# TELEPHONE & DATA SYSTEMS INC /DE/ (TDS) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from TELEPHONE & DATA SYSTEMS INC /DE/'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1051512/000105151223000006/tds-20221231.htm Accession: 0001051512-23-000006 Filing date: 2023-02-16 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/TDS/ All MD&A years: /company/TDS/mda/ Previous year: /company/TDS/mda/fy2021/ (FY 2021) Next year: /company/TDS/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations [[GREPCENT_TABLE]] [["Index to Management's Discussions and Analysis of Financial Condition and Results of Operations (MD&A)","","Page No."],["Executive Overview","23"],["Terms used by TDS","25"],["Results of Operations \u2013 TDS Consolidated","26"],["UScellular Operations","29"],["TDS Telecom Operations","35"],["Liquidity and Capital Resources","41"],["Consolidated Cash Flow Analysis","46"],["Consolidated Balance Sheet Analysis","47"],["Application of Critical Accounting Policies and Estimates","48"],["Regulatory Matters","49"],["Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement","50"],["Market Risk","52"],["Supplemental Information Relating to Non-GAAP Financial Measures","53"]] [[/GREPCENT_TABLE]] 22 Index to MD&A [[GREPCENT_TABLE]] [["","Telephone and Data Systems, Inc.Management\u2019s Discussion and Analysis of Financial Conditionand Results of Operations"]] [[/GREPCENT_TABLE]] Executive Overview The following Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements and notes of Telephone and Data Systems, Inc. (TDS) for the year ended December 31, 2022, and with the description of TDS’ business included herein. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers. This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information. TDS uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A. A discussion of the reason TDS determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section within the MD&A of this Form 10-K Report. The following MD&A omits discussion of 2021 compared to 2020. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in TDS' Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for that discussion. 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 84%-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. See Note 19 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments. 2022 Operating Revenues by Segment 23 Index to MD&A 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 most recent TDS ESG Report in September 2022. 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. During 2022, TDS paid regular quarterly cash dividends to common and preferred shareholders of $82 million and $69 million, respectively. TDS increased the dividend per Common Share paid to its investors by 3% in 2022 and in February 2023, TDS increased its quarterly dividend per Common Share another 3%, which marks the 49th consecutive year of dividend increases. During 2022, TDS repurchased 2,754,339 Common Shares for $40 million at an average cost per share of $14.46. As of December 31, 2022, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS' program was $138 million. There is no assurance that TDS will continue to increase the dividend rate or pay dividends and no assurance that TDS will make any significant amount of share repurchases in the future. 24 Index to MD&A 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 started in July 2022 and concluded in August 2022. ▪Broadband Connections – refers to the individual customers provided internet access through various transmission technologies, including fiber, coaxial and copper. ▪Broadband Penetration – metric which is calculated by dividing total broadband connections by total service addresses. ▪Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period. ▪Connected Devices – non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, and hotspots. ▪Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions. ▪DOCSIS – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates. ▪EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information. ▪Eligible Telecommunications Carrier (ETC) – designation by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms. ▪Expansion Markets – markets utilizing fiber networks in areas where TDS does not serve as the incumbent service provider. ▪Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information. ▪Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period. ▪Incumbent Markets – markets where TDS is positioned as the traditional local telephone 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.  ▪VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks. 25 Index to MD&A Results of Operations — TDS Consolidated [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["(Dollars in millions)"],["Operating revenues"],["UScellular","$","4,169","","","$","4,122","","","","","1","%"],["TDS Telecom","1,020","","","1,006","","","","","1","%"],["All other1","224","","","201","","","","","11","%"],["Total operating revenues","5,413","","","5,329","","","","","2","%"],["Operating expenses"],["UScellular","4,100","","","3,952","","","","","4","%"],["TDS Telecom","954","","","896","","","","","6","%"],["All other1","237","","","220","","","","","8","%"],["Total operating expenses","5,291","","","5,068","","","","","4","%"],["Operating income (loss)"],["UScellular","69","","","170","","","","","(59)","%"],["TDS Telecom","66","","","110","","","","","(40)","%"],["All other1","(13)","","","(19)","","","","","27","%"],["Total operating income","122","","","261","","","","","(53)","%"],["Investment and other income (expense)"],["Equity in earnings of unconsolidated entities","159","","","182","","","","","(12)","%"],["Interest and dividend income","17","","","11","","","","","45","%"],["Interest expense","(174)","","","(232)","","","","","25","%"],["Other, net","1","","","(1)","","","","","N/M"],["Total investment and other income","3","","","(40)","","","","","N/M"],["Income before income taxes","125","","","221","","","","","(44)","%"],["Income tax expense","53","","","33","","","","","59","%"],["Net income","72","","","188","","","","","(62)","%"],["Less: Net income attributable to noncontrolling interests, net of tax","10","","","32","","","","","(69)","%"],["Net income attributable to TDS shareholders","62","","","156","","","","","(61)","%"],["TDS Preferred Share dividends","69","","","39","","","","","79","%"],["Net income (loss) attributable to TDS common shareholders","$","(7)","","","$","117","","","","","N/M"],["Adjusted OIBDA (Non-GAAP)2","$","1,080","","","$","1,180","","","","","(8)","%"],["Adjusted EBITDA (Non-GAAP)2","$","1,257","","","$","1,372","","","","","(8)","%"],["Capital expenditures3","$","1,285","","","$","1,201","","","","","7","%"]] [[/GREPCENT_TABLE]] N/M - Percentage change not meaningful 1    Consists of corporate and other operations and intercompany eliminations. 2    Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 3    Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. Refer to individual segment discussions in this MD&A for additional details on operating revenues and expenses at the segment level. 26 Index to MD&A 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 $65 million and $82 million for 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 in 2022 due primarily to $57 million of unamortized debt issuance costs written off during 2021 related to the redemption of Senior Notes. This was partially offset by an increase in interest expense due to additional borrowings and interest rate increases. Income tax expense Income tax expense increased in 2022 due primarily to the 2021 reduction of tax accruals resulting from expiration of state statutes of limitations of prior tax years, which did not recur in 2022. This was partially offset by the tax effect of the decrease in Income before income taxes. In early 2022, TDS received a federal income tax refund of $125 million related to the 2020 net operating loss carryback enabled by the CARES Act. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. Net income attributable to noncontrolling interests, net of tax [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021"],["(Dollars in millions)"],["UScellular noncontrolling public shareholders\u2019","$","6","","","$","28"],["Noncontrolling shareholders\u2019 or partners\u2019","4","","","4"],["Net income attributable to noncontrolling interests, net of tax","$","10","","","$","32"]] [[/GREPCENT_TABLE]] 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. 27 Index to MD&A Earnings (Dollars in millions) Net income decreased in 2022 due primarily to higher operating and income tax expenses, partially offset by higher operating revenues and lower interest expense. Adjusted EBITDA decreased in 2022 due primarily to higher operating expenses, 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. 28 Index to MD&A [[GREPCENT_TABLE]] [["","UScellular OPERATIONS"]] [[/GREPCENT_TABLE]] Business Overview UScellular owns, operates, and invests in wireless markets throughout the United States. UScellular is an 84%-owned subsidiary of TDS. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. OPERATIONS ▪Serves customers with 4.7 million retail connections including 4.2 million postpaid and 0.5 million prepaid connections ▪Operates in 21 states ▪Employs approximately 4,900 associates ▪4,336 owned towers ▪6,945 cell sites in service 29 Index to MD&A UScellular Mission and Strategy UScellular’s mission is to connect its customers to what matters most to them. This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus. 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 its markets and will continue to expand to 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. 30 Index to MD&A Operational Overview — UScellular [[GREPCENT_TABLE]] [["As of December 31,","2022","","2021"],["Retail Connections \u2013 End of Period"],["Postpaid","4,247,000","","4,380,000"],["Prepaid","493,000","","513,000"],["Total","4,740,000","","4,893,000"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021","","2022 vs. 2021"],["Postpaid Activity and Churn"],["Gross Additions"],["Handsets","397,000","","434,000","","(9)","%"],["Connected Devices","162,000","","159,000","","2","%"],["Total Gross Additions","559,000","","593,000","","(6)","%"],["Net Additions (Losses)"],["Handsets","(110,000)","","(11,000)","","N/M"],["Connected Devices","(23,000)","","(21,000)","","(10)","%"],["Total Net Additions (Losses)","(133,000)","","(32,000)","","N/M"],["Churn"],["Handsets","1.12","%","","0.96","%"],["Connected Devices","2.95","%","","2.72","%"],["Total Churn","1.34","%","","1.18","%"]] [[/GREPCENT_TABLE]] N/M - Percentage change not meaningful Total postpaid handset net losses increased in 2022 due to lower gross additions and higher defections resulting from aggressive industry-wide competition and an increase in non-pay customers. Total postpaid connected device net losses in 2022 were largely in-line with prior year, as lower demand for connected watches and tablets were offset by an increase in home internet net additions. Postpaid Revenue [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021","","2022 vs. 2021"],["Average Revenue Per User (ARPU)","$","50.14","","","$","48.03","","","4%"],["Average Revenue Per Account (ARPA)","$","130.39","","","$","125.92","","","4%"]] [[/GREPCENT_TABLE]] Postpaid ARPU and Postpaid ARPA increased in 2022, due primarily 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. The higher ARPU plan mix in 2022 relative to 2021 was partially driven by device promotions that included requirements for customers to adopt higher rate plans that offer enhanced services and features. UScellular expects the future growth rate of Postpaid ARPU and Postpaid ARPA to decline relative to the growth rate experienced in 2022 due to the impact of pricing and promotions in the continued highly competitive wireless services environment. 2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to an out-of-period error recorded in the third quarter of 2021. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. 31 Index to MD&A Financial Overview — UScellular [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["(Dollars in millions)"],["Retail service1","$","2,793","","","$","2,757","","","","","1","%"],["Inbound roaming","67","","","110","","","","","(39)","%"],["Other1","265","","","248","","","","","7","%"],["Service revenues","3,125","","","3,115","","","","","\u2014"],["Equipment sales","1,044","","","1,007","","","","","4","%"],["Total operating revenues","4,169","","","4,122","","","","","1","%"],["System operations (excluding Depreciation, amortization and accretion reported below)","755","","","790","","","","","(4)","%"],["Cost of equipment sold","1,216","","","1,118","","","","","9","%"],["Selling, general and administrative","1,408","","","1,345","","","","","5","%"],["Depreciation, amortization and accretion","700","","","678","","","","","3","%"],["Loss on impairment of licenses","3","","","\u2014","","","","","N/M"],["(Gain) loss on asset disposals, net","19","","","23","","","","","(18)","%"],["(Gain) loss on sale of business and other exit costs, net","(1)","","","(2)","","","","","52","%"],["Total operating expenses","4,100","","","3,952","","","","","4","%"],["Operating income","$","69","","","$","170","","","","","(59)","%"],["Net income","$","35","","","$","160","","","","","(78)","%"],["Adjusted OIBDA (Non-GAAP)2","$","790","","","$","869","","","","","(9)","%"],["Adjusted EBITDA (Non-GAAP)2","$","956","","","$","1,054","","","","","(9)","%"],["Capital expenditures3","$","717","","","$","780","","","","","(8)","%"]] [[/GREPCENT_TABLE]] N/M - Percentage change not meaningful 1    For 2021, amounts have been adjusted to reclassify $8 million of Internet of Things (IoT) and Reseller revenues from Retail service to Other service. 2    Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 3    Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 32 Index to MD&A Operating Revenues (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 – Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming ▪Other Service – Amounts received from the Federal USF, tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT) Equipment revenues consist of: ▪Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors Key components of changes in the statement of operations line items were as follows: Total operating revenues Retail service revenues increased in 2022 primarily as a result of an increase in Postpaid ARPU, partially offset by a decrease in average postpaid connections, as well as a $9 million out-of-period error that increased revenue recognized in 2021. See Note 2 - Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. Inbound roaming revenues decreased in 2022, primarily driven by lower data revenues resulting from lower rates and lower usage. UScellular expects inbound roaming revenue to continue to decline during 2023 relative to prior year levels. Other service revenues increased in 2022, resulting from increases in tower rental revenues, miscellaneous revenues, and IoT revenues. Equipment sales revenues increased in 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with a higher average price of new smartphone sales. In recent periods, wireless service providers have increased promotional aggressiveness to attract new customers and retain existing customers. This has included both traditional carriers and cable companies operating through mobile virtual network operators (MVNOs). This increased aggressiveness has contributed to the loss of 133,000 postpaid connections in 2022. It has also led to increased promotional spending, which negatively impacts both Equipment revenues and Retail service revenues. UScellular expects promotional aggressiveness by its competitors to continue during 2023. Operating revenues and Operating income may be negatively impacted by the competitive need to continue to offer significant promotional discounts and lower priced plan offerings to new and existing customers. System operations expenses System operations expenses decreased in 2022, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses. The decrease in roaming expense was driven by a decrease in roaming rates partially offset by an increase in usage. Cost of equipment sold Cost of equipment sold increased in 2022, due primarily to increased customer upgrades driven by more promotional activity, combined with higher average cost per unit sold. 33 Index to MD&A Selling, general and administrative expenses Selling, general and administrative expenses increased in 2022, due primarily to increases in bad debts expense partially offset by a decrease in advertising expense. Bad debts expense increased $76 million in 2022 as customer payment behavior and the corresponding rate of involuntary churn returned to pre-COVID-19 pandemic trends in 2022. Involuntary churn had been favorable in the prior year due to the impacts of the pandemic which included government stimulus payments and higher consumer savings rates. In addition, customers have purchased higher priced devices in recent periods, which has resulted in higher write-off amounts per uncollectible account in 2022 relative to 2021. 34 Index to MD&A [[GREPCENT_TABLE]] [["","TDS TELECOM OPERATIONS"]] [[/GREPCENT_TABLE]] 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 strategic goal 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 3,400 associates. 35 Index to MD&A TDS Telecom Mission and Strategy TDS Telecom's mission is to create a better world by providing high-quality communications services to connect people and businesses, support education, and strengthen communities. TDS Telecom's strategic efforts include: ▪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 and expand its total footprint by creating new clusters of markets in attractive, growing locations and may seek to acquire businesses that support and complement its existing markets. 36 Index to MD&A Operational Overview — TDS Telecom Total Service Address Mix As of December 31, *2021 Fiber addresses in cable markets are included in Coaxial. TDS Telecom increased its service addresses 9% from a year ago to 1.5 million as of December 31, 2022, through network expansion. TDS Telecom offers 1Gig service to 66% of its total footprint as of December 31, 2022, compared to 58% a year ago. In 2022, TDS Telecom began measuring fiber service addresses in its cable markets. Including cable, 39% of service addresses are served by fiber. [[GREPCENT_TABLE]] [["As of December 31,","2022","","2021","","","","2022 vs. 2021"],["Residential connections"],["Broadband"],["Wireline, Incumbent","249,100","","250,200","","","","\u2014"],["Wireline, Expansion","56,100","","36,900","","","","52","%"],["Cable","204,800","","203,200","","","","1","%"],["Total Broadband","510,000","","490,300","","","","4","%"],["Video","135,300","","141,500","","","","(4)","%"],["Voice","291,600","","303,700","","","","(4)","%"],["Total Residential Connections","936,900","","935,600","","","","\u2014"],["Commercial connections","236,000","","264,300","","","","(11)","%"],["Total connections","1,173,000","","1,199,900","","","","(2)","%"]] [[/GREPCENT_TABLE]] Numbers may not foot due to rounding. Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) connections declines, partially offset by broadband connection growth. A majority of TDS Telecom's residential customers take advantage of bundling options as 60% of customers subscribe to more than one service. 37 Index to MD&A Residential Broadband Connections by Speed As of December 31, Residential broadband customers continue to choose higher speeds with 72% taking speeds of 100 Mbps or greater and 11% choosing 1Gig. Residential Revenue per Connection For the year ended December 31, Total residential revenue per connection increased 3% for 2022, due to a higher concentration of broadband connections as well as an increase in broadband speeds and price increases, partially offset by increased promotional activity. 38 Index to MD&A Financial Overview — TDS Telecom [[GREPCENT_TABLE]] [["Year Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["(Dollars in millions)"],["Residential"],["Wireline, Incumbent","$","350","","","$","345","","","","","1","%"],["Wireline, Expansion","49","","","34","","","","","46","%"],["Cable","270","","","263","","","","","3","%"],["Total residential","669","","","641","","","","","4","%"],["Commercial","173","","","183","","","","","(5)","%"],["Wholesale","177","","","181","","","","","(2)","%"],["Total service revenues","1,019","","","1,005","","","","","1","%"],["Equipment revenues","1","","","1","","","","","(5)","%"],["Total operating revenues","1,020","","","1,006","","","","","1","%"],["Cost of services (excluding Depreciation, amortization and accretion reported below)","418","","","404","","","","","3","%"],["Cost of equipment and products","1","","","1","","","","","(2)","%"],["Selling, general and administrative","313","","","291","","","","","8","%"],["Depreciation, amortization and accretion","215","","","198","","","","","8","%"],["(Gain) loss on asset disposals, net","7","","","2","","","","","N/M"],["Total operating expenses","954","","","896","","","","","6","%"],["Operating income","$","66","","","$","110","","","","","(40)","%"],["Net income","$","53","","","$","90","","","","","(41)","%"],["Adjusted OIBDA (Non-GAAP)1","$","288","","","$","310","","","","","(7)","%"],["Adjusted EBITDA (Non-GAAP)1","$","291","","","$","310","","","","","(6)","%"],["Capital expenditures2","$","556","","","$","411","","","","","35","%"]] [[/GREPCENT_TABLE]] Numbers may not foot due to rounding. N/M - Percentage change not meaningful. 1    Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 2    Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 39 Index to MD&A Operating Revenues (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 2022 due primarily to price increases and growth in broadband connections, partially offset by a decline in voice and video connections and federal universal service charges. Commercial revenues decreased for 2022 due primarily to declining connections in CLEC markets, partially offset by an increase in broadband connections. Cost of services Cost of services increased for 2022 due primarily to higher employee-related expenses, video programming costs and vehicle maintenance and fuel costs. Selling, general and administrative Selling, general and administrative expenses increased for 2022 due primarily to increases to support current and future growth, including employee-related expenses and advertising and marketing expenses, partially offset by decreases to federal universal service charges. Depreciation, amortization and accretion Depreciation, amortization and accretion increased for 2022 due primarily to increased capital expenditures on new fiber assets and customer-related equipment. 40 Index to MD&A 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 next several years. TDS will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs. TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, capital expenditures, agreements to purchase goods or services, leases, debt service requirements, 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 credit facilities, to amend existing or 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. 41 Index to MD&A In addition to Cash and cash equivalents, TDS and UScellular had undrawn borrowing capacity from the following debt facilities at December 31, 2022. See the Financing section below for further details. [[GREPCENT_TABLE]] [["","","TDS","","UScellular"],["(Dollars in millions)"],["Revolving Credit Agreement","","$","399","","","$","300"],["Export Credit Financing Agreement","","100","","","\u2014"],["Receivables Securitization Agreement","","\u2014","","","175"],["Repurchase Agreement","","\u2014","","","140"],["Total undrawn borrowing capacity","","$","499","","","$","615"]] [[/GREPCENT_TABLE]] 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 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement. As of December 31, 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 2022, TDS borrowed an incremental $300 million under its term loan credit agreements and UScellular borrowed an incremental $500 million under its term loan credit agreements. As of December 31, 2022, TDS and UScellular have borrowed the full amounts available under the agreements and the outstanding borrowings were $497 million and $796 million, respectively. Export Credit Financing Agreements In November 2022, TDS entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement. The agreement may be drawn in one or more advances by the five-month anniversary of the date of the agreement which is April 9, 2023; amounts not drawn by that time will cease to be available. The maturity date of the agreement is the five-year anniversary of the first borrowing, which is in December 2027. During 2022, TDS borrowed $50 million under the agreement. As of December 31, 2022, the outstanding borrowings under the agreement were $50 million and the unused borrowing capacity was $100 million. TDS borrowed $50 million under its export credit financing agreement in both January and February 2023. In December 2021, UScellular entered into a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan credit facility agreement. During 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 2022, UScellular repaid $250 million and borrowed $75 million under the agreement. As of December 31, 2022, the outstanding borrowings under the agreement were $275 million and the unused borrowing capacity was $175 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. In February 2023, UScellular borrowed $25 million under the receivables securitization agreement. Repurchase Agreement In January 2022, UScellular, through a subsidiary (the repo subsidiary), entered into a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. The transaction is accounted for as a one-month secured borrowing. During 2022, the repo subsidiary borrowed $110 million and repaid $50 million under the repurchase agreement. As of December 31, 2022, the outstanding borrowings under the agreement were $60 million and the unused borrowing capacity was $140 million. In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024. The outstanding borrowings will bear interest at a rate of the lender's cost of funds (which has historically tracked closely to SOFR) plus 1.35%. There were no significant changes to other terms of the repurchase agreement. 42 Index to MD&A Financial Covenants The TDS and UScellular revolving credit agreements, term loan agreements, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants. In particular, under these agreements, TDS and UScellular are required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular also are required to maintain the Consolidated Leverage Ratio at a level not to exceed 3.75 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe they were in compliance as of December 31, 2022 with all such financial covenants.  Other Long-Term Financing TDS and UScellular each have an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares. The proceeds from any such issuances may be used for general corporate purposes, including the possible reduction of other short-term or long-term debt; spectrum purchases; capital expenditures; acquisition, construction and development programs; working capital; additional investments in subsidiaries; or the repurchase of shares. The TDS shelf registration permits TDS to issue at any time and from time to time senior or subordinated debt securities, preferred shares and depositary shares in one or more offerings in an indeterminate amount. The UScellular shelf registration statement permits UScellular to issue at any time and from time to time senior or subordinated debt securities, preferred shares and depositary shares in one or more offerings, up to the amount registered, which is currently $1 billion. The ability of TDS or UScellular to complete an offering pursuant to such shelf registration statements is subject to market conditions and other factors at the time. TDS believes that it and/or its subsidiaries were in compliance as of December 31, 2022, with all covenants and other requirements set forth in the TDS and UScellular long-term debt indentures. TDS and UScellular have not failed to make nor do they expect to fail to make any scheduled payment of principal or interest under such indentures. Refer to Market Risk — Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to TDS’ Long-term debt. TDS and UScellular, at their discretion, may from time to time seek to retire or purchase their outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information regarding the revolving credit agreements, senior term loan agreements, export credit financing agreements, UScellular's receivables securitization agreement, UScellular's Senior Notes and other long-term financing. Credit Ratings In certain circumstances, TDS’ and UScellular’s interest cost on their various agreements may be subject to increase if their current credit ratings from nationally recognized credit rating agencies are lowered, and may be subject to decrease if the ratings are raised. The agreements do not cease to be available nor do the maturity dates accelerate solely as a result of a downgrade in TDS’ or UScellular’s credit rating. However, downgrades in TDS’ or UScellular’s credit rating could adversely affect their ability to renew the agreements or obtain access to other credit agreements in the future. TDS and UScellular are rated as sub-investment grade issuers. The TDS and UScellular issuer credit ratings as of December 31, 2022, and the dates such ratings were re-affirmed were as follows: [[GREPCENT_TABLE]] [["Rating Agency","Rating","Outlook"],["Moody's (re-affirmed October 2022)","Ba1","stable outlook"],["Standard & Poor's (re-affirmed October 2022)","BB","stable outlook"],["Fitch Ratings (re-affirmed February 2022)","BB+","stable outlook"]] [[/GREPCENT_TABLE]] Capital Requirements The discussion below is intended to highlight some of the significant cash outlays expected during 2023 and beyond and to highlight the spending incurred in current and prior years for these items. This discussion does not include cash required to fund normal operations, and is not a comprehensive list of capital requirements. Significant cash requirements that are not routine or in the normal course of business could arise from time to time. Capital Expenditures TDS makes substantial investments to acquire, construct and upgrade telecommunications networks and facilities to remain competitive and as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities (such as 5G and VoLTE technology for UScellular and fiber for TDS Telecom) have required substantial investments in potentially revenue-enhancing and cost-saving upgrades to TDS’ networks to remain competitive; this is expected to continue in 2023 and future years with the continued deployment of 5G technology for UScellular, and the continued deployment of fiber for TDS Telecom. 43 Index to MD&A 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, in 2022 and 2021, were as follows: Capital Expenditures (Dollars in millions) UScellular’s capital expenditures in 2022 were $717 million compared to $780 million in 2021. In 2022, UScellular's capital expenditures were used 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. Capital expenditures for 2023 are expected to be between $600 million and $700 million. These expenditures are expected to be used for similar purposes as those listed above. TDS Telecom’s capital expenditures in 2022 were $556 million compared to $411 million in 2021. In 2022, these capital expenditures were used 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. Capital expenditures for 2023 are expected to be between $500 million and $550 million. These expenditures are expected to be used for similar purposes as those listed above. 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 2023 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. 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 15 — 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.  44 Index to MD&A Common Share Repurchase Programs During 2022, TDS repurchased 2,754,339 Common Shares for $40 million at an average cost per share of $14.46. As of December 31, 2022, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS' program was $138 million. During 2022, UScellular repurchased 1,589,784 Common Shares for $43 million at an average cost per share of $26.78. At December 31, 2022, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 1,927,000. Depending on its future financial performance, construction, development and acquisition programs, and available sources of financing, TDS and UScellular may not have sufficient liquidity or capital resources to make share repurchases. Therefore, there is no assurance that TDS and UScellular will make any share repurchases in the future.  For additional information related to the current TDS and UScellular repurchase authorizations, see Note 17 — Shareholders’ Equity in the Notes to Consolidated Financial Statements. Dividends TDS paid quarterly dividends per outstanding Common Share of $0.180 in 2022 and $0.175 in 2021. TDS increased the dividend per share to $0.185 in the first quarter of 2023. TDS has no current plans to change its policy of paying dividends. TDS paid quarterly dividends per outstanding Series UU depositary share (each representing 1/1,000th of a Preferred Share) of $0.414 in 2022, $0.552 in June 2021, $0.414 in September 2021 and $0.414 in December 2021. TDS paid quarterly dividends per outstanding Series VV depositary share (each representing 1/1,000th of a Preferred Share) of $0.375 in 2022, $0.183 in September 2021 and $0.375 in December 2021. 45 Index to MD&A 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 in 2022 and 2021. 2022 Commentary TDS’ Cash, cash equivalents and restricted cash decreased $15 million. Net cash provided by operating activities was $1,155 million due to net income of $72 million adjusted for non-cash items of $1,036 million and distributions received from unconsolidated entities of $145 million, including $59 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $98 million. The working capital changes were primarily influenced by an increase in customer and agent receivables and increases in inventory purchases, partially offset by a federal income tax refund of $125 million received during the first quarter. The increase in customer receivables was driven by a high volume of equipment upgrades due to promotional activities and a longer contract term for equipment installment plans. Cash flows used for investing activities were $1,783 million, which included payments for property, plant and equipment of $1,161 million and payments for wireless spectrum licenses of $585 million. Cash payments for property, plant and equipment are lower than the total capital expenditures in 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 $613 million, due primarily to $800 million borrowed under the term loan facilities, $200 million borrowed under the export credit financing agreements, $110 million borrowed under the UScellular EIP receivables repurchase agreement, $75 million borrowed under the UScellular revolving credit agreement, and $75 million borrowed under the UScellular receivables securitization agreement. These were partially offset by $250 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, a $50 million repayment on the UScellular EIP receivables repurchase agreement, the payment of dividends totaling $151 million, the repurchase of TDS and UScellular Common Shares totaling $83 million and cash paid for software license agreements of $23 million. 2021 Commentary TDS’ Cash, cash equivalents and restricted cash decreased $1,038 million. Net cash provided by operating activities was $1,103 million due to net income of $188 million adjusted for non-cash items of $959 million and distributions received from unconsolidated entities of $180 million, including $76 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $224 million. The working capital changes were primarily influenced by an increase in customer and agent receivables, a decrease to accrued taxes and the timing of vendor payments. Cash flows used for investing activities were $2,462 million, which included payments for wireless spectrum licenses of $1,322 million and payments for property, plant and equipment of $1,131 million. Cash flows provided by financing activities were $321 million, reflecting the issuance of $1,110 million of TDS Preferred Shares, the issuance of $500 million of 5.5% UScellular Senior Notes, $625 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 $76 million borrowed under the TDS term loan. These were partially offset by the redemption of $836 million of TDS Senior Notes, $917 million of UScellular Senior Notes, a $200 million repayment on the receivables securitization agreement, a $125 million repayment on the TDS revolving credit agreement, the payment of dividends totaling $119 million, the payment of debt and equity issuance costs of $62 million, and the repurchase of TDS and UScellular Common Shares. 46 Index to MD&A 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 $90 million due primarily to increased inventory levels to support promotions and ensure adequate device supply. Income taxes receivable Income taxes receivable decreased $125 million due primarily to a federal income tax refund received related to the 2020 net operating loss carryback enabled by the CARES Act. Customer deposits and deferred revenues Customer deposits and deferred revenues increased $49 million due primarily to an increase in contract liabilities resulting from higher promotional activity in the current year. Other current liabilities Other current liabilities increased $232 million due primarily to an increase in the short-term accrual for Auction 107 relocation fees, net borrowings under the EIP receivables repurchase agreement and accruals related to software license agreements. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information on the Auction 107 accrual. Long-term debt, net The following table presents the components of the $803 million increase in Long-term debt, net: [[GREPCENT_TABLE]] [["","Long-term debt, net"],["(Dollars in millions)"],["Balance at December 31, 2021","$","2,928"],["Borrowings under Revolving Credit Agreements","75"],["Borrowings under Term Loan Agreements","800"],["Borrowings under Export Credit Financing Agreements","200"],["Borrowings under Receivables Securitization Agreement","75"],["Repayments under Revolving Credit Agreements","(75)"],["Repayments under Receivables Securitization Agreement","(250)"],["Other","(22)"],["Balance at December 31, 2022","$","3,731"]] [[/GREPCENT_TABLE]] 47 Index to MD&A 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. Management believes the application of the following critical accounting policies and the estimates required by such application reflect its most significant judgments and estimates used in the preparation of TDS’ consolidated financial statements. Intangible Asset Impairment Licenses and Goodwill represent a significant component of TDS’ consolidated assets. These assets are considered to be indefinite-lived assets and, therefore, are not amortized but rather are tested at least annually for impairment. TDS performs annual impairment testing of Licenses and Goodwill as of November 1 of each year, or more frequently if triggering events occur. Significant negative events, such as changes in any of the assumptions described below or decreases in forecasted cash flows, could result in an impairment in future periods. Licenses are tested for impairment at the level of reporting referred to as a unit of accounting. Goodwill is tested for impairment at the level of reporting referred to as a reporting unit. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for information related to Licenses and Goodwill activity in 2022 and 2021. Wireless Spectrum Licenses – UScellular For purposes of the 2022 impairment test, UScellular had one unit of accounting as a result of aggregating all developed operating market wireless spectrum licenses (built wireless spectrum licenses) and non-operating market wireless spectrum licenses (unbuilt wireless spectrum licenses), and for the 2021 test, UScellular had eight units of accounting, which consisted of one unit of accounting for built wireless spectrum licenses and seven unbuilt wireless spectrum licenses. UScellular believes this change in units of accounting assessed for impairment better reflects the integrated use of licenses as part of its national interdependent network. This change does not impact the results of the impairment assessment for the current or prior years. A qualitative assessment of the license values was completed as of November 1, 2022 and November 1, 2021. The qualitative assessment considered several factors, including analyst estimates of wireless spectrum license values which contemplated recent spectrum auction results, recent UScellular and other market participant transactions, and other industry and market factors. Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the unit of accounting exceeded its carrying value. Therefore, no quantitative impairment evaluation was completed. Goodwill – TDS Telecom TDS Telecom has recorded Goodwill as a result of past business acquisitions. For purposes of the 2022 and 2021 Goodwill impairment test, TDS Telecom had one reporting unit.  A qualitative assessment of the reporting unit was completed as of November 1, 2022 and November 1, 2021. The qualitative assessment, which analyzed company, industry and economic trends, concluded that it was more likely than not that the fair value of this reporting unit exceeded its carrying value, and accordingly, no quantitative impairment evaluation was completed and no Goodwill impairment was recorded. Income Taxes The amounts of income tax assets and liabilities, the related income tax provision and the amount of unrecognized tax benefits are critical accounting estimates because such amounts are significant to TDS’ financial condition and results of operations. The preparation of the consolidated financial statements requires TDS to calculate a provision for income taxes. This process involves estimating the actual current income tax liability together with assessing temporary differences resulting from the different treatment of items for tax purposes. These temporary differences result in deferred income tax assets and liabilities which are included on a net basis in TDS’ Consolidated Balance Sheet. TDS must then assess the likelihood that deferred income tax assets will be realized based on future taxable income and, to the extent management believes that realization is not likely, establish a valuation allowance. Management’s judgment is required in determining the provision for income taxes, deferred income tax assets and liabilities and any valuation allowance that is established for deferred income tax assets. TDS recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on management’s judgment as to the possible outcome that has a greater than 50% cumulative likelihood of being realized upon ultimate resolution. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information. 48 Index to MD&A Regulatory Matters 5G Fund On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America. The 5G Fund will be implemented through a two-phase competitive process, using multi-round auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones. The order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment. UScellular cannot predict at this time when the 5G fund auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the 5G fund auction will provide opportunities to UScellular to offset any loss in existing support. 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 subsequently received a full refund of $2 million. 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 $185 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, and are adjusted as necessary as the estimated obligation changes. UScellular paid $36 million and $8 million related to the additional costs in October 2021 and September 2022, respectively. 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). On September 1, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 34 wireless spectrum licenses for $3 million. The wireless spectrum licenses from Auction 108 were granted by the FCC on December 1, 2022. 49 Index to MD&A Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report contain 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. See "Risk Factors" in this Form 10-K for a further discussion of these risks. 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. Readers should evaluate any statements in light of these important factors. 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 diverse people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations. ▪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. 50 Index to MD&A 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 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. 51 Index to MD&A Market Risk Long-Term Debt As of December 31, 2022, approximately 50% of TDS' long-term debt was in fixed-rate senior notes and approximately 50% in variable-rate debt. Fluctuations in market interest rates can lead to volatility in the fair value of fixed-rate notes and interest expense on variable-rate debt. The following table presents the scheduled principal payments on long-term debt, lease obligations and the related weighted average interest rates by maturity dates at December 31, 2022: [[GREPCENT_TABLE]] [["","Principal Payments Due by Period"],["","Long-Term Debt Obligations1","","Weighted-Avg. Interest Rates on Long-Term Debt Obligations2"],["(Dollars in millions)"],["2023","$","19","","","6.3","%"],["2024","26","","","6.2","%"],["2025","26","","","6.2","%"],["2026","275","","","5.9","%"],["2027","218","","","6.0","%"],["Thereafter","2,983","","","6.2","%"],["Total","$","3,547","","","6.2","%"]] [[/GREPCENT_TABLE]] 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 the 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. See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information. 2Represents the weighted average stated interest rates at December 31, 2022, for debt maturing in the respective periods. Fair Value of Long-Term Debt At December 31, 2022 and 2021, the estimated fair value of long-term debt obligations, excluding lease obligations, the current portion of such long-term debt and debt financing costs, was $3,047 million and $3,197 million, respectively, and the book value was $3,789 million and $2,979 million, respectively. See Note 3 — Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information. 52 Index to MD&A 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. Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules. Specifically, TDS has referred to the following measures in this Form 10-K Report: ▪EBITDA ▪Adjusted EBITDA ▪Adjusted OIBDA ▪Free cash flow 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 19 — 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.  [[GREPCENT_TABLE]] [["TDS - CONSOLIDATED","2022","","2021"],["(Dollars in millions)"],["Net income (GAAP)","$","72","","","$","188"],["Add back:"],["Income tax expense","53","","","33"],["Interest expense","174","","","232"],["Depreciation, amortization and accretion","929","","","895"],["EBITDA (Non-GAAP)","1,228","","","1,348"],["Add back or deduct:"],["Loss on impairment of licenses","3","","","\u2014"],["(Gain) loss on asset disposals, net","27","","","26"],["(Gain) loss on sale of business and other exit costs, net","(1)","","","(2)"],["Adjusted EBITDA (Non-GAAP)","1,257","","","1,372"],["Deduct:"],["Equity in earnings of unconsolidated entities","159","","","182"],["Interest and dividend income","17","","","11"],["Other, net","1","","","(1)"],["Adjusted OIBDA (Non-GAAP)","1,080","","","1,180"],["Deduct:"],["Depreciation, amortization and accretion","929","","","895"],["Loss on impairment of licenses","3","","","\u2014"],["(Gain) loss on asset disposals, net","27","","","26"],["(Gain) loss on sale of business and other exit costs, net","(1)","","","(2)"],["Operating income (GAAP)","$","122","","","$","261"]] [[/GREPCENT_TABLE]] 53 Index to MD&A [[GREPCENT_TABLE]] [["UScellular","2022","","2021"],["(Dollars in millions)"],["Net income (GAAP)","$","35","","","$","160"],["Add back:"],["Income tax expense","37","","","20"],["Interest expense","163","","","175"],["Depreciation, amortization and accretion","700","","","678"],["EBITDA (Non-GAAP)","935","","","1,033"],["Add back or deduct:"],["Loss on impairment of licenses","3","","","\u2014"],["(Gain) loss on asset disposals, net","19","","","23"],["(Gain) loss on sale of business and other exit costs, net","(1)","","","(2)"],["Adjusted EBITDA (Non-GAAP)","956","","","1,054"],["Deduct:"],["Equity in earnings of unconsolidated entities","158","","","179"],["Interest and dividend income","8","","","6"],["Adjusted OIBDA (Non-GAAP)","790","","","869"],["Deduct:"],["Depreciation, amortization and accretion","700","","","678"],["Loss on impairment of licenses","3","","","\u2014"],["(Gain) loss on asset disposals, net","19","","","23"],["(Gain) loss on sale of business and other exit costs, net","(1)","","","(2)"],["Operating income (GAAP)","$","69","","","$","170"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["TDS TELECOM","2022","","2021"],["(Dollars in millions)"],["Net income (GAAP)","$","53","","","$","90"],["Add back or deduct:"],["Income tax expense","23","","","24"],["Interest expense","(7)","","","(5)"],["Depreciation, amortization and accretion","215","","","198"],["EBITDA (Non-GAAP)","284","","","308"],["Add back or deduct:"],["(Gain) loss on asset disposals, net","7","","","2"],["Adjusted EBITDA (Non-GAAP)","291","","","310"],["Deduct:"],["Interest and dividend income","2","","","1"],["Other, net","1","","","(1)"],["Adjusted OIBDA (Non-GAAP)","288","","","310"],["Deduct:"],["Depreciation, amortization and accretion","215","","","198"],["(Gain) loss on asset disposals, net","7","","","2"],["Operating income (GAAP)","$","66","","","$","110"]] [[/GREPCENT_TABLE]] Numbers may not foot due to rounding. 54 Index to MD&A Free Cash Flow The following table presents Free cash flow, which is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and Cash paid for software license agreements. Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment and Cash paid for software license agreements. [[GREPCENT_TABLE]] [["","2022","","2021"],["(Dollars in millions)"],["Cash flows from operating activities (GAAP)","$","1,155","","","$","1,103"],["Cash paid for additions to property, plant and equipment","(1,161)","","","(1,131)"],["Cash paid for software license agreements","(23)","","","(9)"],["Free cash flow (Non-GAAP)","$","(29)","","","$","(37)"]] [[/GREPCENT_TABLE]] 55 Table of Contents