ITTI(TDS) - 2024 Q2 - Quarterly Report

Form 10-Q Filing Information Cover Page Details This section provides the cover page details for the Form 10-Q filing, indicating it is a quarterly report for the period ended June 30, 2024, filed by Telephone and Data Systems, Inc. (TDS) It confirms the registrant's compliance with filing requirements and its status as a large accelerated filer - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2024, filed by Telephone and Data Systems, Inc. (TDS)[1] - TDS is a Delaware corporation with its principal executive offices in Chicago, Illinois[1] - TDS has filed all required reports, submitted all Interactive Data Files, and is classified as a large accelerated filer[2][3] - As of June 30, 2024, there were 106 million Common Shares and 7 million Series A Common Shares outstanding[3] Management Discussion and Analysis of Financial Condition and Results of Operations Executive Overview TDS is a diversified telecommunications company providing services to approximately 6 million connections nationwide through its 82%-owned subsidiary UScellular (wireless and towers) and wholly-owned TDS Telecom (broadband, video, voice) A significant strategic shift occurred in Q2 2024 with the planned disposal of UScellular's wireless operations and select spectrum assets to T-Mobile for $4.4 billion, expected to close mid-2025 TDS also reset its capital allocation, reducing dividends to support its fiber program - TDS is a diversified telecommunications company providing high-quality communications services to approximately 6 million connections nationwide as of June 30, 2024[8] - During Q2 2024, TDS and UScellular modified their reporting structure, disaggregating UScellular operations into Wireless and Towers segments due to the planned disposal of UScellular wireless operations[8] - UScellular agreed to sell its wireless operations and select spectrum assets to T-Mobile for $4,400 million (cash and debt assumption), with the transaction expected to close in mid-2025[13] - TDS reset its capital allocation approach in Q2 2024, declaring dividends at approximately 20% of the previous level to free up capital for purposes such as its fiber program[10] - Third-party expenses related to the strategic alternatives review were $21 million for Q2 2024 and $33 million for YTD 2024[14] Terms Used by TDS This section provides a glossary of industry-specific and company-specific terms used throughout the document, including definitions for wireless technologies (4G LTE, 5G), financial metrics (EBITDA, Adjusted EBITDA, Free Cash Flow), and operational terms (Churn Rate, Colocations, Service Addresses, USF), to ensure a clear understanding of the report's content Results of Operations – TDS Consolidated TDS' consolidated operating revenues decreased by 2% for the three months and 3% for the six months ended June 30, 2024, primarily due to UScellular's decline, partially offset by TDS Telecom's growth Despite this, total operating income increased significantly by 17% for the quarter and 72% for the six-month period, driven by lower operating expenses Net loss attributable to TDS common shareholders improved, and Adjusted OIBDA and Adjusted EBITDA showed strong double-digit growth TDS Consolidated Financial Highlights (YoY) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Q2 Change (%) | YTD 2024 (Millions) | YTD 2023 (Millions) | YTD Change (%) | | :---------------------------------- | :----------------- | :----------------- | :------------ | :------------------ | :------------------ | :------------- | | Operating revenues | $1,238 | $1,267 | (2)% | $2,500 | $2,570 | (3)% | | Operating income | $39 | $33 | 17% | $106 | $62 | 72% | | Net income (loss) attributable to TDS common shareholders | $(14) | $(19) | 24% | $(3) | $(29) | 91% | | Adjusted OIBDA (Non-GAAP) | $310 | $263 | 18% | $629 | $534 | 18% | | Adjusted EBITDA (Non-GAAP) | $357 | $307 | 17% | $725 | $628 | 15% | | Capital expenditures | $244 | $278 | (12)% | $464 | $621 | (25)% | - Interest expense increased for both three and six months ended June 30, 2024, primarily due to an increase in borrowings under TDS term loan agreements[21] - Income tax expense decreased for Q2 and YTD 2024, mainly due to state valuation allowance adjustments recorded in Q2 2023 that reduced the net value of deferred tax assets[22] UScellular Operations UScellular, an 82%-owned subsidiary of TDS, provides wireless services and leases tower space, serving 4.5 million retail connections across 21 states with 4,388 owned towers For Q2 and YTD 2024, total operating revenues decreased by 3%, but operating income saw significant increases (6% for Q2, 44% for YTD) due to improved operational efficiency Adjusted EBITDA also grew by 13% for Q2 and 10% for YTD - UScellular serves 4.5 million retail connections, including approximately 4.0 million postpaid and 0.4 million prepaid connections, across 21 states[28][31] - UScellular owns 4,388 towers and operates 6,990 cell sites[28] UScellular Financial Highlights (YoY) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Q2 Change (%) | YTD 2024 (Millions) | YTD 2023 (Millions) | YTD Change (%) | | :-------------------------- | :----------------- | :----------------- | :------------ | :------------------ | :------------------ | :------------- | | Total operating revenues | $927 | $957 | (3)% | $1,877 | $1,942 | (3)% | | Operating income | $36 | $34 | 6% | $88 | $61 | 44% | | Net income | $18 | $5 | N/M | $42 | $20 | N/M | | Adjusted OIBDA (Non-GAAP) | $227 | $198 | 14% | $456 | $404 | 13% | | Adjusted EBITDA (Non-GAAP) | $268 | $239 | 13% | $542 | $491 | 10% | | Capital expenditures | $165 | $143 | 15% | $295 | $351 | (16)% | Wireless Operations UScellular's Wireless segment reported a decrease in total retail connections to 4.466 million as of June 30, 2024, primarily due to postpaid handset net losses, despite improvements in churn Postpaid ARPU increased by 2% for both Q2 and YTD 2024 due to favorable plan and product mix Total operating revenues decreased by 3% for both periods, driven by lower retail service and equipment sales, but operating income significantly increased by 5% for Q2 and 97% for YTD due to reduced operating expenses UScellular Retail Connections Composition (As of June 30) | As of June 30, | 2024 | 2023 | | :--------------- | :---------- | :---------- | | Postpaid | 4,027,000 | 4,194,000 | | Prepaid | 439,000 | 462,000 | | Total | 4,466,000 | 4,656,000 | UScellular Postpaid Net Additions (Losses) (YoY) | Period | 2024 (Thousands) | 2023 (Thousands) | Change (%) | | :----- | :--------------- | :--------------- | :--------- | | Q2 | (24) | (28) | 14% | | YTD | (67) | (53) | (26)% | - Total postpaid handset net losses were flat for Q2 2024 YoY due to lower gross additions (decrease in available customers, aggressive competition) offset by lower defections from improved churn[32] - Total postpaid connected device net additions increased for Q2 and YTD 2024 due to higher demand for fixed wireless home internet and decreased tablet, hotspot, and home phone defections[33] UScellular Postpaid Average Revenue Per User (ARPU) (YoY) | Period | 2024 ($) | 2023 ($) | Change (%) | | :----- | :------- | :------- | :--------- | | Q2 | 51.45 | 50.64 | 2% | | YTD | 51.69 | 50.64 | 2% | - Retail service revenues decreased due to a decline in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU[38] - Equipment sales revenues decreased due to a decline in smartphone devices sold (lower upgrade and gross additions), partially offset by a higher average price of new smartphone sales[39] - System operations expenses decreased due to lower customer usage, maintenance, utilities, and cell site expenses, partially offset by an increase in roaming expense[41] - Selling, general and administrative expenses decreased due to various G&A, sales-related, and bad debts expenses, partially offset by $12 million (Q2) and $20 million (YTD) in strategic alternatives review expenses[42] Towers Operations UScellular's Towers segment increased its owned towers by 1% to 4,388 as of June 30, 2024, but the number of colocations decreased by 3% to 2,392 Total tower revenues increased by 3% for both Q2 and YTD 2024, driven by higher intra-company rates Operating income for Towers increased by 7% for Q2 and 10% for YTD Following the planned disposal of wireless operations, intra-company revenues are expected to cease, significantly impacting total tower revenues, and separation-related expenses may be incurred UScellular Towers Operational Metrics (As of June 30) | Metric | 2024 | 2023 | Change (%) | | :------------------ | :---- | :---- | :--------- | | Owned towers | 4,388 | 4,341 | 1% | | Number of colocations | 2,392 | 2,458 | (3)% | | Tower tenancy rate | 1.55 | 1.57 | (1)% | - The number of colocations decreased due to an increase in terminations, partially offset by new tenant and equipment change executions[45] UScellular Towers Financial Highlights (YoY) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Q2 Change (%) | YTD 2024 (Millions) | YTD 2023 (Millions) | YTD Change (%) | | :-------------------------- | :----------------- | :----------------- | :------------ | :------------------ | :------------------ | :------------- | | Total tower revenues | $58 | $57 | 3% | $116 | $113 | 3% | | Operating income | $19 | $18 | 7% | $41 | $37 | 10% | | Adjusted OIBDA (Non-GAAP) | $31 | $30 | 6% | $64 | $60 | 7% | | Adjusted EBITDA (Non-GAAP) | $31 | $30 | 6% | $64 | $60 | 7% | | Capital expenditures | $5 | $3 | N/M | $9 | $5 | 89% | - Intra-company revenues increased primarily due to an increase in the intra-company rate charged by Towers to Wireless[47] - Upon closing of the transaction to dispose of wireless operations, intra-company revenues would cease, resulting in significantly lower Total tower revenues[47] - Expenses may be incurred post-closing to effect the separation, including costs to decommission certain towers and record remaining ground lease obligations[49] TDS Telecom Operations TDS Telecom, a wholly-owned subsidiary, provides broadband, video, and voice services, serving 1.2 million connections in 32 states Service addresses increased by 10% YoY to 1.7 million, with 73% of its footprint offering 1Gig+ service Total connections decreased by 1% due to legacy service declines, offset by broadband growth Total operating revenues increased by 4% for Q2 and 5% for YTD 2024, driven by residential revenue growth and price increases Operating income saw significant increases for both periods - TDS Telecom serves 1.2 million connections in 32 states and employs approximately 3,400 associates[52] - TDS Telecom increased its service addresses by 10% from a year ago to 1.7 million as of June 30, 2024, through network expansion[53] - TDS Telecom offers 1Gig+ service to 73% of its total footprint as of June 30, 2024, up from 68% a year ago[53] TDS Telecom Connections (As of June 30) | Metric | 2024 | 2023 | Change (%) | | :---------------- | :---------- | :---------- | | Total connections | 1,152,000 | 1,167,400 | (1)% | - Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) connections declines, partially offset by broadband connection growth[55] - 79% of residential broadband customers choose speeds of 100 Mbps or greater, with 19% choosing 1Gig+[57] TDS Telecom Financial Highlights (YoY) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Q2 Change (%) | YTD 2024 (Millions) | YTD 2023 (Millions) | YTD Change (%) | | :-------------------------- | :----------------- | :----------------- | :------------ | :------------------ | :------------------ | :------------- | | Total operating revenues | $267 | $257 | 4% | $534 | $510 | 5% | | Operating income | $19 | $7 | N/M | $46 | $15 | N/M | | Net income | $18 | $7 | N/M | $42 | $15 | N/M | | Adjusted OIBDA (Non-GAAP) | $89 | $68 | 31% | $183 | $136 | 34% | | Adjusted EBITDA (Non-GAAP) | $91 | $70 | 32% | $187 | $139 | 35% | | Capital expenditures | $78 | $132 | (41)% | $164 | $262 | (37)% | - Residential revenues increased due to price increases and growth in broadband connections, partially offset by a decline in video and voice connections[61] - Commercial revenues decreased due to declining connections in CLEC markets[62] - Cost of services decreased due to lower employee-related expenses and plant/maintenance costs, partially offset by higher video programming costs[63] - Depreciation, amortization, and accretion increased due to capital expenditures on new fiber assets[64] Liquidity and Capital Resources TDS operates capital-intensive businesses, relying on existing cash, financing agreements, and operating cash flows for liquidity As of June 30, 2024, TDS had $474 million and UScellular had $748 million in available undrawn borrowing capacity TDS secured a new $375 million unsecured term loan in May 2024, drawing $300 million Capital expenditures for 2024 are projected at $550-$650 million for UScellular (5G deployment) and $310-$340 million for TDS Telecom (fiber expansion) TDS is actively managing liquidity by divesting non-strategic assets and slowing fiber deployment - TDS and its subsidiaries operate capital-intensive businesses, requiring substantial funding for capital expenditures, investments, and other obligations[66][68] Available Undrawn Borrowing Capacity (As of June 30, 2024) | Entity | Amount (Millions) | | :--------- | :---------------- | | TDS | $474 | | UScellular | $748 | - TDS entered into a $375 million unsecured term loan credit agreement in May 2024, drawing $300 million at closing, with the remaining $75 million available until November 2025[75] - TDS and UScellular were in compliance with all financial covenants of their revolving credit and term loan agreements as of June 30, 2024[76][77] Capital Expenditures (YTD June 30) | Segment | 2024 (Millions) | 2023 (Millions) | Change (%) | | :------------ | :-------------- | :-------------- | :--------- | | UScellular | $295 | $351 | (16)% | | TDS Telecom | $164 | $262 | (37)% | - Full-year 2024 capital expenditures are expected to be $550-$650 million for UScellular (5G mid-band deployment, IT) and $310-$340 million for TDS Telecom (fiber deployment, broadband growth, E-ACAM programs)[81] - TDS Telecom has elected to divest certain non-strategic assets and slow the pace of its fiber deployment to lower its funding needs[69] Consolidated Cash Flow Analysis For the six months ended June 30, 2024, TDS' cash, cash equivalents, and restricted cash increased by $76 million Net cash provided by operating activities was $626 million, driven by net income and non-cash adjustments Cash flows used for investing activities totaled $465 million, primarily for property, plant, and equipment Cash flows used for financing activities were $85 million, reflecting new borrowings offset by repayments and dividend payments - TDS' Cash, cash equivalents and restricted cash increased $76 million for the six months ended June 30, 2024[88] - Net cash provided by operating activities was $626 million for the six months ended June 30, 2024[88] - Cash flows used for investing activities were $465 million, primarily due to payments for property, plant and equipment of $451 million[88] - Cash flows used for financing activities were $85 million, primarily due to $300 million borrowed under TDS term loan agreements, $100 million under the TDS revolving credit agreement, and $40 million under the UScellular receivables securitization agreement, partially offset by repayments and dividend payments[89] Consolidated Balance Sheet Analysis Key balance sheet changes as of June 30, 2024, include a $60 million decrease in net inventory due to sales, a $105 million increase in assets held for sale (primarily OneNeck IT Solutions), a $55 million decrease in accrued compensation due to bonus payments, and a $34 million increase in liabilities held for sale (related to OneNeck) - Inventory, net decreased $60 million due to the sell-through of inventory on hand[93] - Assets held for sale increased $105 million, primarily due to the expected sale of OneNeck IT Solutions LLC and OneNeck Data Center Holdings LLC[94] - Accrued compensation decreased $55 million due to associate bonus payments in March 2024[94] - Liabilities held for sale increased $34 million, primarily due to the expected sale of OneNeck IT Solutions LLC and OneNeck Data Center Holdings LLC[95] Supplemental Information Relating to Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted OIBDA, and Free Cash Flow, which management uses to evaluate business performance For the six months ended June 30, 2024, consolidated Adjusted EBITDA increased by 15% to $725 million, and Free Cash Flow improved significantly to $154 million from a negative $135 million in the prior year - TDS uses non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted OIBDA, and Free Cash Flow to evaluate business performance[97] - Adjusted EBITDA and Adjusted OIBDA are used as measurements of profitability, excluding significant recurring non-cash charges, nonrecurring expenses, gains and losses, and other items[99] TDS - Consolidated Adjusted EBITDA (Non-GAAP) (YoY) | Period | 2024 (Millions) | 2023 (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Q2 | $357 | $307 | 17% | | YTD | $725 | $628 | 15% | TDS - Consolidated Free Cash Flow (Non-GAAP) (YTD June 30) | Metric | 2024 (Millions) | 2023 (Millions) | | :-------------------------------------------- | :-------------- | :-------------- | | Cash flows from operating activities (GAAP) | $626 | $514 | | Cash paid for additions to property, plant and equipment | $(451) | $(629) | | Cash paid for software license agreements | $(21) | $(20) | | Free cash flow (Non-GAAP) | $154 | $(135) | Application of Critical Accounting Policies and Estimates TDS prepares its consolidated financial statements in accordance with GAAP This section refers readers to TDS' Annual Report on Form 10-K for the year ended December 31, 2023, for a detailed discussion of its significant accounting policies and critical accounting estimates - TDS prepares its consolidated financial statements in accordance with GAAP[111] - Significant accounting policies and critical accounting estimates are discussed in detail in TDS' Annual Report on Form 10-K for the year ended December 31, 2023[111] Risk Factors Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement This section provides a safe harbor cautionary statement for forward-looking statements within the Form 10-Q, highlighting that such statements involve known and unknown risks, uncertainties, and other factors that could cause actual results to differ significantly It advises readers to carefully consider the risk factors detailed in both the Form 10-K and this 10-Q - The report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ significantly[113] - Readers are advised to carefully consider the Risk Factors in TDS' Form 10-K for the year ended December 31, 2023, and this Form 10-Q[113] Specific Risk Factors Key risks include uncertainties surrounding the UScellular wireless operations sale to T-Mobile, potential for impairment, and significant expenses related to the strategic review Operational risks encompass intense competition, talent retention, and technological changes Financial risks involve liquidity, substantial indebtedness, and compliance with debt covenants Regulatory risks highlight the uncertainty of universal service fund support, especially given a recent Fifth Circuit ruling challenging its constitutionality, and the ability to pass through surcharges and fees to customers - There is no guarantee that the sale of UScellular's wireless operations and select spectrum assets to T-Mobile will be consummated or that other spectrum assets will find buyers at mutually agreeable prices[114][126][127] - Uncertainty regarding the UScellular transaction and strategic review could divert management attention, impact financial objectives, affect key personnel retention, and cause stock price volatility[128] - The strategic alternatives review process has already incurred significant expenses and may lead to future impairment assessments[129] - Regulatory support payments (e.g., USF, E-ACAM) are expected to decline, and a recent Fifth Circuit ruling challenging the constitutionality of the universal service fund program could have significant adverse effects on funding for UScellular and TDS Telecom[131] - Intense competition, changes in roaming practices, inability to attract/retain talent, smaller scale relative to competitors, and technology changes are significant operational risks[115][116] - Liquidity issues, significant indebtedness, and compliance with debt covenants pose financial risks[119] - Cyber-attacks, disruptions in financial markets, and economic conditions are general risk factors[124] Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2024, approximately 50% of TDS' long-term debt was fixed-rate and 50% variable-rate, exposing the company to fluctuations in market interest rates The total long-term debt obligation was $4,216 million with a weighted-average interest rate of 7.1% - As of June 30, 2024, approximately 50% of TDS' long-term debt was in fixed-rate senior notes and approximately 50% in variable-rate debt[135] Scheduled Principal Payments on Long-Term Debt (as of June 30, 2024) | Period | Principal Payments (Millions) | Weighted-Avg. Interest Rates (%) | | :---------------- | :---------------------------- | :------------------------------- | | Remainder of 2024 | $14 | 7.7% | | 2025 | $29 | 7.7% | | 2026 | $579 | 7.2% | | 2027 | $322 | 6.8% | | 2028 | $485 | 7.5% | | Thereafter | $2,787 | 7.0% | | Total | $4,216 | 7.1% | Financial Statements (Unaudited) Consolidated Statement of Operations For the three months ended June 30, 2024, total operating revenues decreased by 2% to $1,238 million, while operating income increased by 18% to $39 million Net loss attributable to TDS common shareholders improved from $19 million to $14 million For the six months, total operating revenues decreased by 3% to $2,500 million, but operating income significantly increased by 71% to $106 million, and net loss attributable to common shareholders improved from $29 million to $3 million Consolidated Statement of Operations Highlights (YoY) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | YTD 2024 (Millions) | YTD 2023 (Millions) | | :-------------------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Total operating revenues | $1,238 | $1,267 | $2,500 | $2,570 | | Operating income | $39 | $33 | $106 | $62 | | Net income (loss) attributable to TDS common shareholders | $(14) | $(19) | $(3) | $(29) | | Basic earnings (loss) per share attributable to TDS common shareholders | $(0.13) | $(0.17) | $(0.02) | $(0.25) | | Diluted earnings (loss) per share attributable to TDS common shareholders | $(0.13) | $(0.17) | $(0.03) | $(0.25) | Consolidated Statement of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $626 million, an increase from $514 million in the prior year Cash flows used in investing activities decreased to $465 million from $629 million, primarily due to lower capital expenditures Cash flows used in financing activities were $85 million, a shift from $9 million provided in the prior year, reflecting changes in debt activities and dividend payments Overall, cash, cash equivalents, and restricted cash increased by $76 million Consolidated Cash Flow Summary (YTD June 30) | Metric | 2024 (Millions) | 2023 (Millions) | | :-------------------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $626 | $514 | | Net cash used in investing activities | $(465) | $(629) | | Net cash provided by (used in) financing activities | $(85) | $9 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $76 | $(106) | | Cash, cash equivalents and restricted cash (End of period) | $346 | $293 | Consolidated Balance Sheet As of June 30, 2024, total assets were $13,872 million, a slight decrease from $13,921 million at December 31, 2023 Key changes include an increase in cash and cash equivalents to $322 million, a decrease in inventory to $148 million, and a significant increase in assets held for sale to $120 million Total liabilities slightly decreased to $7,890 million, while total equity also saw a minor reduction to $5,982 million Consolidated Balance Sheet Highlights (As of) | Metric | June 30, 2024 (Millions) | December 31, 2023 (Millions) | | :-------------------------------------------- | :----------------------- | :--------------------------- | | Cash and cash equivalents | $322 | $236 | | Inventory, net | $148 | $208 | | Assets held for sale | $120 | $15 | | Total current assets | $1,641 | $1,660 | | Total assets | $13,872 | $13,921 | | Total current liabilities | $1,086 | $1,184 | | Liabilities held for sale | $34 | $0 | | Long-term debt, net | $4,103 | $4,080 | | Total liabilities and equity | $13,872 | $13,921 | Consolidated Statement of Changes in Equity For the six months ended June 30, 2024, total TDS shareholders' equity decreased from $5,202 million to $5,148 million This was primarily influenced by net income attributable to TDS shareholders of $32 million, common share dividends of $26 million, preferred share dividends of $35 million, and adjustments related to investment in subsidiaries and compensation plans Noncontrolling interests increased from $794 million to $834 million Consolidated Statement of Changes in Equity Highlights (YTD June 30, 2024) | Metric | December 31, 2023 (Millions) | June 30, 2024 (Millions) | | :-------------------------------------------- | :--------------------------- | :----------------------- | | Total TDS shareholders' equity | $5,202 | $5,148 | | Noncontrolling interests | $794 | $834 | | Total equity | $5,996 | $5,982 | - Net income attributable to TDS shareholders for the six months ended June 30, 2024, was $32 million[152] - Common share dividends paid were $26 million ($0.230 per share) and Preferred share dividends were $35 million for the six months ended June 30, 2024[152] Notes to Consolidated Financial Statements Note 1 Basis of Presentation TDS' consolidated financial statements adhere to GAAP and include TDS, its 82%-owned subsidiary UScellular, and its wholly-owned subsidiary TDS Telecom, along with certain consolidated variable interest entities In Q2 2024, UScellular operations were disaggregated into Wireless and Towers segments due to the planned disposal, with prior periods updated for conformity Restricted cash is presented with cash and cash equivalents in the Consolidated Statement of Cash Flows - TDS' consolidated financial statements conform to GAAP and include TDS, UScellular (82%-owned), TDS Telecom (wholly-owned), and certain consolidated variable interest entities[157] - During Q2 2024, UScellular operations were disaggregated into Wireless and Towers segments due to the planned disposal of wireless operations, with prior periods updated for conformity[161] Cash, Cash Equivalents and Restricted Cash (Millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $322 | $236 | | Restricted cash included in Other current assets | $24 | $34 | | Cash, cash equivalents and restricted cash in the statement of cash flows | $346 | $270 | Note 2 Revenue Recognition TDS disaggregates revenues by type of service (retail, residential, commercial, wholesale, other) and timing of recognition (over time for service, point in time for equipment sales) For Q2 2024, total operating revenues were $1,238 million, with $1,002 million from service and $204 million from equipment sales Contract liabilities were $379 million as of June 30, 2024, with $186 million recognized from existing contract liabilities in YTD 2024 Total estimated service revenues from remaining performance obligations are $595 million TDS Disaggregated Operating Revenues (Q2 2024, Millions) | Type of Service | UScellular | TDS Telecom | Corporate, Eliminations and Other | Total | | :------------------------ | :--------- | :---------- | :-------------------------------- | :---- | | Retail service | $666 | — | — | $666 | | Residential | — | $186 | — | $186 | | Commercial | — | $37 | — | $37 | | Wholesale | — | $43 | — | $43 | | Other service | $52 | — | $18 | $70 | | Service revenues from contracts with customers | $718 | $266 | $18 | $1,002 | | Equipment and product sales | $184 | — | $20 | $204 | | Operating lease income | $25 | $1 | $6 | $32 | | Total operating revenues | $927 | $267 | $44 | $1,238 | Contract Balances (Millions) | Metric | June 30, 2024 | December 31, 2023 | | :----------------- | :------------ | :---------------- | | Contract assets | $11 | $14 | | Contract liabilities | $379 | $380 | - Revenue recognized related to contract liabilities existing at January 1, 2024, was $186 million for the six months ended June 30, 2024[170] Transaction Price Allocated to Remaining Performance Obligations (Millions) | Period | Service Revenues | | :---------------- | :--------------- | | Remainder of 2024 | $265 | | 2025 | $194 | | Thereafter | $136 | | Total | $595 | Contract Cost Assets (Millions) | Metric | June 30, 2024 | December 31, 2023 | | :----------------------- | :------------ | :---------------- | | Sales commissions | $144 | $143 | | Installation costs | $6 | $6 |\ | Total contract cost assets | $150 | $149 | Note 3 Fair Value Measurements As of June 30, 2024, TDS did not have any material financial or nonfinancial assets or liabilities required to be recorded at fair value, except for a net written call option recorded by UScellular at $8 million, classified as Level 3 within the fair value hierarchy The fair value of long-term debt was estimated at $3,977 million, compared to a book value of $4,176 million - As of June 30, 2024, UScellular recorded a net written call option at fair value of $8 million, which was considered Level 3 within the fair value hierarchy[178][196] Long-term Debt Fair Value (June 30, 2024, Millions) | Metric | Book Value | Fair Value | | :------------- | :--------- | :--------- | | Long-term debt | $4,176 | $3,977 | Note 4 Equipment Installment Plans UScellular sells devices to customers under equipment installment plans As of June 30, 2024, gross equipment installment plan receivables were $1,101 million, with a net balance of $1,016 million after an $85 million allowance for credit losses Write-offs, net of recoveries, for the six months ended June 30, 2024, totaled $38 million Equipment Installment Plan Receivables (As of June 30, 2024, Millions) | Metric | Amount | | :------------------------------------ | :----- | | Equipment installment plan receivables, gross | $1,101 | | Allowance for credit losses | $(85) | | Equipment installment plan receivables, net | $1,016 | - Write-offs, net of recoveries, for the six months ended June 30, 2024, were $38 million[187] Note 5 Income Taxes The effective tax rate on Income before income taxes for the three months ended June 30, 2024, was 49.0%, and for the six months ended June 30, 2024, was 36.6% These rates reflect recurring tax adjustments The prior year's rates were significantly higher due to a relatively low amount of income before taxes and discrete increases in state valuation allowances Effective Tax Rate on Income before Income Taxes (YoY) | Period | 2024 (%) | 2023 (%) | | :----- | :------- | :------- | | Q2 | 49.0% | 99.9% | | YTD | 36.6% | 70.8% | Note 6 Earnings Per Share Basic and diluted earnings per share attributable to TDS common shareholders for Q2 2024 were $(0.13), improving from $(0.17) in Q2 2023 For YTD 2024, basic EPS was $(0.02) and diluted EPS was $(0.03), both significantly improved from $(0.25) in YTD 2023 Approximately 6 million common shares were excluded from diluted EPS calculations due to their antidilutive effect Earnings (Loss) Per Share Attributable to TDS Common Shareholders (YoY) | Metric | Q2 2024 ($) | Q2 2023 ($) | YTD 2024 ($) | YTD 2023 ($) | | :-------------------------------------------- | :---------- | :---------- | :----------- | :----------- | | Basic earnings (loss) per share | $(0.13) | $(0.17) | $(0.02) | $(0.25) | | Diluted earnings (loss) per share | $(0.13) | $(0.17) | $(0.03) | $(0.25) | - 6 million Common Shares were excluded from weighted average diluted shares outstanding for both the three and six months ended June 30, 2024, due to their antidilutive effects[191] Note 7 Divestitures UScellular agreed to sell its wireless operations and select spectrum assets to T-Mobile for $4.4 billion, expected to close mid-2025 The strategic review is ongoing for other spectrum assets, and TDS incurred $21 million (Q2) and $33 million (YTD) in related expenses Additionally, TDS Telecom plans to sell certain incumbent markets in Virginia for $31 million, and TDS will sell OneNeck IT Solutions for $101 million plus $9 million contingent proceeds, both expected to close in Q3 2024 - UScellular agreed to sell its wireless operations and select spectrum assets to T-Mobile for $4,400 million, expected to close in mid-2025[192] - TDS incurred third-party expenses of $21 million (Q2 2024) and $33 million (YTD 2024) related to the strategic alternatives review[193] - UScellular entered into a Put/Call Agreement with T-Mobile for certain spectrum assets, with a fair value of $8 million (net written call option) as of June 30, 2024[196] - TDS Telecom entered an agreement to sell certain incumbent markets in Virginia for $31 million, expected to close in Q3 2024[197] - TDS agreed to sell OneNeck IT Solutions LLC and OneNeck Data Center Holdings LLC for $101 million, with an additional $9 million of contingent proceeds, expected to close in Q3 2024[198] Note 8 Investments in Unconsolidated Entities TDS' total investments in unconsolidated entities were $507 million as of June 30, 2024, primarily consisting of equity method investments ($478 million) The combined net income from these equity method investments for Q2 2024 was $417 million, and for YTD 2024 was $836 million Total Investments in Unconsolidated Entities (As of June 30, 2024, Millions) | Type of Investment | Amount | | :-------------------------------------------------- | :----- | | Equity method investments | $478 | | Measurement alternative method investments | $20 | | Investments recorded using the net asset value practical expedient | $9 | | Total investments in unconsolidated entities | $507 | Combined Net Income of Equity Method Investments (YoY, Millions) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Q2 | $417 | $415 | | YTD | $836 | $842 | Note 9 Debt TDS has a $400 million revolving credit agreement with $399 million unused capacity as of June 30, 2024 UScellular has a receivables securitization agreement with $2 million outstanding and $448 million unused capacity TDS entered a new $375 million unsecured term loan in May 2024, drawing $300 million Both TDS and UScellular were in compliance with all debt covenants as of June 30, 2024 - TDS has a revolving credit agreement with $399 million unused borrowing capacity as of June 30, 2024[203] - UScellular has a receivables securitization agreement with $2 million outstanding borrowings and $448 million unused borrowing capacity as of June 30, 2024[204] - In May 2024, TDS entered into a $375 million unsecured term loan credit agreement, drawing $300 million at closing[205] - TDS and UScellular believe they were in compliance with all financial covenants of their respective debt agreements as of June 30, 2024[206][207] Note 10 Variable Interest Entities TDS consolidates certain Variable Interest Entities (VIEs) where it holds a controlling financial interest, including special purpose entities for UScellular's receivables securitization and designated entities (Advantage Spectrum, King Street Wireless) for wireless spectrum licenses As of June 30, 2024, consolidated VIEs had total assets of $1,933 million and total liabilities of $97 million TDS made contributions, loans, or advances totaling $250 million to its VIEs in YTD 2024 - TDS consolidates VIEs where it has a controlling financial interest, including SPEs for UScellular's receivables securitization and designated entities (Advantage Spectrum, King Street Wireless) for wireless spectrum licenses[210][211][212] Consolidated VIEs' Assets and Liabilities (As of June 30, 2024, Millions) | Metric | Amount | | :-------------- | :----- | | Total assets | $1,933 | | Total liabilities | $97 | - TDS made contributions, loans, or advances to its VIEs totaling $250 million for the six months ended June 30, 2024[219] Note 11 Noncontrolling Interests For the six months ended June 30, 2024, net income attributable to TDS shareholders was $32 million However, transfers from noncontrolling interests, primarily due to changes in TDS' capital in excess of par value from UScellular's share issuances, resulted in a net transfer of $(42) million After these transfers, net income attributable to TDS shareholders was $(10) million Net Income Attributable to TDS Shareholders and Transfers (YTD June 30, Millions) | Metric | 2024 | 2023 | | :-------------------------------------------- | :--- | :--- | | Net income attributable to TDS shareholders | $32 | $6 | | Transfers (to) from noncontrolling interests | $(42) | $(33) | | Net income attributable to TDS shareholders after transfers | $(10) | $(27) | Note 12 Business Segment Information TDS' reportable segments are UScellular Wireless, UScellular Towers, and TDS Telecom In Q2 2024, UScellular operations were disaggregated into Wireless and Towers due to the planned disposal For YTD June 30, 2024, UScellular Wireless reported $1,826 million in total operating revenues and $47 million in operating income UScellular Towers reported $116 million in total operating revenues and $41 million in operating income TDS Telecom reported $534 million in total operating revenues and $46 million in operating income - TDS' reportable segments are UScellular Wireless, UScellular Towers, and TDS Telecom[158][224] - UScellular operations were disaggregated into Wireless and Towers segments in Q2 2024 due to the planned disposal of wireless operations[224] Segment Operating Revenues (YTD June 30, 2024, Millions) | Segment | Total Operating Revenues | | :------------------ | :----------------------- | | UScellular Wireless | $1,826 | | UScellular Towers | $116 | | TDS Telecom | $534 | | Corporate, Eliminations and Other | $89 | | Total | $2,500 | Segment Operating Income (YTD June 30, 2024, Millions) | Segment | Operating Income | | :------------------ | :--------------- | | UScellular Wireless | $47 | | UScellular Towers | $41 | | TDS Telecom | $46 | | Corporate, Eliminations and Other | $(28) | | Total | $106 | Segment Capital Expenditures (YTD June 30, 2024, Millions) | Segment | Capital Expenditures | | :------------------ | :------------------- | | UScellular Wireless | $286 | | UScellular Towers | $9 | | TDS Telecom | $164 | | Corporate, Eliminations and Other | $5 | | Total | $464 | Additional Required Information Controls and Procedures TDS' management, including its principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2024, and concluded they were effective at a reasonable assurance level There have been no material changes in internal control over financial reporting during the three months ended June 30, 2024 - TDS' disclosure controls and procedures were effective as of June 30, 2024, at the reasonable assurance level[237] - There have been no material changes in internal controls over financial reporting during the three months ended June 30, 2024[238] Legal Proceedings TDS is involved in two lawsuits: a putative stockholder class action alleging securities law violations related to UScellular's business strategies, and a stockholder derivative lawsuit making similar allegations of breach of fiduciary duty Both lawsuits seek unspecified monetary damages and, in the derivative case, governance proposals TDS intends to vigorously contest these claims and cannot yet determine their material impact on its financial condition or results of operations - A putative stockholder class action was filed against TDS, UScellular, and certain officers/directors alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934[239] - A stockholder derivative lawsuit was filed against UScellular, certain TDS and UScellular directors/officers, and nominal defendant TDS, alleging breach of fiduciary duty[240] - TDS is unable to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition, or cash flows, and intends to contest the claims vigorously[240] Unregistered Sales of Equity Securities and Use of Proceeds TDS has an authorized $250 million stock repurchase program for Common Shares, with $132 million remaining as of June 30, 2024 No purchases were made under this program during the second quarter of 2024 - The maximum dollar value of shares that may yet be purchased under TDS' $250 million stock repurchase program was $132 million as of June 30, 2024[243] - No purchases of TDS Common Shares were made by or on behalf of TDS during the second quarter of 2024[243] Other Information This section states that no TDS directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2024 - None of TDS' directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5–1 trading arrangement during the three months ended June 30, 2024[245] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Securities Purchase Agreement with T-Mobile, various incentive plan agreements, officer certifications, and XBRL documents - Exhibit 2.1 is the Securities Purchase Agreement, dated May 24, 2024, among TDS, UScellular, USCC Wireless Holdings, LLC and T-Mobile US, Inc[247] - Exhibits include forms of TDS 2022 Long-Term Incentive Plan award agreements and officer certifications (Rule 13a-14 and Section 1350)[247] - XBRL Instance Document, Taxonomy Extension Schema, Presentation Linkbase, Calculation Linkbase, and Label Linkbase Documents are included as exhibits[247] Form 10-Q Cross Reference Index This section provides a cross-reference index to the various items within the Form 10-Q, indicating the page numbers where each item can be found Signatures The Form 10-Q report is signed by LeRoy T Carlson, Jr, President and Chief Executive Officer, and Vicki L Villacrez, Executive Vice President and Chief Financial Officer, on August 2, 2024 - The report was signed on August 2, 2024, by LeRoy T Carlson, Jr, President and Chief Executive Officer, and Vicki L Villacrez, Executive Vice President and Chief Financial Officer[253]