the constant focus on delivering a best-in-class customer experience.

OPERATIONS

▪Serves 1.2 million connections in 32 states

▪Employs approximately 3,100 associates

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Operational Overview — TDS Telecom

Total Service Address Mix

As of June 30,

*2021 fiber addresses in cable markets are included in Coaxial.

TDS Telecom increased its service addresses 7% from 1.3 million to 1.4 million through network expansion and offers 1Gig service to 63% of its total footprint as of June 30, 2022, compared to 56% a year ago.

In 2022, TDS Telecom began measuring fiber service addresses in its cable markets. Including cable, 34% of service addresses are served by fiber.


As of June 30,	2022	2021	2022 vs. 2021
Residential connections
Broadband
Wireline, Incumbent	252,700	249,200	1	%
Wireline, Expansion	44,100	28,300	56	%
Cable	204,000	201,200	1	%
Total Broadband	500,800	478,700	5	%
Video	137,400	143,200	(4)	%
Voice	298,300	308,100	(3)	%
Total Residential Connections	936,500	930,100	1	%
Commercial connections	250,700	274,400	(9)	%
Total connections	1,187,200	1,204,500	(1)	%

Numbers may not foot due to rounding.

Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) commercial connections declines, partially offset by broadband connection growth.

A majority of TDS Telecom's residential customers take advantage of bundling options as 61% of customers subscribe to more than one service.

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Residential Broadband Connections by Speed

As of June 30,

Residential broadband customers continue to choose higher speeds with 68% taking speeds of 100 Mbps or greater and 9% choosing 1Gig.

Residential Revenue per Connection

Total residential revenue per connection increased 3% for the three and six months ended June 30, 2022, due to price increases and product mix changes.

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Financial Overview — TDS Telecom


	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022 vs. 2021		2022		2021		2022 vs. 2021
(Dollars in millions)
Residential
Wireline, Incumbent	$	88	$	86	2	%	$	173	$	171	1	%
Wireline, Expansion	12		8		48	%	22		15		51	%
Cable	68		66		3	%	135		131		3	%
Total residential	168		160		5	%	330		317		4	%
Commercial	44		46		(6)	%	87		93		(6)	%
Wholesale	45		45		(1)	%	89		91		(2)	%
Total service revenues	256		251		2	%	507		500		1	%
Equipment revenues	—		—		(34)	%	1		1		(6)	%
Total operating revenues	256		252		2	%	507		501		1	%

Cost of services (excluding Depreciation, amortization and accretion reported below)	103		101		2	%	199		199		–
Cost of equipment and products	—		—		(9)	%	—		—		11	%
Selling, general and administrative	77		73		6	%	150		143		4	%
Depreciation, amortization and accretion	52		49		6	%	106		98		8	%
(Gain) loss on asset disposals, net	1		1		8	%	1		1		6	%
Total operating expenses	233		224		4	%	456		441		3	%

Operating income	$	23	$	28	(18)	%	$	51	$	60	(14)	%

Net income	$	19	$	22	(15)	%	$	41	$	46	(11)	%
Adjusted OIBDA (Non-GAAP)1	$	76	$	78	(3)	%	$	158	$	159	–
Adjusted EBITDA (Non-GAAP)1	$	76	$	78	(2)	%	$	159	$	158	1	%
Capital expenditures2	$	120	$	99	21	%	$	225	$	169	33	%

Numbers may not foot due to rounding.

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

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

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Operating Revenues

Three Months Ended June 30, 2022 and 2021

(Dollars in millions)

Operating Revenues

Six Months Ended June 30, 2022 and 2021

(Dollars in millions)

Residential revenues consist of:

•Broadband services, including security and support services

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

•Voice services

Commercial revenues consist of:

•High-speed and dedicated business internet services

•Video services

•Voice services

Wholesale revenues consist of:

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

•Federal and state regulatory support, including A-CAM

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

Total operating revenues

Residential revenues increased for the three and six months ended June 30, 2022, due primarily to price increases and growth in broadband connections, partially offset by a decline in video and voice connections and federal universal service charges.

Commercial revenues decreased for the three and six months ended June 30, 2022, due primarily to declining connections in CLEC markets and declining video connections, partially offset by an increase in broadband connections.

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Selling, general and administrative

Selling, general and administrative expenses increased for the three and six months ended June 30, 2022, due primarily to increases to support current and future growth, including employee-related expenses, advertising and marketing expenses, and software-related costs, partially offset by decreases to federal universal service charges.

Depreciation, amortization and accretion

Depreciation, amortization and accretion increased for the three and six months ended June 30, 2022, due primarily to increased capital expenditures on new fiber assets and customer-related equipment.

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Liquidity and Capital Resources

Sources of Liquidity

TDS and its subsidiaries operate capital-intensive businesses. In the past, TDS’ existing cash and investment balances, funds available under its 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 normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions. There is no assurance that this will be the case in the future. See Market Risk for additional information regarding maturities of long-term debt.

TDS has incurred negative free cash flow at times in the past and this could occur in the future. However, TDS believes that existing cash and investment balances, funds available under its financing agreements, expected future tax refunds and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its normal day-to-day operating needs and debt service requirements for the foreseeable future. TDS will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.

TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, repurchases of shares, payment of dividends, or making additional investments, including new technologies and fiber deployments. It may be necessary from time to time to increase the size of the existing revolving credit agreements, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures.

Cash and Cash Equivalents

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

Cash and Cash Equivalents

(Dollars in millions)

The majority of TDS’ Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.

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In addition to Cash and cash equivalents, TDS and UScellular had undrawn borrowing capacity from the following debt facilities at June 30, 2022. See the Financing section below for further details.


	TDS		UScellular
(Dollars in millions)
Revolving Credit Agreement	$	399	$	300
Term Loan Agreements	150		100
Receivables Securitization Agreement	—		150
Repurchase Agreement	—		140
Total undrawn borrowing capacity	$	549	$	690

Financing

Revolving Credit Agreements

TDS and UScellular have unsecured revolving credit agreements with maximum borrowing capacities of $400 million and $300 million, respectively. Amounts under the revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the six months ended June 30, 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement. As of June 30, 2022, there were no outstanding borrowings under the revolving credit agreements, except for letters of credit, and TDS' and UScellular's unused borrowing capacity was $399 million and $300 million, respectively.

Term Loan Agreements

TDS and UScellular have term loan agreements with maximum borrowing capacities of $500 million and $800 million, respectively. The maturity dates for the term loan agreements range from July 2026 to July 2031. During the six months ended June 30, 2022, TDS borrowed $150 million under its term loan credit agreements and UScellular borrowed $400 million under its term loan credit agreements. As of June 30, 2022, TDS' and UScellular's outstanding borrowings under the term loan agreements were $349 million and $698 million, respectively, and TDS' and UScellular's unused borrowing capacity was $150 million and $100 million, respectively. In July 2022, TDS borrowed the remaining $150 million and UScellular borrowed the remaining $100 million under the term loan agreements.

Export Credit Financing Agreement

In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) equipment imported from Canada, including equipment purchased prior to entering the term loan credit facility agreement. During the six months ended June 30, 2022, UScellular borrowed $150 million, which is the full amount available under the agreement and is due in January 2027.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement to permit securitized borrowings using its equipment installment plan receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until the maturity date. During the six months ended June 30, 2022, UScellular repaid $150 million under the agreement. As of June 30, 2022, the outstanding borrowings under the agreement were $300 million and the unused borrowing capacity under the agreement was $150 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In July 2022, UScellular repaid $50 million under its receivables securitization agreement.

Repurchase Agreement

Financial Covenants

TDS and UScellular believe they were in compliance with all of the financial covenants and requirements set forth in their revolving credit agreements, term loan credit agreements, export credit financing agreement and receivables securitization agreement as of June 30, 2022.

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Other Long-Term Financing

TDS and UScellular have in place effective shelf registration statements on Form S-3 to issue senior or subordinated securities, preferred shares and depositary shares.

See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information related to the financing agreements.

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the six months ended June 30, 2022 and 2021, were as follows:

Capital Expenditures

(Dollars in millions)

UScellular’s capital expenditures for the six months ended June 30, 2022 and 2021, were $405 million and $273 million, respectively.

Capital expenditures for the full year 2022 are expected to be between $700 million and $800 million. These expenditures are expected to be used principally for the following purposes:

▪Continue network modernization and 5G deployment;

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

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

TDS Telecom’s capital expenditures for the six months ended June 30, 2022 and 2021, were $225 million and $169 million, respectively.

Capital expenditures for the full year 2022 are expected to be between $500 million and $550 million. These expenditures are expected to be used principally for the following purposes:

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

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

▪Upgrade broadband capacity and speeds; and

▪Support success-based spending for broadband growth.

Macroeconomic factors may impact the acquisition or cost of products and materials as well as contribute to internal and external labor shortages.

TDS intends to finance its capital expenditures for 2022 using primarily Cash flows from operating activities, existing cash balances and, as required, additional debt financing from its existing agreements and/or other forms of financing.

Acquisitions, Divestitures and Exchanges

TDS may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, wireless spectrum licenses (including pursuant to FCC auctions) and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement.

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Other Obligations

TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; commitments for wireless spectrum licenses acquired through FCC auctions; and other agreements to purchase goods or services.

Variable Interest Entities

TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 10 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

Common Share Repurchase Programs

During the six months ended June 30, 2022, TDS repurchased 1,220,226 Common Shares for $20 million at an average cost per share of $16.66. As of June 30, 2022, the maximum dollar value of TDS Common Shares that may yet be repurchased under TDS’ program was $157 million. For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

During the six months ended June 30, 2022, UScellular repurchased 658,542 Common Shares for $19 million at an average cost per share of $28.87. As of June 30, 2022, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 2,858,000.

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Consolidated Cash Flow Analysis

TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade communications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes TDS' cash flow activities for the six months ended June 30, 2022 and 2021.

2022 Commentary

TDS’ Cash, cash equivalents and restricted cash increased $91 million. Net cash provided by operating activities was $734 million due to net income of $111 million adjusted for non-cash items of $517 million, distributions received from unconsolidated entities of $80 million, including $37 million in distributions from the LA Partnership, and changes in working capital items which increased net cash by $26 million. The working capital changes were primarily driven by a federal income tax refund of $125 million received during the first quarter, partially offset by an increase in customer and agent receivables, increases in inventory and the payment of annual associate bonuses.

Cash flows used for investing activities were $1,122 million, which included payments for wireless spectrum licenses of $563 million and payments for property, plant and equipment of $526 million. Cash payments for property, plant and equipment are lower than the total capital expenditures in the six months ended June 30, 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid over time.

Cash flows provided by financing activities were $479 million, due primarily to $550 million borrowed under the term loan facilities, $150 million borrowed under the UScellular export credit financing agreement, $75 million borrowed under the UScellular revolving credit agreement, and $60 million borrowed under the UScellular EIP receivables repurchase agreement. These were partially offset by $150 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, the payment of dividends and repurchase of TDS and UScellular Common Shares.

2021 Commentary

TDS’ Cash, cash equivalents and restricted cash decreased $1,033 million. Net cash provided by operating activities was $481 million due to net income of $105 million adjusted for non-cash items of $497 million and distributions received from unconsolidated entities of $80 million, including $32 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $201 million. The working capital changes were primarily influenced by the timing of vendor payments, increases in inventory, and the payment of annual associate bonuses.

Cash flows used for investing activities were $1,715 million, which included payments for property, plant and equipment of $457 million and payments for wireless spectrum licenses of $1,259 million.

Cash flows provided by financing activities were $201 million, due primarily to the issuance of $420 million of TDS Preferred Shares, the issuance of $500 million of 5.5% UScellular Senior Notes, $275 million borrowed under the UScellular receivables securitization agreement, $217 million borrowed under the UScellular term loan, $125 million borrowed under the TDS revolving credit agreement, and $75 million borrowed under the TDS term loan. These were partially offset by the redemption of $525 million of TDS Senior Notes, $575 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, the payment of dividends and the payment of debt and equity issuance costs.

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Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 2022 were as follows:

Inventory, net

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

Income taxes receivable

Income taxes receivable decreased $126 million due primarily to a federal income tax refund received related to the 2020 net operating loss carryback enabled by the CARES Act.

Accrued compensation

Accrued compensation decreased $39 million due primarily to associate bonus payments in March 2022.

Other current liabilities

Other current liabilities increased $116 million due primarily to accruals related to software license agreements and $60 million borrowed under the EIP receivables repurchase agreement. See Note 9 — Debt in the Notes to Consolidated Financial Statements for additional information.

Other deferred liabilities and credits

Other deferred liabilities and credits increased $120 million due primarily to accruals related to software license agreements.

Long-term debt, net

The following table presents the components of the $535 million increase in Long-term debt, net:


	Long-term debt, net
(Dollars in millions)
Balance at December 31, 2021	$	2,928
Borrowings under Revolving Credit Agreements	75
Borrowings under Term Loan Agreements	550
Borrowings under Export Credit Financing Agreement	150
Repayments under Revolving Credit Agreements	(75)
Repayments under Receivables Securitization Agreement	(150)
Other	(15)
Balance at June 30, 2022	$	3,463

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Supplemental Information Relating to Non-GAAP Financial Measures

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

▪EBITDA

▪Adjusted EBITDA

▪Adjusted OIBDA

▪Free cash flow

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

EBITDA, Adjusted EBITDA and Adjusted OIBDA

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

Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. See Note 12 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

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


	Three Months Ended June 30,				Six Months Ended June 30,
TDS - CONSOLIDATED	2022		2021		2022		2021
(Dollars in millions)
Net income (GAAP)	$	39	$	34	$	111	$	105
Add back:
Income tax expense	27		(11)		65		20
Interest expense	40		86		72		138
Depreciation, amortization and accretion	229		234		456		457
EBITDA (Non-GAAP)	335		343		704		720
Add back or deduct:
Loss on impairment of licenses	3		—		3		—
(Gain) loss on asset disposals, net	7		3		9		8
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)


Adjusted EBITDA (Non-GAAP)	345		346		716		727
Deduct:
Equity in earnings of unconsolidated entities	38		48		83		90
Interest and dividend income	5		3		7		6
Other, net	—		—		—		(1)
Adjusted OIBDA (Non-GAAP)	302		295		626		632
Deduct:
Depreciation, amortization and accretion	229		234		456		457
Loss on impairment of licenses	3		—		3		—
(Gain) loss on asset disposals, net	7		3		9		8
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Operating income (GAAP)	$	63	$	58	$	158	$	168

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	Three Months Ended June 30,				Six Months Ended June 30,
UScellular	2022		2021		2022		2021
(Dollars in millions)
Net income (GAAP)	$	22	$	35	$	74	$	97
Add back:
Income tax expense	18		(10)		50		17
Interest expense	40		60		73		97
Depreciation, amortization and accretion	172		180		342		350
EBITDA (Non-GAAP)	252		265		539		561
Add back or deduct:
Loss on impairment of licenses	3		—		3		—
(Gain) loss on asset disposals, net	6		2		8		7
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)


Adjusted EBITDA (Non-GAAP)	261		267		550		567
Deduct:
Equity in earnings of unconsolidated entities	37		47		82		88
Interest and dividend income	3		2		4		3

Adjusted OIBDA (Non-GAAP)	221		218		464		476
Deduct:
Depreciation, amortization and accretion	172		180		342		350
Loss on impairment of licenses	3		—		3		—
(Gain) loss on asset disposals, net	6		2		8		7
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Operating income (GAAP)	$	40	$	36	$	111	$	120


	Three Months Ended June 30,				Six Months Ended June 30,
TDS TELECOM	2022		2021		2022		2021
(Dollars in millions)
Net income (GAAP)	$	19	$	22	$	41	$	46
Add back:
Income tax expense	7		7		14		15
Interest expense	(2)		(1)		(4)		(2)
Depreciation, amortization and accretion	52		49		106		98
EBITDA (Non-GAAP)	75		77		158		157
Add back or deduct:

(Gain) loss on asset disposals, net	1		1		1		1
Adjusted EBITDA (Non-GAAP)	76		78		159		158
Deduct:
Interest and dividend income	—		—		—		—

Adjusted OIBDA (Non-GAAP)	76		78		158		159
Deduct:
Depreciation, amortization and accretion	52		49		106		98
(Gain) loss on asset disposals, net	1		1		1		1
Operating income (GAAP)	$	23	$	28	$	51	$	60

Numbers may not foot due to rounding.

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Free Cash Flow

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


	Six Months Ended June 30,
	2022		2021
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	734	$	481
Less: Cash paid for additions to property, plant and equipment	526		457
Free cash flow (Non-GAAP)	$	208	$	24

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Application of Critical Accounting Policies and Estimates

TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements and TDS’ Application of Critical Accounting Policies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in TDS’ Form 10-K for the year ended December 31, 2021.

Regulatory Matters

Spectrum Auctions

On March 2, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.5 GHz band (Auction 105). On September 2, 2020, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million. On July 15, 2022, the FCC released a Consent Decree related to its spectrum aggregation and ownership attribution rules in which UScellular agreed to relinquish its rights to 27 wireless spectrum licenses awarded in Auction 105 and is expecting a full refund. The remaining 216 wireless spectrum licenses were granted by the FCC on July 26, 2022.

On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $187 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted. In October 2021, UScellular paid $36 million related to the additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.

On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 2.5 GHz band (Auction 108). UScellular filed an application to participate in Auction 108 on May 9, 2022, and on July 11, 2022, the FCC announced that UScellular was a qualified bidder. Bidding in Auction 108 began on July 29, 2022.

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Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, those set forth below, as more fully described under “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2021 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, 2021, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to TDS’ business, financial condition or results of operations.

Operational Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

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Financial Risk Factors

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

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

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

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

Regulatory, Legal and Governance Risk Factors

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

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

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

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

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

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

General Risk Factors

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

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

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

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Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2021, which could materially affect TDS’ business, financial condition or future results. The risks described in this Form 10-Q and the Form 10-K for the year ended December 31, 2021, may not be the only risks that could affect TDS. Additional unidentified or unrecognized risks and uncertainties could materially adversely affect TDS’ business, financial condition and/or operating results. Subject to the foregoing, TDS has not identified for disclosure any material changes to the risk factors as previously disclosed in TDS’ Form 10-K for the year ended December 31, 2021.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

As of June 30, 2022, approximately 60% of TDS' long-term debt was in fixed-rate senior notes and approximately 40% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt.

The following table presents the scheduled principal payments on long-term debt, lease obligations, and the related weighted average interest rates by maturity dates at June 30, 2022.


	Principal Payments Due by Period
	Long-Term Debt Obligations1		Weighted-Avg. Interest Rates on Long-Term Debt Obligations2
(Dollars in millions)
Remainder of 2022	$	3	3.8	%
2023	16		3.3	%
2024	16		3.3	%
2025	16		3.3	%
2026	286		2.8	%
Thereafter	2,911		5.3	%
Total	$	3,248	5.2	%

1The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, 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.

2Represents the weighted average stated interest rates at June 30, 2022, 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 June 30, 2022.

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Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	1,064	$	1,049	$	2,125	$	2,091
Equipment and product sales	285		262		539		538
Total operating revenues	1,349		1,311		2,664		2,629

Operating expenses
Cost of services (excluding Depreciation, amortization and accretion reported below)	312		324		611		623
Cost of equipment and products	308		276		590		570
Selling, general and administrative	427		416		837		804
Depreciation, amortization and accretion	229		234		456		457
Loss on impairment of licenses	3		—		3		—

(Gain) loss on asset disposals, net	7		3		9		8
(Gain) loss on sale of business and other exit costs, net	—		—		—		(1)

Total operating expenses	1,286		1,253		2,506		2,461

Operating income	63		58		158		168

Investment and other income (expense)
Equity in earnings of unconsolidated entities	38		48		83		90
Interest and dividend income	5		3		7		6

Interest expense	(40)		(86)		(72)		(138)
Other, net	—		—		—		(1)
Total investment and other income (expense)	3		(35)		18		(43)

Income before income taxes	66		23		176		125
Income tax expense (benefit)	27		(11)		65		20
Net income	39		34		111		105
Less: Net income attributable to noncontrolling interests, net of tax	4		7		15		19
Net income attributable to TDS shareholders	35		27		96		86
TDS Preferred Share dividends	17		7		35		9
Net income attributable to TDS common shareholders	$	18	$	20	$	61	$	77

Basic weighted average shares outstanding	115		115		115		115
Basic earnings per share attributable to TDS common shareholders	$	0.15	$	0.18	$	0.53	$	0.67

Diluted weighted average shares outstanding	116		116		116		116
Diluted earnings per share attributable to TDS common shareholders	$	0.15	$	0.17	$	0.52	$	0.65

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars in millions)
Net income	$	39	$	34	$	111	$	105
Net change in accumulated other comprehensive income
Change related to retirement plan
Amounts included in net periodic benefit cost for the period
Amortization of prior service cost	—		1		—		1
Comprehensive income	39		35		111		106
Less: Net income attributable to noncontrolling interests, net of tax	4		7		15		19
Comprehensive income attributable to TDS shareholders	$	35	$	28	$	96	$	87

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2022		2021
(Dollars in millions)
Cash flows from operating activities
Net income	$	111	$	105
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	456		457
Bad debts expense	54		22
Stock-based compensation expense	23		24
Deferred income taxes, net	52		40
Equity in earnings of unconsolidated entities	(83)		(90)
Distributions from unconsolidated entities	80		80
Loss on impairment of licenses	3		—
(Gain) loss on asset disposals, net	9		8
(Gain) loss on sale of business and other exit costs, net	—		(1)


Other operating activities	3		37
Changes in assets and liabilities from operations
Accounts receivable	(25)		37
Equipment installment plans receivable	(25)		(32)
Inventory	(35)		(35)
Accounts payable	(6)		(106)
Customer deposits and deferred revenues	7		6
Accrued taxes	131		(25)
Accrued interest	1		(3)
Other assets and liabilities	(22)		(43)
Net cash provided by operating activities	734		481

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(526)		(457)
Cash paid for intangible assets	(585)		(1,264)
Cash received from investments	—		3

Cash received from divestitures and exchanges	1		1
Advance payments for license acquisitions	(1)		—
Other investing activities	(11)		2
Net cash used in investing activities	(1,122)		(1,715)

Cash flows from financing activities
Issuance of long-term debt	776		1,192
Repayment of long-term debt	(228)		(1,301)
Issuance of short-term debt	60		—
Issuance of TDS Preferred Shares	—		420
TDS Common Shares reissued for benefit plans, net of tax payments	(4)		(5)
UScellular Common Shares reissued for benefit plans, net of tax payments	(5)		(13)
Repurchase of TDS Common Shares	(20)		(3)
Repurchase of UScellular Common Shares	(18)		(2)
Dividends paid to TDS shareholders	(76)		(49)
Payment of debt and equity issuance costs	(2)		(30)
Distributions to noncontrolling interests	(2)		(2)
Other financing activities	(2)		(6)
Net cash provided by financing activities	479		201

Net increase (decrease) in cash, cash equivalents and restricted cash	91		(1,033)

Cash, cash equivalents and restricted cash
Beginning of period	414		1,452
End of period	$	505	$	419

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

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets

(Unaudited)


	June 30, 2022		December 31, 2021
(Dollars in millions)
Current assets
Cash and cash equivalents	$	466	$	367

Accounts receivable
Customers and agents, less allowances of $63 and $60, respectively	1,055		1,058
Other, less allowances of $2 and $2, respectively	99		93
Inventory, net	213		178
Prepaid expenses	106		103
Income taxes receivable	58		184
Other current assets	54		61
Total current assets	2,051		2,044

Assets held for sale	17		18

Licenses	4,686		4,097

Goodwill	547		547

Other intangible assets, net of accumulated amortization of $100 and $91, respectively	208		197

Investments in unconsolidated entities	483		479

Property, plant and equipment
In service and under construction	14,723		14,265
Less: Accumulated depreciation and amortization	10,170		9,904
Property, plant and equipment, net	4,553		4,361

Operating lease right-of-use assets	1,022		1,040

Other assets and deferred charges	675		710

Total assets1	$	14,242	$	13,493

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

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity

(Unaudited)


	June 30, 2022		December 31, 2021
(Dollars and shares in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	11	$	6
Accounts payable	443		481
Customer deposits and deferred revenues	243		236
Accrued interest	11		10
Accrued taxes	42		45
Accrued compensation	98		137
Short-term operating lease liabilities	146		141
Other current liabilities	240		124
Total current liabilities	1,234		1,180



Deferred liabilities and credits
Deferred income tax liability, net	971		921
Long-term operating lease liabilities	940		960
Other deferred liabilities and credits	879		759

Long-term debt, net	3,463		2,928

Commitments and contingencies

Noncontrolling interests with redemption features	12		11

Equity
TDS shareholders’ equity
Series A Common and Common Shares
Authorized 290 shares (25 Series A Common and 265 Common Shares)
Issued 133 shares (7 Series A Common and 126 Common Shares)
Outstanding 114 shares (7 Series A Common and 107 Common Shares) and 115 shares (7 Series A Common and 108 Common Shares), respectively
Par Value ($0.01 per share)	1		1
Capital in excess of par value	2,511		2,496
Preferred Shares, 0.279 shares authorized, par value $0.01 per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV)	1,074		1,074
Treasury shares, at cost, 19 and 18 Common Shares, respectively	(463)		(461)
Accumulated other comprehensive income	6		5
Retained earnings	2,810		2,812
Total TDS shareholders' equity	5,939		5,927

Noncontrolling interests	804		807

Total equity	6,743		6,734

Total liabilities and equity1	$	14,242	$	13,493

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

1The consolidated total assets as of June 30, 2022 and December 31, 2021, include assets held by consolidated variable interest entities (VIEs) of $1,299 million and $1,456 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2022 and December 31, 2021, include certain liabilities of consolidated VIEs of $21 million for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 10 — Variable Interest Entities for additional information.

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value		Preferred Shares		Treasury shares		Accumulated other comprehensive income (loss)		Retained earnings		Total TDS shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions, except per share amounts)
March 31, 2022	$	1	$	2,511	$	1,074	$	(456)	$	6	$	2,824	$	5,960	$	801	$	6,761

Net income attributable to TDS shareholders	—		—		—		—		—		35		35		—		35
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		4		4

TDS Common and Series A Common share dividends ($0.180 per share)	—		—		—		—		—		(21)		(21)		—		(21)

TDS Preferred share dividends ($414 per Series UU share and $375 per Series VV share)	—		—		—		—		—		(17)		(17)		—		(17)
Repurchase of Common Shares	—		—		—		(16)		—		—		(16)		—		(16)
Dividend reinvestment plan	—		—		—		1		—		—		1		—		1
Incentive and compensation plans	—		5		—		8		—		(11)		2		—		2
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(5)		—		—		—		—		(5)		—		(5)
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(1)		(1)
June 30, 2022	$	1	$	2,511	$	1,074	$	(463)	$	6	$	2,810	$	5,939	$	804	$	6,743

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)


	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value		Preferred Shares		Treasury shares		Accumulated other comprehensive income (loss)		Retained earnings		Total TDS shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions, except per share amounts)
March 31, 2021	$	1	$	2,488	$	408	$	(472)	$	(3)	$	2,830	$	5,252	$	802	$	6,054

Net income attributable to TDS shareholders	—		—		—		—		—		27		27		—		27
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		7		7
Other comprehensive income	—		—		—		—		1		—		1		—		1
TDS Common and Series A Common share dividends ($0.175 per share)	—		—		—		—		—		(20)		(20)		—		(20)

TDS Preferred share dividends ($552 per Series UU share)	—		—		(2)		—		—		(7)		(9)		—		(9)


Incentive and compensation plans	—		8		—		14		—		(18)		4		—		4
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(34)		—		—		—		—		(34)		27		(7)

June 30, 2021	$	1	$	2,462	$	406	$	(458)	$	(2)	$	2,812	$	5,221	$	836	$	6,057

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)



	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value		Preferred Shares		Treasury shares		Accumulated other comprehensive income (loss)		Retained earnings		Total TDS shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions, except per share amounts)
December 31, 2021	$	1	$	2,496	$	1,074	$	(461)	$	5	$	2,812	$	5,927	$	807	$	6,734

Net income attributable to TDS shareholders	—		—		—		—		—		96		96		—		96
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		14		14
Other comprehensive income	—		—		—		—		1		—		1		—		1
TDS Common and Series A Common share dividends ($0.360 per share)	—		—		—		—		—		(41)		(41)		—		(41)

TDS Preferred share dividends ($828 per Series UU share and $750 per Series VV share)	—		—		—		—		—		(35)		(35)		—		(35)
Repurchase of Common Shares	—		—		—		(20)		—		—		(20)		—		(20)
Dividend reinvestment plan	—		1		—		1		—		(1)		1		—		1
Incentive and compensation plans	—		9		—		17		—		(21)		5		—		5
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		5		—		—		—		—		5		(15)		(10)
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(2)		(2)
June 30, 2022	$	1	$	2,511	$	1,074	$	(463)	$	6	$	2,810	$	5,939	$	804	$	6,743

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

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Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)



	TDS Shareholders
	Series A Common and Common shares		Capital in excess of par value		Preferred Shares		Treasury shares		Accumulated other comprehensive income (loss)		Retained earnings		Total TDS shareholders' equity		Noncontrolling interests		Total equity
(Dollars in millions, except per share amounts)
December 31, 2020	$	1	$	2,482	$	—	$	(477)	$	(4)	$	2,802	$	4,804	$	789	$	5,593

Net income attributable to TDS shareholders	—		—		—		—		—		86		86		—		86
Net income attributable to noncontrolling interests classified as equity	—		—		—		—		—		—		—		19		19
Other comprehensive income	—		—		—		—		2		—		2		—		2
TDS Common and Series A Common share dividends ($0.350 per share)	—		—		—		—		—		(40)		(40)		—		(40)
Issuance of TDS Preferred Shares, net of costs	—		—		406		—		—		—		406		—		406
TDS Preferred share dividends ($552 per Series UU share)	—		—		—		—		—		(9)		(9)		—		(9)
Repurchase of Common Shares	—		—		—		(3)		—		—		(3)		—		(3)
Dividend reinvestment plan	—		—		—		1		—		(1)		—		—		—
Incentive and compensation plans	—		12		—		21		—		(26)		7		—		7
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans	—		(32)		—		—		—		—		(32)		30		(2)
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(2)		(2)
June 30, 2021	$	1	$	2,462	$	406	$	(458)	$	(2)	$	2,812	$	5,221	$	836	$	6,057

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

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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 under GAAP. Intercompany accounts and transactions have been eliminated.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended June 30, 2022, are UScellular and TDS Telecom. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle-Straus). HMS’ and Suttle-Straus’ financial results were not significant to TDS’ operations. All of TDS’ segments operate only in the United States. See Note 12 — Business Segment Information for summary financial information on each business segment.

The unaudited consolidated financial statements included herein have been prepared by TDS pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2021.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of June 30, 2022 and December 31, 2021 and its results of operations, comprehensive income and changes in equity for the three and six months ended June 30, 2022 and 2021, and its cash flows for the six months ended June 30, 2022 and 2021. These results are not necessarily indicative of the results to be expected for the full year. TDS has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2021.

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 non-cash acquisitions of software license agreements were $139 million for the six months ended June 30, 2022.

Restricted Cash

TDS presents restricted cash with cash and cash equivalents in the Consolidated Statement of Cash Flows. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 9 — Debt for additional information related to the receivables securitization agreement. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.


	June 30, 2022		December 31, 2021
(Dollars in millions)
Cash and cash equivalents	$	466	$	367
Restricted cash included in Other current assets	39		47
Cash, cash equivalents and restricted cash in the statement of cash flows	$	505	$	414

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Note 2 Revenue Recognition

Disaggregation of Revenue

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


Three Months Ended June 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	700	$	—	$	—	$	700
Inbound roaming	18		—		—		18
Residential	—		168		—		168
Commercial	—		44		—		44
Wholesale	—		44		—		44
Other service	42		—		19		61
Service revenues from contracts with customers	760		255		19		1,035
Equipment and product sales	244		—		41		285
Total revenues from contracts with customers	1,004		255		60		1,320
Operating lease income	23		1		6		29
Total operating revenues	$	1,027	$	256	$	66	$	1,349


Three Months Ended June 30, 2021	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service1	$	684	$	—	$	—	$	684
Inbound roaming	28		—		—		28
Residential	—		160		—		160
Commercial	—		46		—		46
Wholesale	—		44		—		44
Other service1	42		—		18		60
Service revenues from contracts with customers	754		251		18		1,022
Equipment and product sales	240		—		22		262
Total revenues from contracts with customers	994		251		39		1,284
Operating lease income	20		1		6		27
Total operating revenues	$	1,014	$	252	$	45	$	1,311

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Six Months Ended June 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service	$	1,402	$	—	$	—	$	1,402
Inbound roaming	39		—		—		39
Residential	—		330		—		330
Commercial	—		87		—		87
Wholesale	—		87		—		87
Other service	84		—		36		120
Service revenues from contracts with customers	1,525		505		36		2,065
Equipment and product sales	467		1		71		539
Total revenues from contracts with customers	1,992		506		107		2,604
Operating lease income	45		2		13		60
Total operating revenues	$	2,037	$	507	$	120	$	2,664



Six Months Ended June 30, 2021	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Revenues from contracts with customers:
Type of service:
Retail service1	$	1,367	$	—	$	—	$	1,367
Inbound roaming	56		—		—		56
Residential	—		317		—		317
Commercial	—		93		—		93
Wholesale	—		89		—		89
Other service1	81		—		34		115
Service revenues from contracts with customers	1,504		499		34		2,037
Equipment and product sales	492		1		45		538
Total revenues from contracts with customers	1,996		499		79		2,575
Operating lease income	41		1		12		54
Total operating revenues	$	2,037	$	501	$	91	$	2,629

Numbers may not foot due to rounding.

Contract Balances

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


	June 30, 2022		December 31, 2021
(Dollars in millions)
Contract assets	$	9	$	10
Contract liabilities	$	303	$	289

Revenue recognized related to contract liabilities existing at January 1, 2022 was $171 million for the six months ended June 30, 2022.

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Transaction price allocated to the remaining performance obligations

The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of June 30, 2022 and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates.


	Service Revenues
(Dollars in millions)
Remainder of 2022	$	277
2023	216
Thereafter	186
Total	$	679

Contract Cost Assets

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


	June 30, 2022		December 31, 2021
(Dollars in millions)
Costs to obtain contracts
Sales commissions	$	134	$	139
Fulfillment costs
Installation costs	9		10

Total contract cost assets	$	143	$	149

Amortization of contract cost assets was $28 million and $57 million for the three and six months ended June 30, 2022, respectively, and $29 million and $59 million for the three and six months ended June 30, 2021, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses.

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Note 3 Fair Value Measurements

As of June 30, 2022 and December 31, 2021, TDS did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

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

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


	Level within the Fair Value Hierarchy	June 30, 2022				December 31, 2021
		Book Value		Fair Value		Book Value		Fair Value
(Dollars in millions)
Long-term debt
Retail	2	$	1,500	$	1,156	$	1,500	$	1,594
Institutional	2	536		425		535		659
Other	2	1,486		1,486		944		944

Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for UScellular Senior Notes, which are traded on the New York Stock Exchange. TDS’ “Institutional” debt consists of UScellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of term loan credit agreements, receivables securitization agreement and in 2022, export credit financing agreement. TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 2.22% to 7.75% and 1.31% to 4.40% at June 30, 2022 and December 31, 2021, respectively.

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.

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Note 4 Equipment Installment Plans

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

The following table summarizes equipment installment plan receivables.


	June 30, 2022		December 31, 2021
(Dollars in millions)
Equipment installment plan receivables, gross	$	1,074	$	1,085


Allowance for credit losses	(74)		(72)
Equipment installment plan receivables, net	$	1,000	$	1,013

Net balance presented in the Consolidated Balance Sheet as:
Accounts receivable — Customers and agents (Current portion)	$	631	$	639
Other assets and deferred charges (Non-current portion)	369		374
Equipment installment plan receivables, net	$	1,000	$	1,013

UScellular uses various inputs, including internal data, information from credit bureaus and other sources, to evaluate the credit profiles of its customers. From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:


	June 30, 2022										December 31, 2021
	Lowest Risk		Lower Risk		Slight Risk		Higher Risk		Total		Lowest Risk		Lower Risk		Slight Risk		Higher Risk		Total
(Dollars in millions)
Unbilled	$	892	$	91	$	22	$	5	$	1,010	$	896	$	94	$	24	$	5	$	1,019
Billed — current	38		5		1		—		44		40		5		1		1		47
Billed — past due	11		6		2		1		20		10		6		2		1		19
Total	$	941	$	102	$	25	$	6	$	1,074	$	946	$	105	$	27	$	7	$	1,085

The balance of the equipment installment plan receivables as of June 30, 2022 on a gross basis by year of origination were as follows:


	2019		2020		2021		2022		Total
(Dollars in millions)
Lowest Risk	$	3	$	146	$	462	$	330	$	941
Lower Risk	—		10		52		40		102
Slight Risk	—		1		8		16		25
Higher Risk	—		—		3		3		6
Total	$	3	$	157	$	525	$	389	$	1,074

Activity for the six months ended June 30, 2022 and 2021, in the allowance for credit losses for equipment installment plan receivables was as follows:


	June 30, 2022		June 30, 2021
(Dollars in millions)
Allowance for credit losses, beginning of period	$	72	$	78
Bad debts expense	37		13
Write-offs, net of recoveries	(35)		(19)
Allowance for credit losses, end of period	$	74	$	72

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Note 5 Income Taxes

The effective tax rate on Income before income taxes for the three and six months ended June 30, 2022 was 40.4% and 36.7%, respectively. These effective tax rates reflect a combined rate of federal and state taxes, adjusted for impacts of nondeductible compensation and interest expense.

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

Note 6 Earnings Per Share

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars and shares in millions, except per share amounts)
Net income attributable to TDS common shareholders used in basic earnings per share	$	18	$	20	$	61	$	77
Adjustments to compute diluted earnings:
Noncontrolling interest adjustment	—		—		(1)		(1)
Net income attributable to TDS common shareholders used in diluted earnings per share	$	18	$	20	$	60	$	76

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

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

Basic earnings per share attributable to TDS common shareholders	$	0.15	$	0.18	$	0.53	$	0.67

Diluted earnings per share attributable to TDS common shareholders	$	0.15	$	0.17	$	0.52	$	0.65

Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings per share attributable to TDS common shareholders because their effects were antidilutive. The number of such Common Shares excluded was 4 million for both the three and six months ended June 30, 2022, and 3 million for both the three and six months ended June 30, 2021.

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Note 7 Intangible Assets

Activity related to Licenses for the six months ended June 30, 2022, is presented below:


	Licenses
(Dollars in millions)
Balance at December 31, 2021	$	4,097
Acquisitions	587
Impairment	(3)
Transferred to Assets held for sale	1

Exchanges - Licenses received	1

Capitalized interest	3
Balance at June 30, 2022	$	4,686

In February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $187 million in total from 2021 through 2024 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted. In October 2021, UScellular paid $36 million related to the additional costs. The spectrum must be cleared by incumbent providers before UScellular can access it. UScellular does not expect to have access to this spectrum until late 2023.

In January 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110) for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The advance payment was included in Other assets and deferred charges in the December 31, 2021 Consolidated Balance Sheet. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.

Note 8 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest. TDS’ Investments in unconsolidated entities are accounted for using 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.


	June 30, 2022		December 31, 2021
(Dollars in millions)
Equity method investments	$	455	$	457
Measurement alternative method investments	18		22
Investments recorded using the net asset value practical expedient	10		—
Total investments in unconsolidated entities	$	483	$	479

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars in millions)
Revenues	$	1,779	$	1,748	$	3,595	$	3,482
Operating expenses	1,395		1,221		2,772		2,502
Operating income	384		527		823		980
Other income (expense), net	(2)		(2)		(6)		10
Net income	$	382	$	525	$	817	$	990

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Note 9 Debt

Revolving Credit Agreements

The following table summarizes the revolving credit agreements as of June 30, 2022:


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

Borrowings under the TDS revolving credit agreement bear interest at a rate of London Inter-bank Offered Rate (LIBOR) plus 1.50%.

Borrowings under the UScellular revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus 1.60%.

During the six months ended June 30, 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement.

TDS and UScellular believe that they were in compliance with all of the financial and other covenants and requirements set forth in their revolving credit agreements as of June 30, 2022.

Term Loan Agreements

The following table summarizes the term loan credit agreements as of June 30, 2022:


	TDS		UScellular
(Dollars in millions)
Maximum borrowing capacity	$	500	$	800
Amount borrowed and outstanding	$	349	$	698
Amount borrowed and repaid	$	1	$	2
Amount available for use	$	150	$	100

Borrowings under the TDS term loan agreements bear interest at a rate of LIBOR plus 2.00% or LIBOR plus 2.50%. The maturity dates of the TDS term loan agreements are July 2028 and July 2031. In July 2022, TDS borrowed the remaining $150 million under the term loan agreement.

Borrowings under the UScellular term loan agreements bear interest at a rate of SOFR plus 1.60%, SOFR plus 2.10% or SOFR plus 2.60%. The maturity dates of the UScellular term loan agreements are July 2026, July 2028 and July 2031. In July 2022, UScellular borrowed the remaining $100 million under the term loan agreement.

TDS and UScellular believe that they were in compliance with all of the financial and other covenants and requirements set forth in their term loan credit agreements as of June 30, 2022.

Export Credit Financing Agreement

In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) equipment imported from Canada, including equipment purchased prior to entering the term loan credit facility agreement. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable on the five-year anniversary of the first borrowing, which is in January 2027. During the six months ended June 30, 2022, UScellular borrowed $150 million, which is the full amount available under the agreement.

TDS believes that UScellular was in compliance with all of the financial and other covenants and requirements set forth in their export credit financing agreement as of June 30, 2022.

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Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement for securitized borrowings using its equipment installment receivables. In March 2022, UScellular amended the agreement to extend the maturity date to March 2024. There were no significant changes to other terms of the receivable securitization agreement. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until the maturity date, which may be extended from time to time as specified therein. The outstanding borrowings bear interest at a rate that approximates SOFR plus 0.90%. During the six months ended June 30, 2022, UScellular repaid $150 million under the agreement. As of June 30, 2022, the outstanding borrowings under the agreement were $300 million and the unused borrowing capacity under the agreement was $150 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of June 30, 2022, the USCC Master Note Trust held $426 million of assets available to be pledged as collateral for the receivables securitization agreement. In July 2022, UScellular repaid $50 million under its receivables securitization agreement.

TDS believes that UScellular was in compliance with all of the financial and other covenants and requirements set forth in their receivables securitization agreement as of June 30, 2022.

Repurchase Agreement

In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. The transaction form involves the sale of receivables by the repo subsidiary and the commitment to repurchase at the end of the applicable repurchase term, which may extend up to one month. The transaction is accounted for as a one-month secured borrowing. The outstanding borrowings bear interest at a rate of SOFR plus 1.25%. Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control and collection risk of the receivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing. UScellular will continue to report equipment installment plan receivables and any related balances on the Consolidated Balance Sheet. The expiration date of the repurchase agreement is in January 2023. During the six months ended June 30, 2022, the repo subsidiary borrowed $60 million under the repurchase agreement. As of June 30, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million. The outstanding borrowings are included in Other current liabilities in the June 30, 2022 Consolidated Balance Sheet. As of June 30, 2022, UScellular held $638 million of assets available for inclusion in the repurchase facility; these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement. In July 2022, UScellular repaid $50 million under its repurchase agreement.

Note 10 Variable Interest Entities

Consolidated VIEs

TDS consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. TDS reviews the criteria for a controlling financial interest at the time it enters into agreements and subsequently when events warranting reconsideration occur. These VIEs have risks similar to those described in the “Risk Factors” in this Form 10-Q and TDS’ Form 10-K for the year ended December 31, 2021.

UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the USCC Master Note Trust (Trust), collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs and, therefore, consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables.

The following VIEs were formed to participate in FCC auctions of wireless spectrum licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions:

▪Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and

▪King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless.

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These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect TDS subsidiary, to sell or lease certain wireless spectrum licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated.

TDS also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, UScellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships also are recognized as VIEs and are consolidated under the variable interest model.

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


	June 30, 2022		December 31, 2021
(Dollars in millions)
Assets
Cash and cash equivalents	$	30	$	22

Accounts receivable	686		692
Inventory, net	3		2
Other current assets	35		44

Licenses	638		637
Property, plant and equipment, net	110		108
Operating lease right-of-use assets	41		42
Other assets and deferred charges	379		382
Total assets	$	1,922	$	1,929

Liabilities
Current liabilities	$	89	$	28
Long-term operating lease liabilities	37		37
Other deferred liabilities and credits	26		23
Total liabilities1	$	152	$	88

1 Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 9 – Debt for additional information.

Unconsolidated VIEs

TDS manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.

TDS’ total investment in these unconsolidated entities was $5 million and $4 million at June 30, 2022 and December 31, 2021, respectively, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities.

Other Related Matters

TDS made contributions, loans or advances to its VIEs totaling $101 million and $50 million, during the six months ended June 30, 2022 and 2021, respectively, of which $80 million in 2022 and $21 million in 2021, are related to USCC EIP LLC as discussed above. TDS may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of wireless spectrum licenses granted in various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long-term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

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The limited partnership agreement of Advantage Spectrum also provides the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of UScellular, to purchase its interest in the limited partnership. In June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage Spectrum will now be exercisable in the third quarter of 2023, and if not exercised at that time, will be exercisable in the third quarter of 2024. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to TDS, is recorded as Noncontrolling interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put option, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated Statement of Operations.

Note 11 Noncontrolling Interests

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


Six Months Ended June 30,	2022		2021
(Dollars in millions)
Net income attributable to TDS shareholders	$	96	$	86
Transfers (to) from noncontrolling interests
Change in TDS' Capital in excess of par value from UScellular's issuance of UScellular shares	(18)		(43)
Change in TDS' Capital in excess of par value from UScellular's repurchases of UScellular shares	13		1

Net transfers (to) from noncontrolling interests	(5)		(42)
Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests	$	91	$	44

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Note 12 Business Segment Information

UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, finance, and general management services. Such billings are based on expenses specifically identified to UScellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to UScellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if UScellular and TDS Telecom operated on a stand-alone basis.

Financial data for TDS’ reportable segments for the three and six month periods ended, or as of June 30, 2022 and 2021, is as follows. See Note 1 — Basis of Presentation for additional information.


Three Months Ended or as of June 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	783	$	256	$	25	$	1,064
Equipment and product sales	244		—		41		285
Total operating revenues	1,027		256		66		1,349
Cost of services (excluding Depreciation, amortization and accretion reported below)	192		103		17		312
Cost of equipment and products	275		—		33		308
Selling, general and administrative	339		77		11		427
Depreciation, amortization and accretion	172		52		5		229
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	6		1		—		7


Operating income	40		23		—		63
Equity in earnings of unconsolidated entities	37		—		1		38
Interest and dividend income	3		—		2		5

Interest expense	(40)		2		(2)		(40)

Income before income taxes	40		25		1		66
Income tax expense	18		7		2		27
Net income (loss)	22		19		(2)		39
Add back:
Depreciation, amortization and accretion	172		52		5		229
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	6		1		—		7



Interest expense	40		(2)		2		40
Income tax expense	18		7		2		27
Adjusted EBITDA1	$	261	$	76	$	8	$	345

Investments in unconsolidated entities	$	441	$	4	$	38	$	483
Total assets	$	11,003	$	2,803	$	436	$	14,242
Capital expenditures	$	268	$	120	$	3	$	391

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Three Months Ended or as of June 30, 2021	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	774	$	251	$	24	$	1,049
Equipment and product sales	240		—		22		262
Total operating revenues	1,014		252		45		1,311
Cost of services (excluding Depreciation, amortization and accretion reported below)	204		101		19		324
Cost of equipment and products	258		—		18		276
Selling, general and administrative	334		73		9		416
Depreciation, amortization and accretion	180		49		5		234

(Gain) loss on asset disposals, net	2		1		—		3


Operating income (loss)	36		28		(6)		58
Equity in earnings of unconsolidated entities	47		—		1		48
Interest and dividend income	2		—		1		3

Interest expense	(60)		1		(27)		(86)

Income (loss) before income taxes	25		29		(31)		23
Income tax expense (benefit)	(10)		7		(8)		(11)
Net income (loss)	35		22		(23)		34
Add back:
Depreciation, amortization and accretion	180		49		5		234

(Gain) loss on asset disposals, net	2		1		—		3



Interest expense	60		(1)		27		86
Income tax expense (benefit)	(10)		7		(8)		(11)
Adjusted EBITDA1	$	267	$	78	$	1	$	346

Investments in unconsolidated entities	$	445	$	4	$	38	$	487
Total assets	$	9,920	$	2,433	$	427	$	12,780
Capital expenditures	$	148	$	99	$	3	$	250

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Six Months Ended or as of June 30, 2022	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	1,570	$	507	$	48	$	2,125
Equipment and product sales	467		1		71		539
Total operating revenues	2,037		507		120		2,664
Cost of services (excluding Depreciation, amortization and accretion reported below)	377		199		35		611
Cost of equipment and products	533		—		57		590
Selling, general and administrative	663		150		24		837
Depreciation, amortization and accretion	342		106		8		456
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	8		1		—		9


Operating income (loss)	111		51		(4)		158
Equity in earnings of unconsolidated entities	82		—		1		83
Interest and dividend income	4		—		3		7

Interest expense	(73)		4		(3)		(72)

Income (loss) before income taxes	124		56		(4)		176
Income tax expense	50		14		1		65
Net income (loss)	74		41		(4)		111
Add back:
Depreciation, amortization and accretion	342		106		8		456
Loss on impairment of licenses	3		—		—		3
(Gain) loss on asset disposals, net	8		1		—		9



Interest expense	73		(4)		3		72
Income tax expense	50		14		1		65
Adjusted EBITDA1	$	550	$	159	$	7	$	716

Capital expenditures	$	405	$	225	$	3	$	633

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Six Months Ended or as of June 30, 2021	UScellular		TDS Telecom		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
Service	$	1,545	$	500	$	46	$	2,091
Equipment and product sales	492		1		45		538
Total operating revenues	2,037		501		91		2,629
Cost of services (excluding Depreciation, amortization and accretion reported below)	389		199		35		623
Cost of equipment and products	533		—		37		570
Selling, general and administrative	639		143		22		804
Depreciation, amortization and accretion	350		98		9		457

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

Operating income (loss)	120		60		(12)		168
Equity in earnings of unconsolidated entities	88		—		2		90
Interest and dividend income	3		—		3		6

Interest expense	(97)		2		(43)		(138)
Other, net	—		—		(1)		(1)
Income (loss) before income taxes	114		62		(51)		125
Income tax expense (benefit)	17		15		(12)		20
Net income (loss)	97		46		(38)		105
Add back:
Depreciation, amortization and accretion	350		98		9		457

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


Interest expense	97		(2)		43		138
Income tax expense (benefit)	17		15		(12)		20
Adjusted EBITDA1	$	567	$	158	$	2	$	727

Capital expenditures	$	273	$	169	$	4	$	446

Numbers may not foot due to rounding.

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

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Telephone and Data Systems, Inc.

Additional Required Information

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As required by SEC Rules 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of June 30, 2022, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting that have occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting.

Legal Proceedings

In April 2018, the United States Department of Justice (DOJ) notified TDS that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is/was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed TDS and UScellular that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. TDS and UScellular believe that UScellular’s arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, TDS cannot predict the outcome of any proceeding.

Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2021, for additional information. There have been no material changes to such information since December 31, 2021.

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Unregistered Sales of Equity Securities and Use of Proceeds

On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the second quarter of 2022.

The following table provides certain information with respect to all purchases made by or on behalf of TDS, and any 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.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2022	59,100	$	18.97	59,100	$	171,613,870
May 1 - 31, 2022	171,315	$	17.93	171,315	$	168,541,695
June 1 - 30, 2022	735,709	$	15.64	735,709	$	157,033,260
Total for or as of the end of the quarter ended June 30, 2022	966,124	$	16.25	966,124	$	157,033,260

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Exhibits


Exhibit Number			Description of Documents

Exhibit 10.1			Telephone and Data Systems, Inc. 2022 Long-Term Incentive Plan, is hereby incorporated by reference from Exhibit A to the TDS definitive proxy statement dated April 6, 2022, which was filed with the SEC on Schedule 14A on April 6, 2022.

Exhibit 10.2			United States Cellular Corporation 2022 Long-Term Incentive Plan, is hereby incorporated by reference from Exhibit A to the UScellular definitive proxy statement dated April 5, 2022, which was filed with the SEC on Schedule 14A on April 5, 2022.

Exhibit 10.3			Form of UScellular 2013 Long-Term Incentive Plan 2022 Performance Award Agreement is hereby incorporated by reference to Exhibit 10.2 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2022.

Exhibit 10.4			Form of UScellular 2013 Long-Term Incentive Plan 2022 Restricted Stock Unit Award Agreement is hereby incorporated by reference to Exhibit 10.3 to UScellular's Quarterly Report on Form 10-Q for the period ended June 30, 2022.

Exhibit 10.5			Form of TDS 2020 Long-Term Incentive Plan 2022 Performance Share Award Agreement.

Exhibit 10.6			Form of TDS 2020 Long-Term Incentive Plan 2022 Restricted Stock Unit Award Agreement.

Exhibit 10.7			Form of TDS 2022 Long-Term Incentive Plan 2022 Performance Share Award Agreement.

Exhibit 10.8			Form of TDS 2022 Long-Term Incentive Plan 2022 Restricted Stock Unit Award Agreement.

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

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

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

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


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

Exhibit 101.SCH			Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.PRE			Inline XBRL Taxonomy Presentation Linkbase Document

Exhibit 101.CAL			Inline XBRL Taxonomy Calculation Linkbase Document

Exhibit 101.LAB			Inline XBRL Taxonomy Label Linkbase Document

Exhibit 101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

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

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Form 10-Q Cross Reference Index


Item Number			Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)	31	-	36
		Notes to Consolidated Financial Statements	40	-	52

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1	-	28

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

	Item 4.	Controls and Procedures	56

Part II.	Other Information

	Item 1.	Legal Proceedings	56

	Item1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

	Item 6.	Exhibits	58

Signatures			60

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SIGNATURES

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

TELEPHONE AND DATA SYSTEMS, INC.

(Registrant)

Date:

August 4, 2022

/s/ LeRoy T. Carlson, Jr.

LeRoy T. Carlson, Jr.
President and Chief Executive Officer
(principal executive officer)

Date:

August 4, 2022

/s/ Vicki L. Villacrez

Vicki L. Villacrez
Executive Vice President and Chief Financial Officer
(principal financial officer)

Exhibit 10.5

TELEPHONE AND DATA SYSTEMS, INC.

2020 LONG-TERM INCENTIVE PLAN

2022 PERFORMANCE SHARE AWARD AGREEMENT

Telephone and Data Systems, Inc., a Delaware corporation (the “Company”), hereby grants to the recipient of this award (the “Employee”) as of May 18, 2022 (the “Grant Date”), pursuant to the provisions of the Telephone and Data Systems, Inc. 2020 Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”), a Performance Share Award (the “Award”) with a target opportunity equal to the number of shares of Common Stock (the “Target Opportunity”) set forth in the “Portfolio Summary” section of the Employee’s Company on-line account with Shareworks (the “Award Summary”), upon and subject to the restrictions, terms and conditions set forth below. Depending on performance during the Performance Period (for all purposes of this Award Agreement, as defined in Exhibit A hereto), the Employee may be entitled under this Award Agreement to shares of Common Stock equal to 0% to 200% of the Target Opportunity, in accordance with Section 3 below. Capitalized terms not defined herein shall have the meanings specified in the Plan.

1. Award Subject to Acceptance.

The Award shall become null and void unless the Employee accepts the Award and this Award Agreement electronically by utilizing the Employee’s Company on-line account with Shareworks, which is accessed at www.shareworks.com/login (or via such other method as prescribed by the Company).

2. Rights as Stockholder.

The Employee shall not be entitled to any privileges of ownership with respect to the shares of Common Stock subject to the Award unless and until, and only to the extent, such shares become vested pursuant to the terms of this Award Agreement and the Employee becomes a stockholder of record with respect to such shares. As of each date prior to the settlement of the Award on which the Company pays a regular cash dividend to record owners of shares of Common Stock (a “Dividend Date”), then the number of shares subject to the Award shall increase by (i) the product of the Target Opportunity (as increased from time to time by cash dividend equivalents previously credited pursuant to this Section 2) immediately prior to such Dividend Date multiplied by the dollar amount of the cash dividend paid per share of Common Stock on such Dividend Date, divided by (ii) the Fair Market Value of a share of Common Stock on such Dividend Date, with such amount rounded down to the nearest whole number. Any such additional shares shall be subject to the same vesting conditions and payment terms set forth herein as the shares to which they relate.

3. Performance-Based Vesting Conditions.

(a) In General. The Award shall vest and become nonforfeitable pursuant to the terms of this Award Agreement and the Plan and based on the achievement of Performance Measures (for all purposes of this Award Agreement, as defined in accordance with Exhibit A hereto and determined in accordance with criteria approved by the Committee) during the Performance Period, provided that the Employee remains continuously employed with the Employers and Affiliates through the last day of the Performance Period (or as otherwise set forth in Section 4 below). Achievement of the Performance Measures shall be determined and certified by the Committee in writing prior to the settlement of the Award (but in any event within sixty (60) days following the last day of the Performance Period, or if earlier, the date of the occurrence of a Change in Control).

(b) Fractional Shares. Only a whole number of shares of Common Stock may be issued in respect of this Award. If a fractional number of shares of Common Stock is scheduled to vest pursuant to this Section 3, such number of shares shall be rounded down to the nearest whole number, with the fractional portion thereof forfeited.

(c) Forfeiture. To the extent shares of Common Stock subject to the Award fail to vest pursuant to this Section 3, then the Award shall be forfeited as it relates to those shares (except as provided in Section 7 in connection with a Change in Control), and the Employee shall have no rights with respect thereto (including, without limitation, any rights relating to unvested accumulated dividend equivalents under Section 2).

4. Termination of Employment.

(a) Death, Disability or Retirement. Except as otherwise provided in Section 7 in connection with a Change in Control, if the Employee terminates employment with the Employers and Affiliates prior to the last day of the Performance Period due to death, Disability or Retirement, then the Employee (or his or her beneficiary, as applicable) shall receive a pro-rata portion of the vested Award, with such vesting calculated in accordance with Section 3 based upon actual achievement of the Performance Measures through the end of the Performance Period, and the remaining portion of the Award shall be forfeited and the Employee (or his or her beneficiary, as applicable) shall have no rights with respect thereto (including, without limitation, any rights relating to unvested accumulated dividend equivalents under Section 2). Such pro-rata portion shall be measured by a fraction, of which the numerator is the number of whole months of the Performance Period during which the Employee remained in continuous employment with the Employers and Affiliates, and the denominator is the number of whole months of the Performance Period. Subject to Section 7 in connection with a Change in Control, the shares payable to the Employee (or his or her beneficiary, as applicable) pursuant to this Section 4(a) shall be delivered following the Performance Period at the time set forth in Section 6 hereof.

For purposes of this Award Agreement, “Disability” shall mean a total physical disability which, in the Committee’s judgment, prevents an Employee from performing substantially such Employee’s employment duties and responsibilities for a continuous period of at least six months, and “Retirement” shall mean the Employee’s termination of employment on or after January 1, 2023 and at or after attainment of age 66. For the avoidance of doubt, if the Employee’s employment is terminated by reason of negligence or willful misconduct, as determined by the Company in its sole discretion, such termination shall not qualify as a termination due to Retirement (despite the attainment of age 66 by the Employee).

(b) Other Termination of Employment. Except as otherwise provided in Section 7 in connection with a Change in Control, if the Employee terminates employment with the Employers and Affiliates prior to the last day of the Performance Period for a reason other than death, Disability or Retirement, then the Award immediately shall be forfeited in its entirety on the date of such termination, and the Employee shall have no rights with respect thereto (including, without limitation, any rights relating to accumulated dividend equivalents under Section 2).

5. Forfeiture of Award and Award Gain upon Competition, Misappropriation, Solicitation or Disparagement.

Notwithstanding any other provision herein, if the Employee engages in (i) Competition (as defined in this Section 5 below), (ii) Misappropriation (as defined in this Section 5 below), (iii) Solicitation (as defined in this Section 5 below), or (iv) Disparagement (as defined in this Section 5 below), in each case as determined by the Company in its sole discretion, then (i) on the date of such Competition, Misappropriation, Solicitation or Disparagement, the Award immediately shall be forfeited and the Employee shall have no rights with respect thereto and (ii) the Employee shall pay the Company, within five business days of receipt by the Employee of a written demand therefore, an amount in cash determined by multiplying the number of shares of Common Stock delivered to the Employee pursuant to the Award within the twelve-month period immediately preceding such Competition, Misappropriation, Solicitation or Disparagement, if any (without reduction for any shares of Common Stock withheld by the Company pursuant to Section 8.3) by the Fair Market Value of a share of Common Stock on the date that the Award was settled. The Employee acknowledges and agrees that the Award, by encouraging stock ownership and thereby increasing an employee’s proprietary interest in the Company’s success, is intended as an incentive to participating employees to remain in the employ of the Employers or an Affiliate. The Employee acknowledges and agrees that this Section 5 is therefore fair and reasonable, and not a penalty.

The Employee may be released from the Employee’s obligations under this Section 5 only if and to the extent the Committee determines in its sole discretion that such release is in the best interests of the Company.

The Employee agrees that by accepting this Award Agreement the Employee authorizes the Employers and any Affiliate to deduct any amount owed by the Employee pursuant to this Section 5 from any amount payable by the Employers or any Affiliate to the Employee, including, without limitation, any amount payable to the Employee as salary, wages, vacation pay or bonus as allowed under state law. The Employee further agrees to execute any documents at the time of setoff required by the Employers and any Affiliate in order to effectuate the setoff. This right of setoff shall not be an exclusive remedy (the Company shall be entitled to any other remedy permitted under applicable law) and an Employer’s or an Affiliate’s election not to exercise this right of setoff with respect to any amount payable to the Employee shall not constitute a waiver of this right of setoff with respect to any other amount payable to the Employee or any other remedy. Should the Employers and/or any Affiliate institute a legal action against the Employee to recover the amounts due, the Employee agrees to reimburse the Employers and/or any Affiliate for their reasonable attorneys’ fees and litigation costs incurred in recovering such amounts from the Employee.

For purposes of this Award Agreement, “Misappropriation” shall mean that the Employee (i) uses Confidential Information (as defined below) for the benefit of anyone other than the Employers or an Affiliate, as the case may be, or discloses the Confidential Information to anyone not authorized by the Employers or an Affiliate, as the case may be, to receive such information; (ii) upon termination of employment, makes any summaries of, takes any notes with respect to or memorizes any Confidential Information or takes any Confidential Information or reproductions thereof from the facilities of the Employers or an Affiliate or (iii) upon termination of employment or upon the request of the Employers or an Affiliate, fails to return all Confidential Information then in the Employee’s possession. For the avoidance of doubt, “Misappropriation” does not include disclosure of Confidential Information to a governmental regulatory agency, such as the U.S. Securities and Exchange Commission, provided that the Employee informs the agency that the Employers and/or Affiliates deem the information to be confidential. Additionally, in the event the Employee files a lawsuit against the Employer for retaliation by the Employer against the Employee for reporting a suspected violation of law, the Employee has the right to provide trade secret information to their attorney and use the trade secret information in the court proceeding, although the Employee must file any document containing the trade secret under seal and may not disclose the trade secret, except pursuant to court order. “Confidential Information” shall mean any confidential and proprietary drawings, reports, sales and training manuals, customer lists, computer programs and other material embodying trade secrets or confidential technical, business, or financial information of the Employers or an Affiliate. Nothing in this Award Agreement is intended to prohibit the Employee from discussing with fellow employees, or with third parties who are not competitors of the Employer or an Affiliate, wages, hours and other terms and conditions of employment that are not subject to a non-disclosure obligation pursuant to some other contract, policy or arrangement.

For purposes of this Award Agreement, “Solicitation” shall mean that the Employee, directly or indirectly, individually or in conjunction with any Person, during the Employee’s employment with the Employers and the Affiliates and for the twelve months after the termination of that employment for any reason, other than on any Employer’s or Affiliate’s behalf, solicits, induces or encourages (or attempts to solicit, induce or encourage) any individual away from any Employer’s or Affiliate’s employ or from the faithful discharge of such individual’s contractual and fiduciary obligations to serve the Employers’ and Affiliates’ interests with undivided loyalty.

For purposes of this Award Agreement, “Disparagement” shall mean that the Employee has made a material statement (whether oral, written or electronic) to any Person other than to an officer of an Employer or an Affiliate that disparages or demeans the Employers, any Affiliate, or any of their respective owners, directors, officers, employees, products or services. For the avoidance of doubt, “Disparagement” does not include making truthful statements when required by legal process to do so by a court of law, to any governmental agency having supervisory authority over the business of an Employer, or by any administrative or legislative body (including a committee thereof) with the jurisdiction to order the Employee to divulge, disclose or make accessible such information.

6. Delivery of Shares.

Subject to Sections 7 and 8.3, as soon as practicable following the end of the Performance Period (but no later than the 15th day of the third month following the end of the Performance Period), the Company shall deliver or cause to be delivered to the Employee (or the Employee’s beneficiary, as applicable) one or more certificates issued in the Employee’s (or beneficiary’s) name (or such name as is acceptable to the Company and designated in writing by the Employee (or beneficiary)) representing the shares of Common Stock that have become vested pursuant to this Award (or such delivery shall be evidenced by appropriate entry in the books of the Company or a duly authorized transfer agent of the Company). The holder of the Award shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, unless the Company in its discretion elects to make such payment. Prior to the issuance to the Employee of shares of Common Stock with respect to the vested Award, the Employee shall have no direct or secured claim in any specific assets of the Company or in such shares, and will have the status of a general unsecured creditor of the Company.

7. Change in Control.

(a) In General. If a Change in Control occurs prior to the last day of the Performance Period, then the Performance Measures applicable to the Award shall be deemed to have been achieved based on the greater of (i) actual achievement (as determined in accordance with Exhibit A hereto) through the date of the occurrence of the Change in Control and (ii) an achievement level resulting in a payout equal to the Target Opportunity (the portion of the Award eligible for vesting upon a Change in Control applying such achievement, and as adjusted by Section 2 and Section 8.4, to the extent applicable, the “Change in Control Shares”), and the Change in Control Shares shall vest and become nonforfeitable if the Employee remains continuously employed with the Employers and Affiliates through the last day of the Performance Period. In such case, the Change in Control Shares shall be delivered to the Employee following the Performance Period at the time set forth in Section 6 hereof. To the extent shares of Common Stock subject to the Award fail to vest under Section 7(a), (b) or (c) hereof in connection with a Change in Control, then the Award shall be forfeited as it relates to such unvested shares, and the Employee shall have no rights with respect thereto (including, without limitation, any rights relating to unvested accumulated dividend equivalents under Section 2).

(b) Award Not Assumed. Notwithstanding Section 7(a), if the Award is not effectively assumed or continued by a surviving or acquiring company in the Change in Control (including by reason of the surviving or acquiring company not being publicly traded in the United States), as determined by the Committee as constituted immediately prior to the Change in Control, then the Change in Control Shares shall vest and become nonforfeitable and be delivered to the Employee within sixty (60) days following the occurrence of the Change in Control; provided however that if the Award is considered “nonqualified deferred compensation” within the meaning of section 409A of the Code, and such accelerated payment is not permitted by section 409A of the Code, then payment with respect to the vested Change in Control Shares shall be made following the Performance Period at the time set forth in Section 6 hereof (or if earlier, the time set forth in Section 7(c)).

(c) Termination of Employment Prior to Last Day of Performance Period. Notwithstanding Section 7(a), and subject to Section 7(b), if the Employee’s employment by the Employers and Affiliates is terminated following a Change in Control but prior to the last day of the Performance Period (i) due to death, Disability or Retirement, (ii) by the Company without Cause or (iii) by the Employee for Good Reason, then the Change in Control Shares shall vest and become nonforfeitable and be delivered to the Employee (or his or her beneficiary, as applicable) within sixty (60) days following the date of such termination of employment, subject to Section 9.6; provided, however, that if the Award is considered “nonqualified deferred compensation” within the meaning of section 409A of the Code and (X) the Change in Control is not a “change in control event” within the meaning of section 409A of the Code, (Y) the termination of employment occurred more than two years following the Change in Control, or (Z) the accelerated payment otherwise is not permitted by section 409A of the Code, then the Change in Control Shares shall vest and become nonforfeitable and be delivered to the Employee (or his or her beneficiary, as applicable) following the Performance Period at the time set forth in Section 6 hereof.

(d) Definition of Cause. For purposes of this Award Agreement, “Cause” shall have the meaning set forth in the employment agreement between the Employee and an Employer as in effect on the Grant Date, if any. If the Employee is not a party to such an employment agreement that contains such definition, “Cause” shall mean, with respect to the Employee (as reasonably determined in good faith by the Committee):

(1) any conviction of, or plea of nolo contendere to, a felony;

(2) the theft, conversion, embezzlement or misappropriation by the Employee of funds or other assets of the Employers and Affiliates or any other act of fraud or dishonesty with respect to the Employers and Affiliates;

(3) a material breach by the Employee of his or her employment duties and responsibilities (other than as a result of incapacity due to physical or mental illness) (A) which is the result of the Employee’s gross negligence or (B) which is demonstrably willful and deliberate on the Employee’s part and which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Employers and Affiliates; or

(4) the Employee’s Competition, Misappropriation, Solicitation or Disparagement (in each case, as defined in Section 5), or other material violation of a restrictive covenant made by the Employee for the benefit of the Employers and Affiliates.

(e) Definition of Good Reason. For purposes of this Award Agreement, “Good Reason” shall have the meaning set forth in the employment agreement between the Employee and an Employer as in effect on the Grant Date, if any. If the Employee is not a party to such an employment agreement that contains such definition, “Good Reason” shall mean the occurrence of any of the following events without the Employee’s written consent and which is not remedied by the Employers and Affiliates within thirty (30) days after receipt of written notice from the Employee specifying such event:

(1) a material diminution in the Employee’s authority, duties or responsibilities with the Employers and Affiliates as in effect immediately prior to the Change in Control;

(2) a material diminution in the authority, duties or responsibilities of the person at the Employers and Affiliates to whom the Employee is required to report as in effect immediately prior to the Change in Control;

(3) a reduction in the Employee’s rate of base salary, target annual bonus, target long-term incentive opportunity or retirement, welfare or other benefits as in effect immediately prior to the Change in Control (other than a reduction in retirement, welfare or other benefits similarly affecting all or substantially all similarly situated employees); or

(4) the relocation of the office at which the Employee was principally employed immediately prior to the Change in Control to a location more than fifty (50) miles from the location of such office (except for required travel on business substantially consistent with the Employee’s business travel obligations immediately prior to the Change in Control).

“Good Reason” shall exist only if (i) the Employee provides to the applicable Employer or Affiliate written notice specifying such event, as referenced above, within sixty (60) days following the initial existence of the event and (ii) the Employee terminates employment due to Good Reason within one hundred twenty (120) days following the initial existence of the event.

8. Additional Terms and Conditions of Award.

8.1. Transferability of Award. Except (i) to a beneficiary upon the Employee’s death (as designated in such form prescribed by the Company or pursuant to the terms of the Plan, and which may be designated on both a primary and contingent basis) or (ii) pursuant to a court order entered in connection with a dissolution of marriage or child support, the Award may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void.

8.2. Investment Representation. The Employee hereby represents and covenants that (a) any shares of Common Stock acquired upon the vesting of the Award will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), unless such acquisition has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Employee shall submit a written statement, in a form satisfactory to the Company, to the effect that such representation is true and correct as of the date of vesting of any shares hereunder or is true and correct as of the date of sale of any such shares, as applicable. As a condition precedent to the issuance or delivery to the Employee of any shares subject to the Award, the Employee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Committee shall in its sole discretion deem necessary or advisable.

8.3. Tax Withholding. (a) The Employee timely shall pay to the Company such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If the Employee shall fail to timely advance the Required Tax Payments, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company or any Affiliate to the Employee.

(b) The Employee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to the Employee pursuant to the Award, the Fair Market Value of which shall be determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award or (3) any combination of (1) and (2). Shares of Common Stock to be withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate; provided, however, that the number of shares to be withheld to satisfy the Required Tax Payments shall be rounded up to the nearest whole share, and the Company shall reimburse the Employee in cash for any such excess tax withholding as soon as practicable thereafter.

8.4. Adjustment. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the terms of the Award, including the number and class of shares subject to the Award, shall be appropriately adjusted by the Committee. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such adjustment described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of the Employee. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

8.5. Compliance with Applicable Law. The Award is subject to the condition that if the listing, registration or qualification of the shares of Common Stock subject to the Award upon any securities exchange or under any law, the consent or approval of any governmental body or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares, such shares will not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action.

8.6. Award Confers No Rights to Continued Employment or Service. In no event shall the granting of the Award or the acceptance of this Award Agreement and the Award by the Employee give or be deemed to give the Employee any right to continued employment by or service with any Employer or any subsidiary or affiliate of an Employer.

8.7. Decisions of Committee. The Committee or its delegate shall have the right to resolve all questions which may arise in connection with the Award. Any interpretation, determination or other action made or taken by the Committee or its delegate regarding the Plan, this Award Agreement or the Award Summary shall be final, binding and conclusive.

8.8. Company to Reserve Shares. The Company shall at all times prior to the cancellation of the Award reserve and keep available, either in its treasury or out of its authorized but unissued shares of Common Stock, the full number of shares subject to the Award from time to time.

8.9. Award Agreement and Award Summary Subject to the Plan. This Award Agreement and the Award Summary are subject to the provisions of the Plan, and shall be interpreted in accordance therewith. The Employee hereby acknowledges receipt of a copy of the Plan.

8.10. Award Subject to Clawback. The Award and any shares of Common Stock delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

9. Miscellaneous Provisions.

9.1. Successors. This Award Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any Person or Persons who shall acquire any rights hereunder in accordance with this Award Agreement or the Plan.

9.2. Notices. All notices, requests or other communications provided for in this Award Agreement shall be made in writing either (a) by actual delivery to the party entitled thereto, (b) by mailing in the United States mail to the last known address of the party entitled thereto, via certified or registered mail, postage prepaid and return receipt requested, (c) by telecopy with confirmation of receipt or (d) by electronic mail, utilizing notice of undelivered electronic mail features. The notice, request or other communication shall be deemed to be received (a) in case of delivery, on the date of its actual receipt by the party entitled thereto, (b) in case of mailing by certified or registered mail, five days following the date of such mailing, (c) in case of telecopy, on the date of confirmation of receipt and (d) in case of electronic mail, on the date of mailing, but only if a notice of undelivered electronic mail is not received.

9.3. Governing Law. The Award, this Award Agreement, the Award Summary and the Plan, and all determinations made and actions taken pursuant thereto, to the extent otherwise not governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without regard to principles of conflicts of laws.

9.4. Modification and Severability. It is the intention of the parties that if any term, restriction, covenant, or promise in this Award Agreement is found to be invalid, illegal or unenforceable in any respect, then such term, restriction, covenant, or promise shall be modified to the minimum extent necessary to make it valid, legal and enforceable. The parties agree that in the event that any part of this Award Agreement shall be declared invalid, it shall not affect the validity of any of the remaining terms or provisions of this Award Agreement. The restrictive covenants and agreements of the Employee related thereto shall survive the termination of the Award Agreement for any reason.

9.5. Consideration of Award Agreement. The Employee hereby acknowledges that the Employee has been provided at least fourteen (14) days within which to consider this Award Agreement and has been advised in writing that the Employee should consult an attorney prior to accepting it. The Employee further acknowledges that the Employee has carefully read and fully understands this Award Agreement in its entirety, has reviewed this Award Agreement with individuals of the Employee’s own choosing, and that the Employee has entered into this Award Agreement knowingly and voluntarily, and intends to be bound thereby.

9.6. Compliance with Section 409A of the Code. It is intended that the Award, this Award Agreement, and the Plan be exempt from the requirements of section 409A of the Code to the maximum extent permissible under law. To the extent section 409A of the Code applies to the Award, this Award Agreement, and/or the Plan, it is intended that the Award, this Award Agreement, and the Plan comply with the requirements of section 409A of the Code to the maximum extent permissible under law. The Award, this Award Agreement, and the Plan shall be administered and interpreted in a manner consistent with this intent. To the extent that the Award constitutes “nonqualified deferred compensation” within the meaning of section 409A of the Code, (i) for any purpose required under section 409A of the Code, all references herein to the Employee’s “termination of employment” or similar references shall mean Separation from Service, and (ii) if shares of Common Stock are to be delivered to the Employee under this Award Agreement due to the Employee’s Separation from Service, and if the Employee is a Specified Employee at the time of such separation, such shares shall be delivered to the Employee during the seventh calendar month following the calendar month during which the Employee separated from service (or if earlier, during the calendar month following the calendar month of the Employee’s death), notwithstanding any other provision in this Award Agreement or the Award Summary. No particular tax result for the Employee with respect to any income recognized by the Employee in connection with this Award Agreement is guaranteed, and the Employee solely shall be responsible for any taxes, penalties, interest or other losses or expenses incurred by the Employee in connection with this Award Agreement.

9.7. Amendment and Waiver. The Company may amend or waive the provisions of this Award Agreement at any time; provided, however, that in the event of any such amendment or waiver that would materially impair the rights of the Employee, such amendment or waiver shall be effective only with the written agreement of the Employee. No course of conduct or failure or delay in enforcing the provisions of this Award Agreement shall affect the validity, binding effect or enforceability of this Award Agreement.


TELEPHONE AND DATA SYSTEMS, INC.

By:
			Name: LeRoy T. Carlson, Jr.
			Title: President and CEO

Accept grant electronically in SHAREWORKS account at https://www.shareworks.com/login (or via such other method as prescribed by the Company)



			IMPORTANT NOTICE--PLEASE READ You must have a beneficiary designation form on file submitted in hard copy form to: •TDS Madison Compensation Department or TDS Telecom Compensation Department The form may be printed from your Shareworks account at www.shareworks.com/login under the “Documents” tab (or via such other method as prescribed by the Company). You also may elect at any time to change a previously-designated beneficiary for your stock options, restricted stock units and performance share awards by completing and submitting a new beneficiary designation form in accordance with procedures prescribed by the Company.

EXHIBIT A

The following applies to TDS Corporate and OneNeck employees covered under the Company’s 2020 Long-Term Incentive Plan. Note that all performance measures are based on TDS Consolidated performance results.


ELEMENT		PROVISION
Performance Period		January 1, 2022 to December 31, 2024
Performance Measures and Weightings		•Return on Capital (“ROC”) (40%) •Total Revenue (40%) •Relative Total Shareholder Return (“TSR”) (20%)
Performance Measure Definitions	ROC	•Average of the three fiscal years in the Performance Period. •Based on “Adjusted Net Operating Profit After Tax/Average Capital,” as currently defined by the Company ◦Adjusted Net Operating Profit After Tax is defined as (Operating income plus Investment income plus Non-operating gains/losses plus Dividend income plus Interest income plus Other income (expense) plus effective interest expense on operating lease payments) multiplied by (1 – Effective Tax Rate). ◦Average Capital is defined as total Debt (current & long-term) plus total Equity plus Right of Use Lease Liabilities (current & long-term)
	Total Revenue	•Cumulative over the three fiscal years in the Performance Period. •Consolidated Operating Revenue is based on the externally reported metric.
	Relative TSR	•Determined for the Company, as well as the Peer Group (as defined below), from the beginning to the end of the Performance Period. •Calculations subject to the following rules: ◦Beginning stock price is the thirty (30) trading-day average closing stock price preceding January 1 of the first year of the Performance Period. ◦Ending stock price is the thirty (30) trading-day average closing stock price preceding January 1 of the year following the end of the Performance Period, or the thirty (30) trading-day average closing stock price preceding the date of a Change in Control, if applicable. ◦Dividends, if any, are deemed to be reinvested in additional shares of the subject company, based on the then-current closing stock price. ◦TSR is expressed as an annualized percentage. ◦Members of the Peer Group acquired (i.e., a transaction where the member is not the surviving entity), taken private or no longer publicly traded in the U.S. during the Performance Period will be deleted from the Peer Group and not included in the TSR calculation at any time during the three-year Performance Period. ◦Members of the Peer Group that go bankrupt, are liquidated or dissolved, or otherwise cease conducting operations during the Performance Period will be deemed to have a TSR equal to -100% for the entire three-year Performance Period. ◦The Company is not included in the Peer Group for purposes of determining the Company’s percentile ranking versus the Peer Group. ◦The Company’s percentile ranking will be rounded to the nearest one-tenth of a percentage point.
Peer Group		The Peer Group consists of the following companies (or their publicly-traded successors by merger or other transaction in which the below company or one of its subsidiaries prior to the transaction is the surviving and continuing corporation): Altice USA, Inc. American Tower Corp. ATN International, Inc. AT&T, Inc. Cable One, Inc. Charter Communications, Inc. Comcast Corp. Consolidated Communications Holdings, Inc. Crown Castle International Corp. DISH Network Corp. EchoStar Corp. Equinix, Inc. IDT Corp. Iridium Communications, Inc. Lumen Technologies, Inc. SBA Communications Corp. Shenandoah Telecommunications Co. T-Mobile U.S., Inc. Verizon Communications, Inc. ViaSat Inc. Vonage Holdings Corp. WideOpenWest, Inc.

The following applies to TDS Telecom employees covered under the Company’s 2020 Long-Term Incentive Plan. Note that all performance measures are based on TDS Telecom performance results.


ELEMENT		PROVISION
Performance Period		January 1, 2022 to December 31, 2024
Performance Measures and Weightings		•Total Revenue (50%) •Adjusted Earnings Before Interest, Tax, Depreciation, Amortization and Accretion (“EBITDA”) (30%) •Return on Capital (“ROC”) (20%)
Performance Measure Definitions	Total Revenue	•Cumulative over the three fiscal years in the Performance Period. •Operating Revenue is based on the externally reported metric.
	Adjusted EBITDA	•Cumulative over the three fiscal years in the Performance Period. •Based on “Adjusted EBITDA,” as currently defined by the Company ◦Adjusted EBITDA is defined as net income before: interest, taxes, depreciation, amortization and accretion, loss on impairment of goodwill, net gain or loss on asset disposals, net gain or loss on sale of business and other exit costs, net gain or loss on license sales and exchanges, net gain or loss on sale of investments.
	ROC	•Average of the three fiscal years in the Performance Period. •Based on “Adjusted Net Operating Profit After Tax/Average Capital,” as currently defined by the Company ◦Adjusted Net Operating Profit After Tax is defined as (Operating income plus Investment income plus Non-operating gains/losses plus Dividend income plus Interest income plus Other income (expense) plus effective interest expense on operating lease payments) multiplied by (1 – Effective Tax Rate). ◦Average Capital is defined as total Debt (current & long-term) plus total Equity plus Right of Use Lease Liabilities (current & long-term).

Exhibit 10.6

TELEPHONE AND DATA SYSTEMS, INC.

2020 LONG-TERM INCENTIVE PLAN

2022 RESTRICTED STOCK UNIT AWARD AGREEMENT

Telephone and Data Systems, Inc., a Delaware corporation (the “Company”), hereby grants to the recipient of this award (the “Employee”) as of May 18, 2022 (the “Grant Date”), a Restricted Stock Unit Award (the “Award”) with respect to the number of shares of Common Stock set forth in the “Portfolio Summary” section of the Employee’s Company on-line account with Shareworks (the “Award Summary”). The Award is granted pursuant to the provisions of the Telephone and Data Systems, Inc. 2020 Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”), and is subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.

1. Award Subject to Acceptance.

2. Restriction Period and Forfeiture.

(a) In General. Except as otherwise provided in this Award Agreement, the Award shall become nonforfeitable and the Restriction Period with respect to the Award shall terminate on the third annual anniversary of the Grant Date (the “Release Date”), provided that the Employee remains continuously employed by the Employers and Affiliates until the Release Date. Within sixty (60) days following the Release Date, the Company shall issue to the Employee in a single payment the shares of Common Stock subject to the Award on the Release Date.

(b) Death. If the Employee terminates employment with the Employers and Affiliates prior to the Release Date by reason of death, then on the date of the Employee’s death the Award shall become nonforfeitable and the Restriction Period with respect to the Award shall terminate. Within sixty (60) days following the date of the Employee’s death, the Company shall issue to the Employee’s designated beneficiary in a single payment the shares of Common Stock subject to the Award.

(c) Disability. If the Employee terminates employment with the Employers and Affiliates prior to the Release Date by reason of Disability, then on the date of the Employee’s termination of employment the Award shall become nonforfeitable and the Restriction Period with respect to the Award shall terminate. The Company shall issue the shares of Common Stock subject to the Award in a single payment within sixty (60) days following the date of the Employee’s termination of employment; provided, however, that if the Award is subject to section 409A of the Code, and if the Employee is a Specified Employee as of the date of his or her termination of employment, then such payment shall be delayed until and made during the seventh calendar month following the calendar month during which the Employee’s termination of employment occurs (or, if earlier, the calendar month following the calendar month of the Employee’s death). For purposes of this Award Agreement, “Disability” shall mean a total physical disability which, in the Committee’s judgment, prevents an Employee from performing substantially such Employee’s employment duties and responsibilities for a continuous period of at least six months.

(d) Retirement at or after Attainment of Age 66. If the Employee terminates employment with the Employers and Affiliates on or after January 1, 2023 but prior to the Release Date by reason of retirement at or after attainment of age 66, then on the date of the Employee’s termination of employment the Award shall become nonforfeitable and the Restriction Period with respect to the Award shall terminate. The Company shall issue the shares of Common Stock subject to the Award in a single payment within sixty (60) days following the date of the Employee’s termination of employment; provided, however, that if the Award is subject to section 409A of the Code, and if the Employee is a Specified Employee as of the date of his or her termination of employment, then such payment shall be delayed until and made during the seventh calendar month following the calendar month during which the Employee’s termination of employment occurs (or, if earlier, the calendar month following the calendar month of the Employee’s death). If the Employee terminates employment with the Employers and Affiliates prior to January 1, 2023 by reason of retirement at or after attainment of age 66, then on the date of the Employee’s termination of employment the Award shall be forfeited and shall be canceled by the Company.

(e) Other Termination of Employment. If the Employee terminates employment with the Employers and Affiliates prior to the Release Date for any reason other than death, Disability or retirement at or after attainment of age 66 (including if the Employee’s employment is terminated prior to the Release Date by reason of the Employee’s negligence or willful misconduct, in each case as determined by the Company in its sole discretion, irrespective of whether such termination occurs on or after the Employee attains age 66), then on the date of the Employee’s termination of employment the Award shall be forfeited and shall be canceled by the Company.

(f) Forfeiture of Award and Award Gain upon Competition, Misappropriation, Solicitation or Disparagement. Notwithstanding any other provision herein, if the Employee engages in (i) Competition (as defined in this Section 2(f) below), (ii) Misappropriation (as defined in this Section 2(f) below), (iii) Solicitation (as defined in this Section 2(f) below), or (iv) Disparagement (as defined in this Section 2(f) below), in each case as determined by the Company in its sole discretion, then (i) on the date of such Competition, Misappropriation, Solicitation or Disparagement, the Award immediately shall be forfeited and shall be cancelled by the Company and (ii) in the event that the Award became nonforfeitable within the twelve months immediately preceding such Competition, Misappropriation, Solicitation or Disparagement, the Employee shall pay the Company, within five business days of receipt by the Employee of a written demand therefore, an amount in cash determined by multiplying the number of shares of Common Stock subject to the Award (without reduction for any shares of Common Stock withheld by the Company pursuant to Section 4.3) by the Fair Market Value of a share of Common Stock on the date that the Award was paid. The Employee acknowledges and agrees that the Award, by encouraging stock ownership and thereby increasing an employee’s proprietary interest in the Company’s success, is intended as an incentive to participating employees to remain in the employ of the Employers or an Affiliate. The Employee acknowledges and agrees that this Section 2(f) is therefore fair and reasonable, and not a penalty.

The Employee may be released from the Employee’s obligations under this Section 2(f) only if and to the extent the Committee determines in its sole discretion that such release is in the best interests of the Company.

The Employee agrees that by accepting this Award Agreement the Employee authorizes the Employers and any Affiliate to deduct any amount owed by the Employee pursuant to this Section 2(f) from any amount payable by the Employers or any Affiliate to the Employee, including, without limitation, any amount payable to the Employee as salary, wages, vacation pay or bonus as allowed under state law. The Employee further agrees to execute any documents at the time of setoff required by the Employers and any Affiliate in order to effectuate the setoff. This right of setoff shall not be an exclusive remedy (the Company shall be entitled to any other remedy permitted under applicable law) and an Employer’s or an Affiliate’s election not to exercise this right of setoff with respect to any amount payable to the Employee shall not constitute a waiver of this right of setoff with respect to any other amount payable to the Employee or any other remedy. Should the Employers and/or any Affiliate institute a legal action against the Employee to recover the amounts due, the Employee agrees to reimburse the Employers and/or any Affiliate for their reasonable attorneys’ fees and litigation costs incurred in recovering such amounts from the Employee.

3. Change in Control.

The treatment of the Award in connection with a Change in Control shall be governed by Section 8.9 of the Plan.

4. Additional Terms and Conditions of Award.

4.1. Transferability of Award. Except (i) to a beneficiary upon the Employee’s death (as designated in such form prescribed by the Company or pursuant to the terms of the Plan, and which may be designated on both a primary and contingent basis) or (ii) pursuant to a court order entered in connection with a dissolution of marriage or child support, the Award may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void.

4.2. Investment Representation. The Employee hereby represents and covenants that (a) any shares of Common Stock acquired upon the lapse of restrictions with respect to the Award will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), unless such acquisition has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Employee shall submit a written statement, in a form satisfactory to the Company, to the effect that such representation is true and correct as of the date of acquisition of any shares hereunder or is true and correct as of the date of sale of any such shares, as applicable. As a condition precedent to the issuance or delivery to the Employee of any shares subject to the Award, the Employee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Committee shall in its sole discretion deem necessary or advisable.

4.3. Tax Withholding. (a) The Employee timely shall pay to the Company such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If the Employee shall fail to timely advance the Required Tax Payments, the Company or any Affiliate may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company or such Affiliate to the Employee.

(b) The Employee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to the Employee pursuant to the Award, the Fair Market Value of which shall be determined as of the date the obligation to withhold or pay taxes arises in connection with the Award, or (3) any combination of (1) and (2). Shares of Common Stock to be withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate; provided, however, that the number of shares to be withheld to satisfy the Required Tax Payments shall be rounded up to the nearest whole share, and the Company shall reimburse the Employee in cash for any such excess tax withholding as soon as practicable thereafter. The Employee hereby authorizes the Company or any Affiliate to deduct any unpaid amount of Required Tax Payments, including any employment taxes owed prior to the date that the Restriction Period with respect to the Award terminates, from any amount payable by the Company or any Affiliate to the Employee, including without limitation any amount payable to the Employee as salary or wages.

The Employee agrees that the authorization set forth in this Section 4.3(b) with respect to deductions from future amounts payable may be reauthorized via electronic means determined by the Company. The Employee may revoke this authorization by written notice to the Company prior to any such deduction.

4.4. Award Confers No Rights as a Stockholder. The Employee shall not be entitled to any privileges of ownership with respect to the shares of Common Stock subject to the Award unless and until the restrictions on the Award lapse and the shares are issued and the Employee becomes a stockholder of record with respect to such shares.

4.5. Adjustment. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the terms of the Award, including the number and class of shares subject to the Award, shall be appropriately adjusted by the Committee. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such adjustment described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of the Employee. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

4.6. Compliance with Applicable Law. The Award is subject to the condition that if the listing, registration or qualification of the shares of Common Stock subject to the Award upon any securities exchange or under any law, the consent or approval of any governmental body or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares, such shares will not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action.

4.7. Delivery of Shares. On the date of payment of the Award, the Company shall deliver or cause to be delivered to the Employee the shares of Common Stock subject to the Award. The holder of the Award shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, unless the Company in its discretion elects to make such payment.

4.8. Award Confers No Rights to Continued Employment or Service. In no event shall the granting of the Award or the acceptance of this Award Agreement and the Award by the Employee give or be deemed to give the Employee any right to continued employment by or service with any Employer or any subsidiary or affiliate of an Employer.

4.9. Decisions of Committee. The Committee or its delegate shall have the right to resolve all questions which may arise in connection with the Award. Any interpretation, determination or other action made or taken by the Committee or its delegate regarding the Award, the Plan, this Award Agreement or the Award Summary shall be final, binding and conclusive.

4.10. Company to Reserve Shares. The Company shall at all times prior to the cancellation of the Award reserve and keep available, either in its treasury or out of its authorized but unissued shares of Common Stock, the full number of shares subject to the Award from time to time.

4.11. Award Agreement and Award Summary Subject to the Plan. This Award Agreement and the Award Summary are subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Employee hereby acknowledges receipt of a copy of the Plan.

4.12. Award Subject to Clawback. The Award and any shares of Common Stock delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

5. Miscellaneous Provisions.

5.1. Successors. This Award Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any Person or Persons who shall acquire any rights hereunder in accordance with this Award Agreement or the Plan.

5.2. Notices. All notices, requests or other communications provided for in this Award Agreement shall be made in writing either (a) by actual delivery to the party entitled thereto, (b) by mailing in the United States mail to the last known address of the party entitled thereto, via certified or registered mail, postage prepaid and return receipt requested, (c) by telecopy with confirmation of receipt or (d) by electronic mail, utilizing notice of undelivered electronic mail features. The notice, request or other communication shall be deemed to be received (a) in case of delivery, on the date of its actual receipt by the party entitled thereto, (b) in case of mailing by certified or registered mail, five days following the date of such mailing, (c) in case of telecopy, on the date of confirmation of receipt and (d) in case of electronic mail, on the date of mailing, but only if a notice of undelivered electronic mail is not received.

5.3. Governing Law. The Award, this Award Agreement, the Award Summary and the Plan, and all determinations made and actions taken pursuant thereto, to the extent otherwise not governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without regard to principles of conflicts of laws.

5.4. Modification and Severability. It is the intention of the parties that if any term, restriction, covenant, or promise in this Award Agreement is found to be invalid, illegal or unenforceable in any respect, then such term, restriction, covenant, or promise shall be modified to the minimum extent necessary to make it valid, legal and enforceable. The parties agree that in the event that any part of this Award Agreement shall be declared invalid, it shall not affect the validity of any of the remaining terms or provisions of this Award Agreement. The restrictive covenants and agreements of the Employee related thereto shall survive the termination of the Award Agreement for any reason.

5.5 Consideration of Award Agreement. The Employee hereby acknowledges that the Employee has been provided at least fourteen (14) days within which to consider this Award Agreement and has been advised in writing that the Employee should consult an attorney prior to accepting it. The Employee further acknowledges that the Employee has carefully read and fully understands this Award Agreement in its entirety, has reviewed this Award Agreement with individuals of the Employee’s own choosing, and that the Employee has entered into this Award Agreement knowingly and voluntarily, and intends to be bound thereby.

5.6. Compliance with Section 409A of the Code. If the Award is subject to section 409A of the Code, then for any purpose required under section 409A of the Code, all references herein to “termination of employment” or similar references shall mean Separation from Service. It is intended that the Award, this Award Agreement, the Award Summary and the Plan be exempt from the requirements of section 409A of the Code to the maximum extent permissible under law. To the extent section 409A of the Code applies to the Award, this Award Agreement, the Award Summary and/or the Plan, it is intended that the Award, this Award Agreement, the Award Summary and the Plan comply with the requirements of section 409A of the Code to the maximum extent permissible under law. The Award, this Award Agreement, the Award Summary and the Plan shall be administered and interpreted in a manner consistent with this intent. In the event that the Award, this Award Agreement, the Award Summary or the Plan does not comply with section 409A of the Code (to the extent applicable thereto), the Company shall have the authority to amend the terms of the Award, this Award Agreement, the Award Summary or the Plan (which amendment may be retroactive to the extent permitted by section 409A of the Code and may be made by the Company without the consent of the Employee) to avoid taxes and other penalties under section 409A of the Code, to the extent possible. Notwithstanding the foregoing, no particular tax result for the Employee with respect to any income recognized by the Employee in connection with the Award, this Award Agreement and the Award Summary is guaranteed, and the Employee solely shall be responsible for any taxes, penalties, interest or other losses or expenses incurred by the Employee in connection with the Award, this Award Agreement and the Award Summary.


TELEPHONE AND DATA SYSTEMS, INC.

By:
			LeRoy T. Carlson, Jr.
			President and CEO

Accept grant electronically in SHAREWORKS account at https://www.shareworks.com/login (or via such other method as prescribed by the Company)



			IMPORTANT NOTICE--PLEASE READ You must have a beneficiary designation form on file submitted in hard copy form to: •TDS Madison Compensation Department or TDS Telecom Compensation Department The form may be printed from your Shareworks account at www.shareworks.com/login under the “Documents” tab (or via such other method as prescribed by the Company). You also may elect at any time to change a previously-designated beneficiary for your stock options, restricted stock units and performance share awards by completing and submitting a new beneficiary designation form in accordance with procedures prescribed by the Company.

Exhibit 10.7

TELEPHONE AND DATA SYSTEMS, INC.

2022 LONG-TERM INCENTIVE PLAN

2022 PERFORMANCE SHARE AWARD AGREEMENT

Telephone and Data Systems, Inc., a Delaware corporation (the “Company”), hereby grants to LeRoy T. Carlson, Jr. (the “Employee”) as of May 19, 2022 (the “Grant Date”), pursuant to the provisions of the Telephone and Data Systems, Inc. 2022 Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”), a Performance Share Award (the “Award”) with a target opportunity equal to the number of shares of Common Stock (the “Target Opportunity”) set forth in the “Portfolio Summary” section of the Employee’s Company on-line account with Shareworks (the “Award Summary”), upon and subject to the restrictions, terms and conditions set forth below. Depending on performance during the Performance Period (for all purposes of this Award Agreement, as defined in Exhibit A hereto), the Employee may be entitled under this Award Agreement to shares of Common Stock equal to 0% to 200% of the Target Opportunity, in accordance with Section 3 below. Capitalized terms not defined herein shall have the meanings specified in the Plan.

1. Award Subject to Acceptance.

2. Rights as Stockholder.

The Employee shall not be entitled to any privileges of ownership with respect to the shares of Common Stock subject to the Award unless and until, and only to the extent, such shares become vested and are issued pursuant to the terms of this Award Agreement and the Employee becomes a stockholder of record with respect to such shares. As of each date prior to the settlement of the Award on which the Company pays a regular cash dividend to record owners of shares of Common Stock (a “Dividend Date”), then the number of shares subject to the Award shall increase by (i) the product of the Target Opportunity (as increased from time to time by cash dividend equivalents previously credited pursuant to this Section 2) immediately prior to such Dividend Date multiplied by the dollar amount of the cash dividend paid per share of Common Stock on such Dividend Date, divided by (ii) the Fair Market Value of a share of Common Stock on such Dividend Date, with such amount rounded down to the nearest whole number. Any such additional shares shall be subject to the same vesting conditions and payment terms set forth herein as the shares to which they relate.

3. Performance-Based Vesting Conditions.

4. Termination of Employment.

5. Forfeiture of Award and Award Gain upon Competition, Misappropriation, Solicitation or Disparagement.

For purposes of this Award Agreement, “Competition” shall mean that the Employee, directly or indirectly, individually or in conjunction with any Person, during the Employee’s employment with the Employers and the Affiliates and for the twelve months after the termination of that employment for any reason, other than on any Employer’s or Affiliate’s behalf (i) has contact with, or provides any information to a third party in connection with its or their direct or indirect solicitation of, any customer or prospective customer of an Employer or Affiliate with whom the Employee had contact during the one year period immediately prior to termination of the Employee’s employment which has been contacted or solicited by or on behalf of an Employer or Affiliate, for the purpose of soliciting or selling to such customer or prospective customer the same or a similar (such that it could substitute for) product or service provided by an Employer or Affiliate during the Employee’s employment with the Employers and Affiliates; or (ii) works for any provider of wireless (including any wireless carrier holding a license granted by the Federal Communications Commission, as well as any reseller or mobile virtual network operator), telephone, broadband or information technology products or services in the same or similar role for which the Employee worked for any Employer or Affiliate or which may require utilizing any Confidential Information (as defined below) acquired while employed by any Employer or Affiliate in any market within the continental United States in which an Employer or Affiliate provided such products or services during the Employee’s employment with an Employer or Affiliate or had plans to do so within the twelve month period immediately following the Employee’s termination of employment. “Work for” includes the provision of services, whether paid or unpaid, as an employee, officer, director, consultant or advisor.

For purposes of this Award Agreement, “Misappropriation” shall mean that the Employee (i) uses Confidential Information (as defined below) for the benefit of anyone other than the Employers or an Affiliate, as the case may be, or discloses the Confidential Information to anyone not authorized by the Employers or an Affiliate, as the case may be, to receive such information; (ii) upon termination of employment, makes any summaries of, takes any notes with respect to or memorizes any Confidential Information or takes any Confidential Information or reproductions thereof from the facilities of the Employers or an Affiliate or (iii) upon termination of employment or upon the request of the Employers or an Affiliate, fails to return all Confidential Information then in the Employee’s possession. For the avoidance of doubt, “Misappropriation” does not include disclosure of Confidential Information to a governmental regulatory agency, such as the U.S. Securities and Exchange Commission, or to an attorney, provided that the Employee informs the agency or attorney that the Employers and/or Affiliates deem the information to be confidential. Additionally, in the event the Employee files a lawsuit against the Employer for retaliation by the Employer against the Employee for reporting a suspected violation of law, the Employee has the right to provide trade secret information to their attorney and use the trade secret information in the court proceeding, although the Employee must file any document containing the trade secret under seal and may not disclose the trade secret, except pursuant to court order.

“Confidential Information” shall mean any information that the Employee learns or developed during the course of employment with an Employer or Affiliate that gives the Employer or any Affiliate a commercial advantage over a competitor that does not have such information and/or information that is not generally known to persons or entities outside the Employer or Affiliate, regardless of whether it is labeled confidential. Such information includes, but is not limited to, any confidential and proprietary drawings, reports, sales and training manuals, customer lists, computer programs and other material embodying trade secrets or confidential technical, business, or financial information of any Employer or an Affiliate. Confidential Information also includes information of third parties for which an Employer or Affiliate has accepted obligations of confidentiality. Nothing in this Award Agreement is intended to prohibit the Employee from discussing with fellow employees, or with third parties who are not competitors of any Employer or Affiliate, wages, hours and other terms and conditions of employment that are not subject to a non-disclosure obligation pursuant to some other contract, policy or arrangement.

For purposes of this Award Agreement, “Disparagement” shall mean that the Employee has made a material statement (whether oral, written or electronic), or released any material information or encouraged others to make such a statement or release such information, to any Person other than to an officer of an Employer or an Affiliate that is designed to embarrass, disparage or demean an Employer, any Affiliate, or any of their respective owners, directors, officers, employees, products or services. For the avoidance of doubt, “Disparagement” does not include making truthful statements when required by legal process to do so by a court of law, to any governmental agency having supervisory authority over the business of an Employer, or by any administrative or legislative body (including a committee thereof) with the jurisdiction to order the Employee to divulge, disclose or make accessible such information.

6. Delivery of Shares.

7. Change in Control.

(1) any conviction of, or plea of nolo contendere to, a felony;

(1) a material diminution in the Employee’s authority, duties or responsibilities with the Employers and Affiliates as in effect immediately prior to the Change in Control;

8. Additional Terms and Conditions of Award.

8.3. Tax Withholding. (a) The Employee timely shall pay to the Company such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If the Employee shall fail to timely advance the Required Tax Payments, the Company or any Affiliate may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company or such Affiliate to the Employee.

8.4. Adjustment. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the terms of the Award, including the number and class of securities subject to the Award, shall be appropriately adjusted by the Committee. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such adjustment described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

8.7. Decisions of Committee. The Committee or its delegate shall have the right to resolve all questions which may arise in connection with the Award. Any interpretation, determination or other action made or taken by the Committee or its delegate regarding the Award, the Plan, this Award Agreement or the Award Summary shall be final, binding and conclusive.

8.8. Award Agreement and Award Summary Subject to the Plan. This Award Agreement and the Award Summary are subject to the provisions of the Plan, and shall be interpreted in accordance therewith. The Employee hereby acknowledges receipt of a copy of the Plan.

8.9. Award Subject to Clawback. The Award and any shares of Common Stock delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

9. Miscellaneous Provisions.


TELEPHONE AND DATA SYSTEMS, INC.

By:

Accept grant electronically in SHAREWORKS account at https://www.shareworks.com/login (or via such other method as prescribed by the Company)



			IMPORTANT NOTICE--PLEASE READ You must have a beneficiary designation form on file submitted in hard copy form to: •TDS Madison Compensation Department or TDS Telecom Compensation Department The form may be printed from your Shareworks account at www.shareworks.com/login under the “Documents” tab (or via such other method as prescribed by the Company). You also may elect at any time to change a previously-designated beneficiary for your stock options, restricted stock units and performance share awards by completing and submitting a new beneficiary designation form in accordance with procedures prescribed by the Company.

EXHIBIT A

The following applies to TDS Corporate and OneNeck employees covered under the Company’s 2022 Long-Term Incentive Plan. Note that all performance measures are based on TDS Consolidated performance results.


ELEMENT		PROVISION
Performance Period		January 1, 2022 to December 31, 2024
Performance Measures and Weightings		•Return on Capital (“ROC”) (40%) •Total Revenue (40%) •Relative Total Shareholder Return (“TSR”) (20%)
Performance Measure Definitions	ROC	•Average of the three fiscal years in the Performance Period. •Based on “Adjusted Net Operating Profit After Tax/Average Capital,” as currently defined by the Company ◦Adjusted Net Operating Profit After Tax is defined as (Operating income plus Investment income plus Non-operating gains/losses plus Dividend income plus Interest income plus Other income (expense) plus effective interest expense on operating lease payments) multiplied by (1 – Effective Tax Rate). ◦Average Capital is defined as total Debt (current & long-term) plus total Equity plus Right of Use Lease Liabilities (current & long-term)
	Total Revenue	•Cumulative over the three fiscal years in the Performance Period. •Consolidated Operating Revenue is based on the externally reported metric.
	Relative TSR	•Determined for the Company, as well as the Peer Group (as defined below), from the beginning to the end of the Performance Period. •Calculations subject to the following rules: ◦Beginning stock price is the thirty (30) trading-day average closing stock price preceding January 1 of the first year of the Performance Period. ◦Ending stock price is the thirty (30) trading-day average closing stock price preceding January 1 of the year following the end of the Performance Period, or the thirty (30) trading-day average closing stock price preceding the date of a Change in Control, if applicable. ◦Dividends, if any, are deemed to be reinvested in additional shares of the subject company, based on the then-current closing stock price. ◦TSR is expressed as an annualized percentage. ◦Members of the Peer Group acquired (i.e., a transaction where the member is not the surviving entity), taken private or no longer publicly traded in the U.S. during the Performance Period will be deleted from the Peer Group and not included in the TSR calculation at any time during the three-year Performance Period. ◦Members of the Peer Group that go bankrupt, are liquidated or dissolved, or otherwise cease conducting operations during the Performance Period will be deemed to have a TSR equal to -100% for the entire three-year Performance Period. ◦The Company is not included in the Peer Group for purposes of determining the Company’s percentile ranking versus the Peer Group. ◦The Company’s percentile ranking will be rounded to the nearest one-tenth of a percentage point.
Peer Group		The Peer Group consists of the following companies (or their publicly-traded successors by merger or other transaction in which the below company or one of its subsidiaries prior to the transaction is the surviving and continuing corporation): Altice USA, Inc. American Tower Corp. ATN International, Inc. AT&T, Inc. Cable One, Inc. Charter Communications, Inc. Comcast Corp. Consolidated Communications Holdings, Inc. Crown Castle International Corp. DISH Network Corp. EchoStar Corp. Equinix, Inc. IDT Corp. Iridium Communications, Inc. Lumen Technologies, Inc. SBA Communications Corp. Shenandoah Telecommunications Co. T-Mobile U.S., Inc. Verizon Communications, Inc. ViaSat Inc. Vonage Holdings Corp. WideOpenWest, Inc.

Exhibit 10.8

TELEPHONE AND DATA SYSTEMS, INC.

2022 LONG-TERM INCENTIVE PLAN

2022 RESTRICTED STOCK UNIT AWARD AGREEMENT

Telephone and Data Systems, Inc., a Delaware corporation (the “Company”), hereby grants to LeRoy T. Carlson, Jr. (the “Employee”) as of May 19, 2022 (the “Grant Date”), a Restricted Stock Unit Award (the “Award”) with respect to the number of shares of Common Stock set forth in the “Portfolio Summary” section of the Employee’s Company on-line account with Shareworks (the “Award Summary”). The Award is granted pursuant to the provisions of the Telephone and Data Systems, Inc. 2022 Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”), and is subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.

1. Award Subject to Acceptance.

2. Restriction Period and Forfeiture.

(a) In General. Except as otherwise provided in this Award Agreement, the Award shall become nonforfeitable and the Restriction Period with respect to the Award shall terminate on May 18, 2025 (the “Release Date”), provided that the Employee remains continuously employed by the Employers and Affiliates until the Release Date. Within sixty (60) days following the Release Date, the Company shall issue to the Employee in a single payment the shares of Common Stock subject to the Award on the Release Date.

(f) Forfeiture of Award and Award Gain upon Competition, Misappropriation, Solicitation or Disparagement. Notwithstanding any other provision herein, if the Employee engages in (i) Competition (as defined in this Section 2(f) below), (ii) Misappropriation (as defined in this Section 2(f) below), (iii) Solicitation (as defined in this Section 2(f) below), or (iv) Disparagement (as defined in this Section 2(f) below), in each case as determined by the Company in its sole discretion, then (i) on the date of such Competition, Misappropriation, Solicitation or Disparagement, the Award immediately shall be forfeited and shall be cancelled by the Company and (ii) in the event that the Award became nonforfeitable within the twelve months immediately preceding such Competition, Misappropriation, Solicitation or Disparagement, the Employee shall pay the Company, within five business days of receipt by the Employee of a written demand therefore, an amount in cash determined by multiplying the number of shares of Common Stock subject to the Award on the date that it became nonforfeitable (without reduction for any shares of Common Stock withheld by the Company pursuant to Section 4.3) by the Fair Market Value of a share of Common Stock on the date that the Award was paid. The Employee acknowledges and agrees that the Award, by encouraging stock ownership and thereby increasing an employee’s proprietary interest in the Company’s success, is intended as an incentive to participating employees to remain in the employ of the Employers or an Affiliate. The Employee acknowledges and agrees that this Section 2(f) is therefore fair and reasonable, and not a penalty.

The Employee agrees that by accepting this Award Agreement the Employee authorizes the Employers and any Affiliate to deduct any amount owed by the Employee pursuant to this Section 2(f) from any amount payable by the Employers or any Affiliate to the Employee, including, without limitation, any amount payable to the Employee as salary, wages, vacation pay or bonus as allowed under state law. The Employee further agrees to execute any documents at the time of setoff required by the Employers and any Affiliate in order to effectuate the setoff. This right of setoff shall not be an exclusive remedy (the Company shall be entitled to any other remedy permitted under applicable law) and an Employer’s or an Affiliate’s election not to exercise this right of setoff with respect to any amount payable to the Employee shall not constitute a waiver of this right of setoff with respect to any other amount payable to the Employee or any other remedy. Should the Employers and/or any Affiliate institute a legal action against the Employee to recover the amounts due, the Employee agrees to reimburse the Employers and/or any Affiliate for their reasonable attorneys’ fees and litigation costs incurred in recovering such amounts from the Employee.

For purposes of this Award Agreement, “Misappropriation” shall mean that the Employee (i) uses Confidential Information (as defined below) for the benefit of anyone other than the Employers or an Affiliate, as the case may be, or discloses the Confidential Information to anyone not authorized by the Employers or an Affiliate, as the case may be, to receive such information; (ii) upon termination of employment, makes any summaries of, takes any notes with respect to or memorizes any Confidential Information or takes any Confidential Information or reproductions thereof from the facilities of the Employers or an Affiliate or (iii) upon termination of employment or upon the request of the Employers or an Affiliate, fails to return all Confidential Information then in the Employee’s possession. For the avoidance of doubt, “Misappropriation” does not include disclosure of Confidential Information to a governmental regulatory agency, such as the U.S. Securities and Exchange Commission, or to an attorney, provided that the Employee informs the agency or attorney that the Employers and/or Affiliates deem the information to be confidential. Additionally, in the event the Employee files a lawsuit against the Employer for retaliation by the Employer against the Employee for reporting a suspected violation of law, the Employee has the right to provide trade secret information to their attorney and use the trade secret information in the court proceeding, although the Employee must file any document containing the trade secret under seal and may not disclose the trade secret, except pursuant to court order.

For purposes of this Award Agreement, “Disparagement” shall mean that the Employee has made a material statement (whether oral, written or electronic), or released any material information or encouraged others to make such a statement or release such information to any Person other than to an officer of an Employer or an Affiliate that is designed to embarrass, disparage or demean an Employer, any Affiliate, or any of their respective owners, directors, officers, employees, products or services. For the avoidance of doubt, “Disparagement” does not include making truthful statements when required by legal process to do so by a court of law, to any governmental agency having supervisory authority over the business of an Employer, or by any administrative or legislative body (including a committee thereof) with the jurisdiction to order the Employee to divulge, disclose or make accessible such information.

3. Change in Control.

The treatment of the Award in connection with a Change in Control shall be governed by Section 7.9 of the Plan.

4. Additional Terms and Conditions of Award.

(b) The Employee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to the Employee pursuant to the Award, the Fair Market Value of which shall be determined as of the date the obligation to withhold or pay taxes arises in connection with the Award or (3) any combination of (1) and (2). Shares of Common Stock to be withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate; provided, however, that the number of shares to be withheld to satisfy the Required Tax Payments shall be rounded up to the nearest whole share, and the Company shall reimburse the Employee in cash for any such excess tax withholding as soon as practicable thereafter. The Employee hereby authorizes the Company or any Affiliate to deduct any unpaid amount of Required Tax Payments, including any employment taxes owed prior to the date that the Restriction Period with respect to the Award terminates, from any amount payable by the Company or any Affiliate to the Employee, including without limitation any amount payable to the Employee as salary or wages.

4.5. Adjustment. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the terms of the Award, including the number and class of securities subject to the Award, shall be appropriately adjusted by the Committee. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such adjustment described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

4.10. Award Agreement and Award Summary Subject to the Plan. This Award Agreement and the Award Summary are subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Employee hereby acknowledges receipt of a copy of the Plan.

4.11. Award Subject to Clawback. The Award and any shares of Common Stock delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

5. Miscellaneous Provisions.


Telephone and Data Systems, Inc.

By:

Accept grant electronically in SHAREWORKS account at https://www.shareworks.com/login (or via such other method as prescribed by the Company)



			IMPORTANT NOTICE--PLEASE READ You must have a beneficiary designation form on file submitted in hard copy form to: •TDS Madison Compensation Department or TDS Telecom Compensation Department The form may be printed from your Shareworks account at www.shareworks.com/login under the “Documents” tab (or via such other method as prescribed by the Company). You also may elect at any time to change a previously-designated beneficiary for your stock options, restricted stock units and performance share awards by completing and submitting a new beneficiary designation form in accordance with procedures prescribed by the Company.

Exhibit 31.1

Certification of principal executive officer

I, LeRoy T. Carlson, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Telephone and Data Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2022


			/s/ LeRoy T. Carlson, Jr.
			LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer)

Exhibit 31.2

Certification of principal financial officer

I, Vicki L. Villacrez, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Telephone and Data Systems, Inc.;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2022


			/s/ Vicki L. Villacrez
			Vicki L. Villacrez Executive Vice President and Chief Financial Officer (principal financial officer)

Exhibit 32.1

Certification Pursuant to Section 1350 of Chapter 63

of Title 18 of the United States Code

I, LeRoy T. Carlson, Jr., the principal executive officer of Telephone and Data Systems, Inc., certify that (i) the quarterly report on Form 10-Q for the second quarter of 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.


			/s/ LeRoy T. Carlson, Jr.
			LeRoy T. Carlson, Jr.
			August 4, 2022

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Telephone and Data Systems, Inc. and will be retained by Telephone and Data Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification Pursuant to Section 1350 of Chapter 63

of Title 18 of the United States Code

I, Vicki L. Villacrez, the principal financial officer of Telephone and Data Systems, Inc., certify that (i) the quarterly report on Form 10-Q for the second quarter of 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.


			/s/ Vicki L. Villacrez
			Vicki L. Villacrez
			August 4, 2022