Telephone & Data Systems Inc.
Annual Report 2022

Plain-text annual report

2022 Annual Report tdsinc.com Bridging the Digital Divide Since our founding over 50 years ago, TDS has been committed to bringing high-quality communications services to unserved and underserved communities in suburban and rural America. Through partnerships with nonprofit organizations, original research, and associate volunteerism, we’re addressing the digital divide and providing critical resources in local communities. Since 2009, UScellular has invested nearly $23 million in monetary donations, resources, and countless experiences to nonprofit organizations across the country. We are building better communities in three ways: K-12 STEM Education We know that STEM education and technology go hand-in-hand. That’s why we invest our time, talent, and resources in helping ensure K-12 youth have equitable opportunities to pursue successful careers in STEM. For more than a decade, partnerships with organizations like Boys & Girls Club of America have provided students with resources, access, mentorship, and hands- on STEM education to ensure they have the important tools to reach their full potential. Supporting Associate Passions and Volunteerism Our associates love to give back. It is part of who we are and how we are Building Better Communities. We recognize their commitment and the impact they are making, which is why we offer a variety of programs such as personal donation matching, Cause Cards rewards, and Dollars For Doers to support the causes they care passionately about in local communities. We also provide associates with ways to use their unique skills to help nonprofits solve their challenges through skills-based volunteerism opportunities. After School Access Project After School Access Project is a program that provides free mobile hotspots and service to nonprofits that support youth after the school day has ended and provides safe internet access for homework and education. Since 2021, UScellular has donated more than 10,000 hotspots and service to nonprofits working with youth. In 2023, UScellular has extended its commitment by pledging to donate up to $13 million in hotspots and service to help up to 50,000 youth connect to reliable internet in our markets. As TDS Telecom expands its fiber footprint, it also continually advocates for support to bring better services to locations through federal and state programs and state broadband grants. From hands- on volunteering to in-kind and direct financial support, TDS Telecom takes a vested interest in the growth and success of our communities. TDS Telecom TDS Telecom is leveraging funding from the Federal Communications Commission’s (FCC) Alternative Connect America Cost Model (A-CAM) to enhance and improve speeds to approximately 160,000 service addresses in our rural broadband networks by 2028. We are also working to obtain funding and we have received nearly $48 million in state grants from 2013-2022 to provide enhanced broadband services to over 25,200 service addresses in five states. Committed to our Community We sponsor community events and prioritize giving to organizations that either support community members’ basic needs, STEM education, or diversity, equity, and inclusion (DE&I). Our DE&I Community STEM Fund has awarded significant charitable dollars to multiple recipients, and in 2022, we donated $150,000 to the Center for Black Excellence and Culture in Madison, Wisconsin. Dear Shareholders, The TDS mission is to provide outstanding communications services to our customers and to meet the needs of our shareholders, our associates, and our communities. In pursuing this mission, we are investing in the TDS Family of Businesses to bring our customers higher-quality wireless and broadband services that will position the company for long-term sustainability and growth.UScellular The wireless industry remains as competitive as ever, and in 2022, our subscriber results were challenged by extensive competition. We were intensely focused on navigating through and changing our growth trajectory. In 2023, we will continue to prioritize our efforts to stabilize our customer base. Despite the competitive wireless environment, UScellular had one of the highest ARPU growth rates in the industry last year, a notable achievement of which we are very proud and evidence of how much our customers value the services and products we provide. We also made significant progress on our multi-year network modernization program and nationwide rollout of 5G, which now covers portions of substantially all our markets.In 2023, UScellular’s focus remains on connecting customers to the people and places that matter most. We are concentrating on generating momentum in several areas of the business. Through effective pricing strategies, a strong value proposition, and customer lifecycle management, we will look to grow our postpaid and prepaid businesses. To improve return on capital, we will maintain financial discipline while focusing on revenue growth. We have a multi-year cost optimization program in place to seek and realize efficiencies in both operating costs and capital expenditures.UScellular’s investments in 5G will continue in 2023 as we will further modernize and enhance our outstanding network. We will focus on the build out of mid-band spectrum and plan to rollout mid-band service to portions of our network when the spectrum is cleared in late 2023. As part of our ongoing government advocacy activities, we will support and optimize participation in funding opportunities through the Infrastructure Investment and Jobs Act (IIJA). TDS Telecom In 2022, TDS Telecom continued its transformation into a premier broadband provider, making significant progress in upgrading speeds and deploying fiber technology in our incumbent and expansion markets. In addition, TDS Telecom expanded product offerings by delivering up to 8Gig broadband speeds in its most recent expansion markets. We also launched service in new markets such as Billings, Montana, as well as Janesville, Green Bay, Eau Claire, and Chippewa Falls in Wisconsin. In 2023, TDS Telecom will continue to execute on our broadband growth strategy and passionately pursue our goal of reaching 1.2 million fiber service addresses by 2026. We will work to improve customer experiences, leverage federal and state broadband funding opportunities, and complement our robust product offerings which include high-speed broadband, best-in-class Wi-Fi, and enhanced TDS TV+ video services. OneNeck IT Solutions OneNeck IT Solutions improved its performance in 2022. Providing high-quality services and a strong focus on customer experience drove high customer satisfaction. Growth in public and private cloud services combined with cost efficiencies contributed to improvements in operating margin. We will build upon these accomplishments in 2023 to expand our customer base and drive strong business results. Environment, Social and Governance (ESG) TDS has held good corporate responsibility at the forefront of our values for over 50 years. We highlight this commitment through our annual ESG Report, where we continue to report on the topics identified as most important in our stakeholder assessment. Our key priorities for the TDS ESG Program remain: Access and Affordability; Data Security; Business Continuity; Diversity, Equity & Inclusion; and Community Relations and Engagement. Creating long-term shareholder value At TDS, we seek to maintain a financially sound foundation for the enterprise so that each of our businesses can take advantage of growth opportunities to enhance their competitive positions and long-term returns. We continue to return value to our shareholders primarily through our cash dividends, which have increased every year for the past 49 years. Thank you We are grateful to the associates of the TDS Family of Businesses for their dedication and innovation in providing outstanding services, products, and experiences for our customers. Thank you to our shareholders and our debt holders for your continuing support of our long-term growth strategies. Very truly yours, LeRoy T. Carlson, Jr. President and Chief Executive Officer Walter C. D. Carlson Chair of the Board Telephone and Data Systems, Inc. Index Page No. Management's Discussions and Analysis of Financial Condition and Results of Operations Executive Overview Terms used by TDS Results of Operations – TDS Consolidated UScellular Operations TDS Telecom Operations Liquidity and Capital Resources Consolidated Cash Flow Analysis Consolidated Balance Sheet Analysis Application of Critical Accounting Policies and Estimates Regulatory Matters Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement Market Risk Supplemental Information Relating to Non-GAAP Financial Measures Financial Statements Consolidated Statement of Operations Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Consolidated Balance Sheet – Assets Consolidated Balance Sheet – Liabilities and Equity Consolidated Statement of Changes in Equity Notes to Consolidated Financial Statements Reports of Management Report of Independent Registered Public Accounting Firm Shareholder Information 1 1 3 4 7 13 19 24 25 26 27 28 30 31 34 34 35 36 37 38 39 42 76 77 79 Telephone and Data Systems, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. 2022 Operating Revenues by Segment 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. 1 77%19%4%UScellularTDS TelecomOther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. 2 Annual Dividends Per TDS Common Share20032004200520062007200820092010201120122013201420152016201720182019202020212022$0.00$0.25$0.50$0.75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. 3 Results of Operations — TDS Consolidated Year Ended December 31, (Dollars in millions) Operating revenues UScellular TDS Telecom All other1 Total operating revenues Operating expenses UScellular TDS Telecom All other1 Total operating expenses Operating income (loss) UScellular TDS Telecom All other1 Total operating income Investment and other income (expense) Equity in earnings of unconsolidated entities Interest and dividend income Interest expense Other, net Total investment and other income Income before income taxes Income tax expense Net income Less: Net income attributable to noncontrolling interests, net of tax Net income attributable to TDS shareholders TDS Preferred Share dividends Net income (loss) attributable to TDS common shareholders Adjusted OIBDA (Non-GAAP)2 Adjusted EBITDA (Non-GAAP)2 Capital expenditures3 N/M - Percentage change not meaningful 2022 2021 2022 vs. 2021 $ 4,169 $ 1,020 224 5,413 4,122 1,006 201 5,329 4,100 3,952 954 237 896 220 5,291 5,068 69 66 (13) 122 159 17 (174) 1 3 125 53 72 10 62 69 (7) $ 170 110 (19) 261 182 11 (232) (1) (40) 221 33 188 32 156 39 117 1,080 $ 1,257 $ 1,285 $ 1,180 1,372 1,201 $ $ $ $ 1 % 1 % 11 % 2 % 4 % 6 % 8 % 4 % (59) % (40) % 27 % (53) % (12) % 45 % 25 % N/M N/M (44) % 59 % (62) % (69) % (61) % 79 % N/M (8) % (8) % 7 % 1 2 3 Consists of corporate and other operations and intercompany eliminations. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. 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. 4 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 Year Ended December 31, (Dollars in millions) UScellular noncontrolling public shareholders’ Noncontrolling shareholders’ or partners’ Net income attributable to noncontrolling interests, net of tax 2022 2021 $ $ 6 $ 4 10 $ 28 4 32 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. 5 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. 6 $188$72$1,372$1,257Net IncomeAdjusted EBITDA*20212022$0$500$1,000$1,500UScellular OPERATIONS 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 7 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. 8 Operational Overview — UScellular As of December 31, 2022 2021 Retail Connections – End of Period Postpaid Prepaid Total 4,247,000 4,380,000 493,000 513,000 4,740,000 4,893,000 Year Ended December 31, Postpaid Activity and Churn Gross Additions Handsets Connected Devices Total Gross Additions Net Additions (Losses) Handsets Connected Devices Total Net Additions (Losses) Churn Handsets Connected Devices Total Churn N/M - Percentage change not meaningful 2022 2021 2022 vs. 2021 (9) % 2 % (6) % N/M (10) % N/M 397,000 162,000 559,000 (110,000) (23,000) (133,000) 434,000 159,000 593,000 (11,000) (21,000) (32,000) 1.12 % 2.95 % 1.34 % 0.96 % 2.72 % 1.18 % 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 Year Ended December 31, Average Revenue Per User (ARPU) Average Revenue Per Account (ARPA) 2022 2021 2022 vs. 2021 $ $ 50.14 $ 48.03 130.39 $ 125.92 4% 4% 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. 9 Retail Connections CompositionAs of December 31, 202290%10%PostpaidPrepaidFinancial Overview — UScellular Year Ended December 31, (Dollars in millions) Retail service1 Inbound roaming Other1 Service revenues Equipment sales Total operating revenues System operations (excluding Depreciation, amortization and accretion reported below) Cost of equipment sold Selling, general and administrative Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Total operating expenses Operating income Net income Adjusted OIBDA (Non-GAAP)2 Adjusted EBITDA (Non-GAAP)2 Capital expenditures3 N/M - Percentage change not meaningful 2022 2021 2022 vs. 2021 $ 2,793 $ 2,757 67 265 3,125 1,044 4,169 755 1,216 1,408 700 3 19 (1) 110 248 3,115 1,007 4,122 790 1,118 1,345 678 — 23 (2) 4,100 3,952 1 % (39) % 7 % — 4 % 1 % (4) % 9 % 5 % 3 % N/M (18) % 52 % 4 % $ $ $ $ $ 69 $ 170 (59) % 35 $ 790 $ 956 $ 717 $ 160 869 1,054 780 (78) % (9) % (9) % (8) % 1 2 3 For 2021, amounts have been adjusted to reclassify $8 million of Internet of Things (IoT) and Reseller revenues from Retail service to Other service. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 10 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. 11 $4,122$36$(43)$17$37$4,1692021Retail ServiceInbound RoamingOther ServiceEquipment2022$4,040$4,060$4,080$4,100$4,120$4,140$4,160$4,180$4,200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. 12 TDS TELECOM OPERATIONS Business Overview TDS Telecom owns, operates and invests in communications services in a mix of rural and suburban communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers. TDS Telecom's 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. 13 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. 14 Operational Overview — TDS Telecom Total Service Address Mix As of December 31, 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. *2021 Fiber addresses in cable markets are included in Coaxial. As of December 31, Residential connections Broadband Wireline, Incumbent Wireline, Expansion Cable Total Broadband Video Voice Total Residential Connections Commercial connections Total connections Numbers may not foot due to rounding. 2022 2021 2022 vs. 2021 249,100 250,200 56,100 204,800 510,000 135,300 291,600 936,900 236,000 36,900 203,200 490,300 141,500 303,700 935,600 264,300 1,173,000 1,199,900 — 52 % 1 % 4 % (4) % (4) % — (11) % (2) % 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. 15 22%17%16%16%34%28%28%39%Copper <25 MbpsCopper 25 to 100 MbpsCoaxialFiber2021*2022—%25%50%75%100%Residential Broadband Connections by Speed As of December 31, Residential Revenue per Connection For the year ended December 31, Residential broadband customers continue to choose higher speeds with 72% taking speeds of 100 Mbps or greater and 11% choosing 1Gig. 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. 16 34%28%51%53%7%8%8%11%<100 Mbps100-300 Mbps600 Mbps1Gig20212022—%25%50%75%100%$57.56$59.4620212022$45.00$50.00$55.00$60.00$65.00Financial Overview — TDS Telecom Year Ended December 31, (Dollars in millions) Residential Wireline, Incumbent Wireline, Expansion Cable Total residential Commercial Wholesale Total service revenues Equipment revenues Total operating revenues Cost of services (excluding Depreciation, amortization and accretion reported below) Cost of equipment and products Selling, general and administrative Depreciation, amortization and accretion (Gain) loss on asset disposals, net Total operating expenses Operating income Net income Adjusted OIBDA (Non-GAAP)1 Adjusted EBITDA (Non-GAAP)1 Capital expenditures2 Numbers may not foot due to rounding. N/M - Percentage change not meaningful. 2022 2021 2022 vs. 2021 $ 350 $ 49 270 669 173 177 345 34 263 641 183 181 1,019 1,005 1 1 1,020 1,006 418 1 313 215 7 954 404 1 291 198 2 896 1 % 46 % 3 % 4 % (5) % (2) % 1 % (5) % 1 % 3 % (2) % 8 % 8 % N/M 6 % $ $ $ $ $ 66 $ 110 (40) % 53 $ 288 $ 291 $ 556 $ 90 310 310 411 (41) % (7) % (6) % 35 % 1 2 Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures. 17 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. 18 $1,006$27$(10)$(4)$1,0202021ResidentialCommercialWholesale2022$960$980$1,000$1,020$1,040$1,060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. 19 $367$360TDS Telecom, TDS Corporate & OtherUScellular12/31/202112/31/2022$0$100$200$300$400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. (Dollars in millions) Revolving Credit Agreement Export Credit Financing Agreement Receivables Securitization Agreement Repurchase Agreement Total undrawn borrowing capacity Financing Revolving Credit Agreements TDS UScellular $ $ 399 $ 100 — — 499 $ 300 — 175 140 615 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. 20 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: Rating Agency Moody's (re-affirmed October 2022) Standard & Poor's (re-affirmed October 2022) Fitch Ratings (re-affirmed February 2022) Capital Requirements Rating Ba1 BB BB+ Outlook stable outlook stable outlook stable outlook 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. 21 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.  22 $1,201$1,285UScellularTDS TelecomCorporate and Other20212022$0$200$400$600$800$1,000$1,200$1,400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. 23 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. 24 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: (Dollars in millions) Balance at December 31, 2021 Borrowings under Revolving Credit Agreements Borrowings under Term Loan Agreements Borrowings under Export Credit Financing Agreements Borrowings under Receivables Securitization Agreement Repayments under Revolving Credit Agreements Repayments under Receivables Securitization Agreement Other Balance at December 31, 2022 Long-term debt, net $ 2,928 75 800 200 75 (75) (250) (22) 3,731 $ 25 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. 26 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. 27 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 TDS' Annual Report on Form 10-K for the year ended December 31, 2022, 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. 28 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. 29 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: (Dollars in millions) 2023 2024 2025 2026 2027 Thereafter Total Principal Payments Due by Period Long-Term Debt Obligations1 Weighted-Avg. Interest Rates on Long-Term Debt Obligations2 $ $ 19 26 26 275 218 2,983 3,547 6.3 % 6.2 % 6.2 % 5.9 % 6.0 % 6.2 % 6.2 % 1 The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet due to unamortized debt issuance costs on all non-revolving debt instruments, unamortized discounts related to 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. 2 Represents 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. 30 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.  TDS - CONSOLIDATED (Dollars in millions) Net income (GAAP) Add back: Income tax expense Interest expense Depreciation, amortization and accretion EBITDA (Non-GAAP) Add back or deduct: Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Adjusted EBITDA (Non-GAAP) Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Other, net Adjusted OIBDA (Non-GAAP) Deduct: Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Operating income (GAAP) 31 2022 2021 $ 72 $ 188 53 174 929 1,228 3 27 (1) 1,257 159 17 1 1,080 929 3 27 (1) 122 $ $ 33 232 895 1,348 — 26 (2) 1,372 182 11 (1) 1,180 895 — 26 (2) 261 2022 2021 $ 35 $ 160 37 163 700 935 3 19 (1) 956 158 8 790 700 3 19 (1) 69 $ 20 175 678 1,033 — 23 (2) 1,054 179 6 869 678 — 23 (2) 170 2022 2021 53 $ 90 $ $ 23 (7) 215 284 7 291 2 1 288 215 7 $ 66 $ 24 (5) 198 308 2 310 1 (1) 310 198 2 110 UScellular (Dollars in millions) Net income (GAAP) Add back: Income tax expense Interest expense Depreciation, amortization and accretion EBITDA (Non-GAAP) Add back or deduct: Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Adjusted EBITDA (Non-GAAP) Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Adjusted OIBDA (Non-GAAP) Deduct: Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Operating income (GAAP) TDS TELECOM (Dollars in millions) Net income (GAAP) Add back or deduct: Income tax expense Interest expense Depreciation, amortization and accretion EBITDA (Non-GAAP) Add back or deduct: (Gain) loss on asset disposals, net Adjusted EBITDA (Non-GAAP) Deduct: Interest and dividend income Other, net Adjusted OIBDA (Non-GAAP) Deduct: Depreciation, amortization and accretion (Gain) loss on asset disposals, net Operating income (GAAP) Numbers may not foot due to rounding. 32 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. (Dollars in millions) Cash flows from operating activities (GAAP) Cash paid for additions to property, plant and equipment Cash paid for software license agreements Free cash flow (Non-GAAP) 2022 2021 $ 1,155 $ (1,161) (23) (29) $ $ 1,103 (1,131) (9) (37) 33 Financial Statements Telephone and Data Systems, Inc. Consolidated Statement of Operations Year Ended December 31, (Dollars and shares in millions, except per share amounts) 2022 2021 2020 Operating revenues Service Equipment and product sales Total operating revenues Operating expenses Cost of services (excluding Depreciation, amortization and accretion reported below) Cost of equipment and products Selling, general and administrative Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges, net Total operating expenses $ 4,240 $ 4,216 $ 1,173 5,413 1,113 5,329 1,245 1,320 1,768 929 3 27 (1) — 1,267 1,205 1,677 895 — 26 (2) — 4,136 1,089 5,225 1,244 1,110 1,681 909 — 27 — (5) 5,291 5,068 4,966 Operating income 122 261 259 Investment and other income (expense) Equity in earnings of unconsolidated entities Interest and dividend income Gain (loss) on investments Interest expense Other, net Total investment and other income (expense) Income before income taxes Income tax expense Net income Less: Net income attributable to noncontrolling interests, net of tax Net income attributable to TDS shareholders TDS Preferred Share dividends 159 17 — (174) 1 3 125 53 72 10 62 69 182 11 — (232) (1) (40) 221 33 188 32 156 39 Net income (loss) attributable to TDS common shareholders $ (7) $ 117 $ Basic weighted average shares outstanding 114 115 Basic earnings (loss) per share attributable to TDS common shareholders $ (0.07) $ 1.03 $ Diluted weighted average shares outstanding 114 116 Diluted earnings (loss) per share attributable to TDS common shareholders $ (0.07) $ 1.00 $ The accompanying notes are an integral part of these consolidated financial statements. 34 181 15 2 (168) (1) 29 288 19 269 43 226 — 226 114 1.97 115 1.93 Telephone and Data Systems, Inc. Consolidated Statement of Comprehensive Income Year Ended December 31, (Dollars in millions) Net income Net change in accumulated other comprehensive income Change related to retirement plan Amounts included in net periodic benefit cost for the period Net actuarial gains (losses) Amortization of prior service cost and unrecognized net gain Change in deferred income taxes Change related to retirement plan, net of tax Net change in accumulated other comprehensive income Comprehensive income Less: Net income attributable to noncontrolling interests, net of tax 2022 2021 2020 $ 72 $ 188 $ 269 (4) 4 — — — — 72 10 9 4 13 (4) 9 9 197 32 3 3 6 (1) 5 5 274 43 231 Comprehensive income attributable to TDS shareholders $ 62 $ 165 $ The accompanying notes are an integral part of these consolidated financial statements. 35 Telephone and Data Systems, Inc. Consolidated Statement of Cash Flows 2022 Year Ended December 31, (Dollars in millions) Cash flows from operating activities Net income Add (deduct) adjustments to reconcile net income to net cash flows from operating activities $ 2021 2020 72 $ 188 $ 269 Depreciation, amortization and accretion Bad debts expense Stock-based compensation expense Deferred income taxes, net Equity in earnings of unconsolidated entities Distributions from unconsolidated entities Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges, net (Gain) loss on investments Other operating activities Changes in assets and liabilities from operations Accounts receivable Equipment installment plans receivable Inventory Accounts payable Customer deposits and deferred revenues Accrued taxes Other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Cash paid for additions to property, plant and equipment Cash paid for acquisitions, licenses and other intangible assets Cash received from divestitures and exchanges Advance payments for license acquisitions Other investing activities Net cash used in investing activities Cash flows from financing activities Issuance of long-term debt Repayment of long-term debt Issuance of short-term debt Repayment of short-term debt Issuance of TDS Preferred Shares TDS Common Shares reissued for benefit plans, net of tax payments UScellular Common Shares reissued for benefit plans, net of tax payments Repurchase of TDS Common Shares Repurchase of UScellular Common Shares Dividends paid to TDS shareholders Payment of debt and equity issuance costs Distributions to noncontrolling interests Payments to acquire additional interest in subsidiaries Cash paid for software license agreements Other financing activities Net cash provided by financing activities 929 138 42 47 (159) 145 3 27 (1) — — 10 (69) (199) (90) 32 48 127 53 1,155 (1,161) (614) 8 — (16) (1,783) 1,154 (332) 110 (50) — (4) (5) (40) (43) (151) (2) (3) — (23) 2 613 895 60 49 52 (182) 180 — 26 (2) — — 61 (22) (116) (25) (69) 43 (49) 14 1,103 (1,131) (1,308) 3 (20) (6) (2,462) 1,543 (2,081) — — 1,110 (5) (16) (8) (31) (119) (62) (3) — (9) 2 321 909 77 53 190 (181) 189 — 27 — (5) (2) 3 (16) (54) 12 173 4 (120) 4 1,532 (1,338) (172) 26 (30) 3 (1,511) 1,250 (110) — — — (3) (11) (14) (23) (78) (41) (2) (11) (2) 2 957 Net increase (decrease) in cash, cash equivalents and restricted cash (15) (1,038) 978 Cash, cash equivalents and restricted cash Beginning of period End of period $ 414 399 $ 1,452 414 $ 474 1,452 The accompanying notes are an integral part of these consolidated financial statements. 36 Telephone and Data Systems, Inc. Consolidated Balance Sheet — Assets December 31, (Dollars in millions) Current assets Cash and cash equivalents Accounts receivable Customers and agents, less allowances of $74 and $60, respectively Other, less allowances of $3 and $2, respectively Inventory, net Prepaid expenses Income taxes receivable Other current assets Total current assets Assets held for sale Licenses Goodwill Other intangible assets, net of accumulated amortization of $112 and $91, respectively Investments in unconsolidated entities Property, plant and equipment In service and under construction Less: Accumulated depreciation and amortization Property, plant and equipment, net Operating lease right-of-use assets Other assets and deferred charges Total assets1 2022 2021 $ 360 $ 367 1,069 112 268 102 59 58 2,028 1,058 93 178 103 184 61 2,044 26 18 4,699 4,097 547 204 495 14,971 10,211 4,760 995 796 547 197 479 14,265 9,904 4,361 1,040 710 $ 14,550 $ 13,493 The accompanying notes are an integral part of these consolidated financial statements. 37 Telephone and Data Systems, Inc. Consolidated Balance Sheet — Liabilities and Equity December 31, (Dollars and shares in millions, except per share amounts) Current liabilities Current portion of long-term debt Accounts payable Customer deposits and deferred revenues Accrued interest Accrued taxes Accrued compensation Short-term operating lease liabilities Other current liabilities Total current liabilities Deferred liabilities and credits Deferred income tax liability, net Long-term operating lease liabilities Other deferred liabilities and credits Long-term debt, net Commitments and contingencies 2022 2021 $ 19 $ 506 285 12 46 144 146 356 1,514 969 908 813 6 481 236 10 45 137 141 124 1,180 921 960 759 3,731 2,928 Noncontrolling interests with redemption features 12 11 Equity TDS shareholders’ equity Series A Common and Common Shares Authorized 290 shares (25 Series A Common and 265 Common Shares) Issued 133 shares (7 Series A Common and 126 Common Shares) Outstanding 112 shares (7 Series A Common and 105 Common Shares) and 115 shares (7 Series A Common and 108 Common Shares), respectively Par Value ($0.01 per share) Capital in excess of par value Preferred Shares, .279 shares authorized, par value $0.01 per share, .0444 shares outstanding (.0168 Series UU and .0276 Series VV) Treasury shares, at cost, 21 and 18 Common Shares, respectively Accumulated other comprehensive income Retained earnings Total TDS shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity1 1 2,551 1,074 (481) 5 2,699 5,849 1 2,496 1,074 (461) 5 2,812 5,927 754 807 6,603 6,734 $ 14,550 $ 13,493 The accompanying notes are an integral part of these consolidated financial statements. 1 The consolidated total assets as of December 31, 2022 and 2021, include assets held by consolidated variable interest entities (VIEs) of $1,236 million and $1,456 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of December 31, 2022 and 2021, include certain liabilities of consolidated VIEs of $23 million and $21 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 15 — Variable Interest Entities for additional information. 38 . c n I , s m e t s y S a t a D d n a e n o h p e l e T y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C y t i u q e l a t o T s t s e r e t n i y t i u q e g n i l l o r t n o c n o N ' l s r e d o h e r a h s S D T l a t o T d e n i a t e R i s g n n r a e d e t a l u m u c c A r e h t o e v i s n e h e r p m o c ) s s o l ( e m o c n i y r u s a e r T s e r a h s d e r r e f e r P s e r a h S l s r e d o h e r a h S S D T n i l a t i p a C f o s s e c x e A s e i r e S n o m m o C d n a n o m m o C e u l a v r a p s e r a h s ) s t n u o m a e r a h s r e p t p e c x e , s n o i l l i m n i s r a l l o D ( 4 3 7 , 6 $ 7 0 8 $ 7 2 9 , 5 $ 2 1 8 , 2 $ 5 $ ) 1 6 4 ( $ 4 7 0 , 1 $ 6 9 4 , 2 $ 1 $ 1 2 0 2 , 1 3 r e b m e c e D 2 6 9 ) 2 8 ( ) 9 6 ( ) 0 4 ( 2 4 1 ) 4 2 ( ) 3 ( — 9 — — — — — ) 9 5 ( ) 3 ( 2 6 — ) 2 8 ( ) 9 6 ( ) 0 4 ( 2 4 1 5 3 — 2 6 — ) 2 8 ( ) 9 6 ( — ) 3 ( ) 1 2 ( — — 3 0 6 , 6 $ 4 5 7 $ 9 4 8 , 5 $ 9 9 6 , 2 $ — — — — — — — — — 5 . s t n e m e a t s t l i a c n a n i f d e t a d — — — — ) 0 4 ( 3 7 1 — — — — — — — — — — — — — — — — 2 8 1 5 3 — i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T $ ) 1 8 4 ( $ 4 7 0 , 1 $ 1 5 5 , 2 $ — — — — — — — — — 1 s a d e i f i s s a c l o t S D T o t l e b a t u b i r t t a e m o c n i t e N l s r e d o h e r a h s l e b a t u b i r t t a e m o c n i t e N s t s e r e t n i g n i l l o r t n o c n o n r e p 2 7 . 0 $ ( s d n e d v d i i e r a h s n o m m o C ) e r a h s A s e i r e S d n a n o m m o C S D T y t i u q e d n a e r a h s U U s e i r e S r e p 6 5 6 , 1 $ ( s d n e d v d i i e r a h s d e r r e f e r P S D T s n a p l n o i t a s n e p m o c d n a e v i t n e c n I ) e r a h s V V s e i r e S r e p 0 0 5 , 1 $ s e r a h S n o m m o C f o e s a h c r u p e R 39 n a p l t n e m t s e v n e r i d n e d v D i i $ 2 2 0 2 , 1 3 r e b m e c e D g n i l l o r t n o c n o n o t s n o i t u b i r t s D i s t s e r e t n i s n a p l n o i t a s n e p m o c r o f i s e i r a d s b u s i n i t n e m t s e v n i t s u d A j r e h t o d n a s e c n a u s s i , s e s a h c r u p e r   S D T l a t o T d e t a l u m u c c A r e h t o n i l a t i p a C l s r e d o h e r a h S S D T . c n I , s m e t s y S a t a D d n a e n o h p e l e T y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C A s e i r e S n o m m o C d n a y t i u q e l a t o T g n s t s e r e t n i i l l o r t n o c n o N ' l s r e d o h e r a h s y t i u q e d e n i a t e R i s g n n r a e e v i s n e h e r p m o c ) s s o l ( e m o c n i y r u s a e r T s e r a h s d e r r e f e r P s e r a h S f o s s e c x e e u l a v r a p n o m m o C s e r a h s ) s t n u o m a e r a h s 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S d n a n o m m o C S D T f o t e n , s e r a h S d e r r e f e r P f o e c n a u s s I s t s o c ) e r a h s e m o c n i i e v s n e h e r p m o c r e h t O y t i u q e d n a e r a h s U U s e i r e S r e p 0 8 3 , 1 $ ( i s d n e d v d e r a h s i d e r r e f e r P S D T s e r a h S n o m m o C f o e s a h c r u p e R ) e r a h s V V s e i r e S r e p 8 5 5 $ n a p l t n e m t s e v n e r i d n e d v D i i s n a p l n o i t a s n e p m o c d n a e v i t n e c n I 40 $ 1 2 0 2 , 1 3 r e b m e c e D g n i l l o r t n o c n o n o t s n o i t u b i r t s D i s t s e r e t n i s n a p l n o i t a s n e p m o c r o f i s e i r a d s b u s i n i t n e m t s e v n i t s u d A j r e h t o d n a s e c n a u s s i , s e s a h c r u p e r   y t i u q e l a t o T s t s e r e t n i y t i u q e g n i l l o r t n o c n o N ' l s r e d o h e r a h s S D T l a t o T d e n i a t e R i s g n n r a e d e t a l u m u c c A r e h t o e v i s n e h e r p m o c ) s s o l ( e m o c n i y r u s a e r T s e r a h s l s r e d o h e r a h S S D T n i l a t i p a C f o s s e c x e A s e i r e S n o m m o C d n a n o m m o C e u l a v r a p s e r a h s . c n I , s m e t s y S a t a D d n a e n o h p e l e T y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C ) 2 ( 6 2 2 5 3 4 ) 8 7 ( ) 4 1 ( 3 8 1 ) 2 ( ) 0 1 ( — — 3 4 — — — — — ) 3 ( ) 2 ( ) 2 ( 6 2 2 — 5 ) 8 7 ( ) 4 1 ( 3 8 1 ) 7 ( — ) 2 ( 6 2 2 — — ) 8 7 ( — — ) 6 1 ( — — — — — 5 — — — — — — — — — — — ) 4 1 ( 3 3 1 — — — — — — — — — 1 2 ) 7 ( — 4 0 4 , 5 $ 1 5 7 $ 3 5 6 , 4 $ 2 7 6 , 2 $ ) 9 ( $ ) 9 7 4 ( $ 8 6 4 , 2 $ 3 9 5 , 5 $ 9 8 7 $ 4 0 8 , 4 $ 2 0 8 , 2 $ ) 4 ( $ ) 7 7 4 ( $ 2 8 4 , 2 $ 1 — — — — — — — — — — 1 $ $ . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T l s r e d o h e r a h s S D T o t l e b a t u b i r t t a e m o c n i t e N s e g n a h c g n i t n u o c c a f o t c e f f e l e v i t a u m u C ) s t n u o m a e r a h s r e p t p e c x e , s n o i l l i m n i s r a l l o D ( 9 1 0 2 , 1 3 r e b m e c e D s t s e r e t n i g n i l l o r t n o c n o n o t l e b a t u b i r t t a e m o c n i t e N y t i u q e s a d e i f i s s a c l e r a h S n o m m o C A s e i r e S d n a n o m m o C S D T e m o c n i i e v s n e h e r p m o c r e h t O ) e r a h s r e p 8 6 . 0 $ ( s d n e d v d i i , s e s a h c r u p e r r o f i s e i r a d s b u s i n i t n e m t s e v n i t s u d A j 41 s n a p l n o i t a s n e p m o c d n a e v i t n e c n I s n a p l n o i t a s n e p m o c r e h t o d n a s e c n a u s s i s t s e r e t n i g n i l l o r t n o c n o n o t s n o i t u b i r t s D i 0 2 0 2 , 1 3 r e b m e c e D s e r a h S n o m m o C f o e s a h c r u p e R n a p l t n e m t s e v n e r i d n e d v D i i Telephone and Data Systems, Inc. Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Nature of Operations Telephone and Data Systems, Inc. (TDS) is a diversified telecommunications company providing high-quality communications services to customers with 4.7 million retail wireless connections and 1.2 million broadband, video and voice connections at December 31, 2022. TDS conducts all of its wireless operations through its 84%-owned subsidiary, United States Cellular Corporation (UScellular). TDS provides broadband, video and voice services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom).  TDS has the following reportable segments: UScellular and TDS Telecom. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS' wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle- Straus). HMS' and Suttle-Straus' financial results were not significant to TDS' operations. All of TDS’ segments operate only in the United States. See Note 19 — Business Segment Information for summary financial information on each business segment. Principles of Consolidation The accounting policies of TDS conform to accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Unless otherwise specified, references to accounting provisions and GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements include the accounts of TDS and subsidiaries in which it has a controlling financial interest, including UScellular and TDS Telecom. In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that requires consolidation under GAAP. See Note 15 — Variable Interest Entities for additional information relating to TDS’ VIEs. Intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (a) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and (b) the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. Cash and cash equivalents subject to contractual restrictions are classified as restricted cash. Restricted cash primarily consists of balances required under the receivables securitization agreement. See Note 12 — Debt for additional information related to the receivables securitization agreement. The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows. December 31, (Dollars in millions) Cash and cash equivalents Restricted cash included in Other current assets Cash, cash equivalents and restricted cash in the statement of cash flows Accounts Receivable and Allowance for Credit Losses 2022 2021 $ $ 360 $ 39 399 $ 367 47 414 UScellular’s accounts receivable consist primarily of amounts owed by customers for wireless services and equipment sales, including sales of certain devices and accessories under installment plans, by agents and third-party distributors for sales of equipment to them and by other wireless carriers whose customers have used UScellular’s wireless systems. TDS Telecom’s accounts receivable primarily consist of amounts owed by customers for services and products provided, by state and federal governments for grants and support funds, and by interexchange carriers for long-distance and data traffic, which TDS Telecom carries on its network. TDS estimates expected credit losses related to accounts receivable balances based on a review of available and relevant information including current economic conditions, projected economic conditions, historical loss experience, account aging, and other factors that could affect collectability. Expected credit losses are determined for each pool of accounts receivable balances that share similar risk characteristics. The allowance for credit losses is the best estimate of the amount of expected credit losses related to existing accounts receivable. TDS does not have any off-balance sheet credit exposure related to its customers. 42 Inventory Inventory consists primarily of wireless devices stated at the lower of cost, which approximates cost determined on a first-in first-out basis, or net realizable value. Net realizable value is determined by reference to the stand-alone selling price. Cloud-Hosted Arrangements TDS' cloud-hosted arrangements that are service contracts consist primarily of software used to perform administrative functions. Implementation costs related to TDS' cloud-hosted arrangements, which are recorded in Prepaid expenses and Other assets and deferred charges in the Consolidated Balance Sheet, were as follows: December 31, (Dollars in millions) Implementation costs, gross Accumulated amortization Implementation costs, net 2022 2021 $ $ 109 $ (49) 60 $ 87 (30) 57 These costs are amortized over the period of the service contract, which is generally three to five years. Amortization of implementation costs was $19 million, $17 million and $11 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was included in Selling, general and administrative expenses. Licenses Licenses consist of direct and incremental costs incurred in acquiring Federal Communications Commission (FCC) wireless spectrum licenses that generally provide UScellular with the exclusive right to utilize designated radio spectrum within specific geographic service areas to provide wireless service. Although wireless spectrum licenses are issued for a fixed period of time, generally ten years, or in some cases twelve or fifteen years, the FCC has granted license renewals routinely and at a nominal cost. The wireless spectrum licenses held by UScellular expire at various dates. UScellular believes that it is probable that its future wireless spectrum license renewal applications will be granted. UScellular determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the wireless spectrum licenses. Therefore, UScellular has determined that wireless spectrum licenses are indefinite-lived intangible assets. UScellular performs its annual impairment assessment of wireless spectrum licenses as of November 1 of each year or more frequently if there are events or circumstances that cause UScellular to believe it is more likely than not that the carrying value of wireless spectrum licenses exceeds fair value. 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. UScellular performed a qualitative impairment assessment to determine whether the wireless spectrum licenses were impaired. In 2022 and 2021, UScellular considered several qualitative 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. See Note 7 — Intangible Assets for additional details related to wireless spectrum licenses. Goodwill TDS has Goodwill as a result of past business acquisitions. TDS performs its annual impairment assessment of Goodwill as of November 1 of each year or more frequently if there are events or circumstances that cause TDS to believe it is more likely than not that the carrying value of individual reporting units exceeds their respective fair values. Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. For purposes of conducting its Goodwill impairment test, TDS Telecom has one reporting unit. TDS Telecom performed a qualitative impairment assessment in 2022 and 2021. Based on the annual impairment assessments performed, TDS Telecom did not have an impairment of its Goodwill in 2022 or 2021.  See Note 7 — Intangible Assets for additional details related to Goodwill. 43 Franchise Rights TDS Telecom has franchise rights as a result of past acquisitions of cable businesses. Franchise rights are intangible assets that provide their holder with the right to operate a business in a certain geographical location as sanctioned by the franchiser, usually a government agency. Franchise rights are generally granted for ten years and may be renewed for additional terms upon approval by the granting authority. TDS anticipates that future renewals of its franchise rights will be granted. TDS reviews franchise rights for impairment whenever events or changes in circumstances indicate that the assets might be impaired. TDS re-evaluates the useful life of franchise rights each year to determine if changes in technology or other business changes would warrant a revision of its remaining useful life. Franchise rights are included in Other intangible assets in the Consolidated Balance Sheet. See Note 7 — Intangible Assets for additional details related to franchise rights. Investments in Unconsolidated Entities For its equity method investments for which financial information is readily available, TDS records its equity in the earnings of the entity in the current period. For its equity method investments for which financial information is not readily available, TDS records its equity in the earnings of the entity on a one quarter lag basis. Property, Plant and Equipment Property, plant and equipment is stated at the original cost of construction or purchase including capitalized costs of certain taxes, payroll-related expenses, interest and estimated costs to remove the assets. Expenditures that enhance the productive capacity of assets in service or extend their useful lives are capitalized and depreciated. Expenditures for maintenance and repairs of assets in service are charged to Cost of services or Selling, general and administrative expense, as applicable. Retirements and disposals of assets are recorded by removing the original cost of the asset (along with the related accumulated depreciation) from plant in service and recording it, together with proceeds, if any, and net removal costs (removal costs less an applicable accrued asset retirement obligation and salvage value realized), as a gain or loss, as appropriate. Certain TDS Telecom segment assets use the group depreciation method. Accordingly, when a group method asset is retired in the ordinary course of business, the original cost of the asset and accumulated depreciation in the same amount are removed, with no gain or loss recognized on the disposition. Software licenses that qualify for capitalization as an asset are accounted for as the acquisition of a fixed asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition.   Depreciation and Amortization Depreciation is provided using the straight-line method over the estimated useful life of the related asset, except for certain TDS Telecom segment assets, which use the group depreciation method. The group depreciation method develops a depreciation rate based on the average useful life of a specific group of assets, rather than each asset individually. TDS depreciates leasehold improvement assets over periods ranging from one year to thirty years; such periods approximate the shorter of the assets’ economic lives or the specific lease terms. Useful lives of specific assets are reviewed throughout the year to determine if changes in technology or other business changes would warrant accelerating the depreciation of those specific assets. There were no material changes to the assigned useful lives of the various categories of property, plant and equipment in 2022, 2021 or 2020. However, in 2022, 2021 and 2020, depreciation for certain specific assets was accelerated due to changes in technology. See Note 9 — Property, Plant and Equipment for additional details related to useful lives. Impairment of Long-Lived Assets TDS reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. UScellular and TDS Telecom each have one asset group for purposes of assessing property, plant and equipment for impairment based on the integrated nature of its network, assets and operations. The cash flows generated by each of these groups is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Leases A lease is generally present in a contract if the lessee controls the use of identified property, plant or equipment for a period of time in exchange for consideration. See Note 10 — Leases for additional details related to leases. Agent Liabilities UScellular has relationships with agents, which are independent businesses that obtain customers for UScellular. At December 31, 2022 and 2021, UScellular had accrued $53 million and $51 million, respectively, in agent related liabilities. These amounts are included in Other current liabilities in the Consolidated Balance Sheet. 44 Debt Issuance Costs Debt issuance costs include underwriters’ and legal fees and other charges related to issuing and renewing various borrowing instruments and other long-term agreements and are amortized over the respective term of each instrument. Debt issuance costs related to TDS’ and UScellular's revolving credit agreements and UScellular's receivables securitization agreement are recorded in Other assets and deferred charges in the Consolidated Balance Sheet. All other debt issuance costs are presented as an offset to the related debt obligation in the Consolidated Balance Sheet. Asset Retirement Obligations TDS records asset retirement obligations for the fair value of legal obligations associated with asset retirements and a corresponding increase in the carrying amount of the related long-lived asset in the period in which the obligations are incurred. In periods subsequent to initial measurement, TDS recognizes changes in the liability resulting from the passage of time and updates to the timing or the amount of the original estimates. The liability is accreted to its estimated settlement date value over the period to the estimated settlement date. The change in the carrying amount of the long-lived asset is depreciated over the average remaining life of the related asset. See Note 11 — Asset Retirement Obligations for additional information. Treasury Shares Common Shares repurchased by TDS are recorded at cost as treasury shares and result in a reduction of equity. When treasury shares are reissued, TDS determines the cost using the first-in, first-out cost method. The difference between the cost of the treasury shares and reissuance price is included in Capital in excess of par value or Retained earnings.  Revenue Recognition Revenues from sales of equipment and products are recognized when control has transferred to the customer, agent or third-party distributor. Service revenues are recognized as the related service is provided. See Note 2 — Revenue Recognition for additional information on TDS' policies related to Revenues. Advertising Costs TDS expenses advertising costs as incurred. Advertising costs totaled $196 million, $203 million and $213 million in 2022, 2021 and 2020, respectively. Income Taxes TDS files a consolidated federal income tax return. Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for future deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are recognized for future taxable temporary differences. Both deferred tax assets and liabilities are measured using the enacted tax rates in effect when the temporary differences are expected to reverse. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. TDS evaluates income tax uncertainties, assesses the probability of the ultimate settlement with the applicable taxing authority and records an amount based on that assessment. Deferred taxes are reported as a net non-current asset or liability by jurisdiction. Any corresponding valuation allowance to reduce the amount of deferred tax assets is also recorded as non-current. See Note 5 — Income Taxes for additional information. Stock-Based Compensation and Other Plans TDS has established long-term incentive plans, dividend reinvestment plans, and a non-employee director compensation plan. The dividend reinvestment plan of TDS is not considered a compensatory plan and, therefore, recognition of compensation costs for grants made under this plan is not required. All other plans are considered compensatory plans; therefore, recognition of costs for grants made under these plans is required. TDS recognizes stock compensation expense based upon the fair value of the specific awards granted using established valuation methodologies. The amount of stock compensation cost recognized on either a straight-line basis or graded attribution method is based on the portion of the award that is expected to vest over the requisite service period, which generally represents the vesting period. Stock-based compensation cost recognized has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. See Note 18 — Stock-Based Compensation for additional information. 45 Note 2 Revenue Recognition Nature of goods and services The following is a description of principal activities from which TDS generates its revenues. Services and products Nature, timing of satisfaction of performance obligations, and significant payment terms  Wireless services Wireless service includes voice, messaging and data services. Revenue is recognized in Service revenues as wireless service is provided to the customer. Wireless services generally are billed and paid in advance on a monthly basis. Wireless devices and accessories UScellular offers a comprehensive range of wireless devices such as handsets, tablets, mobile hotspots, home phones and routers for use by its customers, as well as accessories. UScellular also sells wireless devices to agents and other third-party distributors for resale. UScellular frequently discounts wireless devices sold to new and current customers. UScellular also offers customers the option to purchase certain devices and accessories under installment contracts over a specified time period. For certain equipment installment plans, after a specified period of time, the customer may have the right to upgrade to a new device. Such upgrades require the customer to enter into an equipment installment contract for the new device, and transfer the existing device to UScellular. UScellular recognizes revenue in Equipment and product sales revenues when control of the device or accessory is transferred to the customer, agent or third-party distributor, which is generally upon delivery. Wireless roaming UScellular receives roaming revenues when other wireless carriers’ customers use UScellular’s wireless systems. UScellular recognizes revenue in Service revenues when the roaming service is provided. Wireless Eligible Telecommunications Carrier (ETC) Revenues Telecommunications companies may be designated by states, or in some cases by the FCC, as an ETC to receive support payments from the Universal Service Fund if they provide specified services in “high cost” areas. ETC revenues recognized in the reporting period represent the amounts which UScellular is entitled to receive for such period, as determined and approved in connection with UScellular’s designation as an ETC in various states. Wireless tower rents UScellular receives tower rental revenues when another carrier leases tower space on a UScellular owned tower. UScellular recognizes revenue in Service revenues in the period during which the services are provided. Activation fees TDS charges its end customers activation fees in connection with the sale of certain services and equipment. Activation fees are deferred and recognized over the period benefitted. Wireline and cable services Wireline and cable services include broadband, video and voice services. Revenue is recognized in Service revenues as service is provided to the customer. Wireline and cable services are generally billed and paid in advance on a monthly basis. Wholesale revenues Wholesale revenues include network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s network, special access services and state and federal support payments, including A-CAM. Wholesale revenues are recorded as the related service is provided. IT hardware sales TDS recognizes equipment revenue when it no longer has any requirements to perform, when title has passed and when the products are accepted by the customer. Hosted and managed services HMS Service revenues consist of cloud and hosting solutions, managed services, Enterprise Resource Planning (ERP) application management, colocation services, and IT hardware and related maintenance and professional services. Revenues related to these services are recognized as services are provided. Significant Judgments As a practical expedient, TDS groups similar contracts or similar performance obligations together into portfolios of contracts or performance obligations if doing so does not result in a significant difference from accounting for the individual contracts discretely. TDS applies this grouping method for the following types of transactions: device activation fees, contract acquisition costs, contract fulfillment costs, and certain customer promotions. Contract portfolios are recognized over the respective expected customer lives or terms of the contracts. Services are deemed to be highly interrelated when the method and timing of transfer and performance risk are the same. Highly interrelated services that are determined to not be distinct have been grouped into a single performance obligation. Each month of services promised is a performance obligation. The series of monthly service performance obligations promised over the course of the contract are combined into a single performance obligation for purposes of the revenue allocation. TDS has made judgments regarding transaction price, including but not limited to issues relating to variable consideration, time value of money, returns and non-cash consideration. When determined to be significant in the context of the contract, these items are considered in the valuation of transaction price at contract inception or modification, as appropriate. 46 Multiple Performance Obligations UScellular and TDS Telecom each sell bundled service and equipment offerings. In these instances, TDS recognizes its revenue based on the relative standalone selling prices for each distinct service or equipment performance obligation, or bundles thereof. TDS estimates the standalone selling price of the device or accessory to be its retail price excluding discounts. TDS estimates the standalone selling price of wireless service to be the price offered to customers on month-to-month contracts. Incentives Discounts, incentives, and rebates to agents and end customers that are deemed cash are recognized as a reduction of Operating revenues concurrently with the associated revenue.  From time to time, UScellular may offer certain promotions to incentivize customers to switch to, or to purchase additional services from, UScellular. Under these types of promotions, an eligible customer may receive an incentive in the form of a discount off additional services purchased shown as a credit to the customer’s monthly bill. UScellular accounts for the future discounts as material rights at the time of the initial transaction by allocating and deferring revenue based on the relative proportion of the future discounts in comparison to the aggregate initial purchase. The deferred revenue will be recognized as service revenue in future periods.  Amounts Collected from Customers and Remitted to Governmental Authorities TDS records amounts collected from customers and remitted to governmental authorities on a net basis within a liability account if the amount is assessed upon the customer and TDS merely acts as an agent in collecting the amount on behalf of the imposing governmental authority. If the amount is assessed upon TDS, then amounts collected from customers are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $88 million, $95 million and $82 million for 2022, 2021 and 2020, respectively. Disaggregation of Revenue In the following table, TDS' revenues are disaggregated by type of service, which represents the relevant categorization of revenues for TDS' reportable segments, and timing of recognition. Service revenues are recognized over time and Equipment and product sales are recognized at a point in time. Year Ended December 31, 2022 (Dollars in millions) Revenues from contracts with customers: Type of service: Retail service Inbound roaming Residential Commercial Wholesale Other service Service revenues from contracts with customers Equipment and product sales UScellular TDS Telecom Corporate, Eliminations and Other Total $ 2,793 $ — $ — $ 2,793 67 — — — 172 3,032 1,044 — 669 173 173 — 1,015 1 — — — — 73 73 128 67 669 173 173 245 4,120 1,173 5,293 Total revenues from contracts with customers1 $ 4,076 $ 1,016 $ 201 $ 47 Total revenues from contracts with customers1 $ 4,039 $ 1,003 $ 178 $ Year Ended December 31, 2021 (Dollars in millions) Revenues from contracts with customers: Type of service: Retail service2,3 Inbound roaming Residential Commercial Wholesale Other service2 Service revenues from contracts with customers Equipment and product sales Year Ended December 31, 2020 (Dollars in millions) Revenues from contracts with customers: Type of service: Retail service2 Inbound roaming Residential Commercial Wholesale Other service2 Service revenues from contracts with customers Equipment and product sales UScellular TDS Telecom Corporate, Eliminations and Other Total $ 2,757 $ — $ — $ 2,757 110 — — — 165 3,032 1,007 — 641 183 178 — 1,002 1 — — — — 73 73 105 UScellular TDS Telecom Corporate, Eliminations and Other Total $ 2,681 $ — $ — $ 2,681 152 — — — 157 2,990 970 — 594 194 184 — 972 1 — — — — 69 69 118 110 641 183 178 238 4,107 1,113 5,220 152 594 194 184 226 4,031 1,089 5,120 Total revenues from contracts with customers1 $ 3,960 $ 973 $ 187 $ Numbers may not foot due to rounding. 1 Revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations as the amounts in this table only include revenue resulting from contracts with customers 2 For 2021 and 2020, amounts have been adjusted to reclassify $8 million and $5 million, respectively, of Internet of Things (IoT) and Reseller revenues from Retail service to Other service. 3 During the third quarter of 2021, UScellular recorded a $9 million out-of-period error related to the timing of recognition of regulatory fee billings. This adjustment had the impact of increasing Service revenue by $9 million in 2021. UScellular determined that this adjustment was not material to any of the periods impacted. Contract Balances For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price. When consideration is received in advance of delivery of goods or services, a contract liability is recorded. A contract asset is recorded when revenue is recognized in advance of TDS’ right to receive consideration. Once there is an unconditional right to receive the consideration, TDS records such amounts as receivables, and then bills the customer under the terms of the respective contract. TDS recognizes Equipment and product sales revenue when the equipment is delivered to the customer and a corresponding contract asset or liability is recorded for the difference between the amount of revenue recognized and the amount billed to the customer in cases where discounts are offered. The contract asset or liability is reduced over the contract term as service is provided and billed to the customer. 48 The following table provides balances for contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet, and contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet. December 31, (Dollars in millions) Contract assets Contract liabilities 2022 2021 $ $ 12 $ 395 $ 10 289 Revenue recognized related to contract liabilities existing at January 1, 2022 was $216 million for the year ended December 31, 2022. Transaction price allocated to the remaining performance obligations The following table includes estimated service revenues expected to be recognized related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. These estimates represent service revenues to be recognized when services are delivered to customers pursuant to service plan contracts and under certain roaming agreements with other carriers. These estimates are based on contracts in place as of December 31, 2022, and may vary from actual results. As practical expedients, revenue related to contracts of less than one year, generally month-to-month contracts, and contracts with a fixed per-unit price and variable quantity, are excluded from these estimates. (Dollars in millions) 2023 2024 Thereafter Total Contract Cost Assets Service Revenues $ $ 412 169 108 689 TDS expects that commission fees paid as a result of obtaining contracts are recoverable and therefore TDS defers and amortizes these costs. As a practical expedient, costs with an amortization period of one year or less are expensed as incurred. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Deferred commission fees and fulfillment costs are amortized based on the timing of transfer of the goods or services to which the assets relate, typically the contract term. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows: December 31, (Dollars in millions) Costs to obtain contracts Sales commissions Fulfillment costs Installation costs Total contract cost assets 2022 2021 $ $ 144 $ 8 152 $ 139 10 149 Amortization of contract cost assets was $113 million, $116 million and $120 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was included in Selling, general and administrative expenses and Cost of services expenses. Note 3 Fair Value Measurements As of December 31, 2022 and 2021, TDS did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP. The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets. 49 TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below. Level within the Fair Value Hierarchy December 31, 2022 December 31, 2021 Book Value Fair Value Book Value Fair Value (Dollars in millions) Long-term debt Retail Institutional Other 2 2 2 $ 1,500 $ 899 $ 1,500 $ 1,594 536 1,753 395 1,753 535 944 659 944 Long-term debt excludes lease obligations, the current portion of Long-term debt and debt financing costs. The fair value of “Retail” Long-term debt was estimated using market prices for UScellular Senior Notes, which are traded on the New York Stock Exchange. TDS’ “Institutional” debt consists of UScellular’s 6.7% Senior Notes which are traded over the counter. TDS’ “Other” debt consists of term loan credit agreements, receivables securitization agreement and in 2022, an export credit financing agreement. TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 3.52% to 8.28% and 1.31% to 4.40% at December 31, 2022 and 2021, respectively. The fair values of Cash and cash equivalents, restricted cash and short-term debt approximate their book values due to the short-term nature of these financial instruments. Note 4 Equipment Installment Plans UScellular sells devices to customers under equipment installment plans over a specified time period. For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract. The following table summarizes equipment installment plan receivables. December 31, (Dollars in millions) Equipment installment plan receivables, gross Allowance for credit losses Equipment installment plan receivables, net Net balance presented in the Consolidated Balance Sheet as: Accounts receivable — Customers and agents (Current portion) Other assets and deferred charges (Non-current portion) Equipment installment plan receivables, net 2022 2021 1,211 $ (96) 1,115 $ 1,085 (72) 1,013 646 $ 469 639 374 1,115 $ 1,013 $ $ $ $ UScellular uses various inputs, including internal data, information from credit bureaus and other sources, to evaluate the credit profiles of its customers. From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any. These credit classes are grouped into four credit categories: lowest risk, lower risk, slight risk and higher risk. A customer's assigned credit class is reviewed periodically and a change is made, if appropriate. An equipment installment plan billed amount is considered past due if not paid within 30 days. The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows: December 31, 2022 December 31, 2021 Lowest Risk Lower Risk Slight Risk Higher Risk Total Lowest Risk Lower Risk Slight Risk Higher Risk Total (Dollars in millions) Unbilled Billed — current Billed — past due $ 1,016 $ 98 $ 22 $ 5 $ 1,141 $ 896 $ 94 $ 24 $ 5 $ 1,019 41 13 5 6 2 2 — 1 48 22 40 10 5 6 1 2 1 1 47 19 Total $ 1,070 $ 109 $ 26 $ 6 $ 1,211 $ 946 $ 105 $ 27 $ 7 $ 1,085 50 The balance of the equipment installment plan receivables as of December 31, 2022 on a gross basis by year of origination were as follows: (Dollars in millions) Lowest Risk Lower Risk Slight Risk Higher Risk Total 2020 2021 2022 Total $ $ 43 $ 303 $ 724 $ 3 — — 28 4 1 78 22 5 1,070 109 26 6 46 $ 336 $ 829 $ 1,211 Activity for the years ended December 31, 2022 and 2021, in the allowance for credit losses for equipment installment plan receivables was as follows: (Dollars in millions) Allowance for credit losses, beginning of year Bad debts expense Write-offs, net of recoveries1 Allowance for credit losses, end of year 2022 2021 $ $ 72 $ 100 (76) 96 $ 78 38 (44) 72 1 Write-offs increased in 2022 as customer payment behavior returned to pre-COVID-19 pandemic levels. Note 5 Income Taxes TDS’ current income taxes balances at December 31, 2022 and 2021, were as follows: December 31, (Dollars in millions) Federal income taxes receivable Net state income taxes receivable Income tax expense (benefit) is summarized as follows: Year Ended December 31, (Dollars in millions) Current Federal State Deferred Federal State 2022 2021 $ 56 $ 3 179 5 2022 2021 2020 $ 1 $ 5 32 15 2 $ (21) 59 (7) (175) 4 179 11 19 Total income tax expense (benefit) $ 53 $ 33 $ 51 A reconciliation of TDS’ income tax expense computed at the statutory rate to the reported income tax expense, and the statutory federal income tax rate to TDS’ effective income tax rate is as follows: Year Ended December 31, 2022 2021 2020 Amount Rate Amount Rate Amount Rate (Dollars in millions) Statutory federal income tax expense and rate State income taxes, net of federal benefit1 Change in federal valuation allowance2 Loss carryback benefit of CARES Act3 Nondeductible compensation Tax credits Other differences, net Total income tax expense (benefit) and rate $ $ 26 16 7 — 7 (2) (1) 53 21.0 % $ 12.8 5.7 — 5.6 (1.9) (0.6) 42.6 % $ 47 (23) 7 — 6 (2) (2) 33 21.0 % $ (10.3) 3.1 — 2.9 (0.8) (0.8) 15.1 % $ 60 11 — 21.0 % 4.0 — (60) (21.0) 9 (2) 1 19 3.0 (0.6) — 6.4 % 1 State income taxes, net of federal benefit, include changes in unrecognized tax benefits as well as adjustments to state valuation allowances. State taxes increased in 2022 due primarily to valuation allowance adjustments. State taxes in 2021 are a net benefit due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years. 2 Change in federal valuation allowance is due primarily to current year interest expense from partnership investments that carryforward but may not be realized. 3 The CARES Act provided a 5-year carryback of net operating losses generated in years 2018-2020. As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provided a tax benefit in excess of the current federal statutory rate of 21%. Significant components of TDS’ deferred income tax assets and liabilities at December 31, 2022 and 2021, were as follows: December 31, (Dollars in millions) Deferred tax assets 2022 20211 Net operating loss (NOL) carryforwards $ 250 $ Lease liabilities Contract liabilities Interest expense carryforwards Asset retirement obligation Other Total deferred tax assets Less valuation allowance Net deferred tax assets Deferred tax liabilities Property, plant and equipment Licenses/intangibles Partnership investments Lease assets Other Total deferred tax liabilities Net deferred income tax liability Presented in the Consolidated Balance Sheet as: Deferred income tax liability, net Other assets and deferred charges Net deferred income tax liability $ $ $ 265 63 74 116 129 897 (177) 720 805 419 173 245 43 1,685 965 $ 226 277 38 31 101 122 795 (149) 646 751 364 155 255 40 1,565 919 969 $ (4) 965 $ 921 (2) 919 1 Certain prior year deferred tax assets and liabilities have been reclassified to align with the current year presentation. 52 At December 31, 2022, TDS and certain subsidiaries had $3,508 million of state NOL carryforwards (generating a $177 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards expire between 2023 and 2042. TDS and certain subsidiaries had $344 million of federal NOL carryforwards (generating a $72 million deferred tax asset) available to offset future taxable income. The federal NOL carryforwards generally expire between 2023 and 2037, with the exception of federal NOLs generated after 2017, which do not expire. A valuation allowance was established for certain federal and state NOL carryforwards since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.  At December 31, 2022, TDS and certain subsidiaries had $384 million of state interest limitation carryforwards (generating a $16 million deferred tax asset) available to offset future taxable income. The state interest limitation carryforwards generally do not expire. TDS and certain subsidiaries had $277 million of federal interest limitation carryforwards (generating a $58 million deferred tax asset) available to offset future taxable income. The federal interest limitation carryforwards do not expire. A valuation allowance was established for certain federal and state interest limitation carryforwards since it is more likely than not that a portion of such carryforwards will not be utilized. A summary of TDS' deferred tax asset valuation allowance is as follows: (Dollars in millions) Balance at beginning of year Charged to Income tax expense Balance at end of year 2022 2021 2020 $ $ 149 $ 28 177 $ 158 $ (9) 149 $ 152 6 158 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: (Dollars in millions) Unrecognized tax benefits balance at beginning of year $ 37 $ 54 $ 2022 2021 2020 Additions for tax positions of current year Additions for tax positions of prior years Reductions for tax positions of prior years Reductions for settlements of tax positions Reductions for lapses in statutes of limitations 6 1 — — (6) 8 — (3) (2) (20) Unrecognized tax benefits balance at end of year $ 38 $ 37 $ 49 8 3 (1) — (5) 54 Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the Consolidated Balance Sheet. If these benefits were recognized at each respective year end period, they would have reduced income tax expense in 2022, 2021 and 2020 by $30 million, $30 million and $43 million, respectively, net of the federal benefit from state income taxes.  TDS recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax expense (benefit). The amounts charged to income tax expense related to interest and penalties resulted in nominal expense in 2022, a benefit of $10 million in 2021, and an expense of $2 million in 2020. Net accrued liabilities for interest and penalties were $13 million at both December 31, 2022 and 2021, and are included in Other deferred liabilities and credits in the Consolidated Balance Sheet. TDS and its subsidiaries file federal and state income tax returns. With limited exceptions, TDS is no longer subject to federal and state income tax audits for the years prior to 2019. Note 6 Earnings Per Share Basic earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period. Diluted earnings (loss) per share attributable to TDS common shareholders is computed by dividing Net income (loss) attributable to TDS common shareholders by the weighted average number of Common Shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units. 53 The amounts used in computing basic and diluted earnings per share attributable to TDS common shareholders were as follows: Year Ended December 31, (Dollars and shares in millions, except per share amounts) 2022 2021 2020 Net income (loss) attributable to TDS common shareholders used in basic earnings (loss) per share $ (7) $ 117 $ 226 Adjustments to compute diluted earnings (loss): Noncontrolling interest adjustment (1) (1) (3) Net income (loss) attributable to TDS common shareholders used in diluted earnings (loss) per share $ (8) $ 116 $ 223 Weighted average number of shares used in basic earnings (loss) per share: Common Shares Series A Common Shares Total Effects of dilutive securities Weighted average number of shares used in diluted earnings (loss) per share 107 7 114 — 114 108 7 115 1 116 107 7 114 1 115 Basic earnings (loss) per share attributable to TDS common shareholders Diluted earnings (loss) per share attributable to TDS common shareholders $ $ (0.07) $ 1.03 $ 1.97 (0.07) $ 1.00 $ 1.93 Certain Common Shares issuable upon the exercise of stock options or vesting of performance and restricted stock units were not included in weighted average diluted shares outstanding for the calculation of Diluted earnings per share attributable to TDS common shareholders because their effects were antidilutive. The number of such Common Shares excluded was 5 million shares, 4 million shares and 5 million shares for 2022, 2021 and 2020, respectively.  Note 7 Intangible Assets Licenses TDS reviews opportunities to acquire additional wireless spectrum, including pursuant to FCC auctions. TDS also may seek to divest outright or exchange wireless spectrum that is not strategic to its long-term success. Prior to 2009, TDS accounted for UScellular’s share repurchases as step acquisitions, allocating a portion of the share repurchase value to TDS’ Licenses. Consequently, UScellular's Licenses on a stand-alone basis do not equal the TDS consolidated Licenses related to UScellular. Activity related to TDS' Licenses is presented below. (Dollars in millions) Balance at December 31, 2020 Acquisitions Transferred to Assets held for sale Capitalized interest Balance at December 31, 2021 Acquisitions Impairment1 Transferred to Assets held for sale Exchanges - Licenses received Capitalized interest Balance at December 31, 2022 UScellular TDS Telecom Total $ 2,633 $ 5 $ 1,464 (18) 13 4,092 595 (3) 1 1 8 — — — 5 — — — — — 2,638 1,464 (18) 13 4,097 595 (3) 1 1 8 $ 4,694 $ 5 $ 4,699 1 Impairment charge relates to licenses in markets where UScellular no longer expects to meet FCC buildout requirements. 54 Auction 107 In February 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107) for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular expects to be obligated to pay approximately $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. At December 31, 2022, the remaining estimated payments of approximately $133 million and $8 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, and at December 31, 2021, the remaining payments of approximately $17 million and $128 million are included in Other current liabilities and Other deferred liabilities and credits, respectively, in the Consolidated Balance Sheet. 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. Auction 110 In January 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110) for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in January and February 2022. The advance payment was included in Other assets and deferred charges in the December 31, 2021 Consolidated Balance Sheet. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022. Goodwill The Goodwill balance of TDS Telecom was $547 million at both December 31, 2022 and 2021, net of accumulated impairment losses of $29 million recorded in prior periods. Other intangible assets Activity related to TDS' Other intangible assets is presented below. December 31, 2022 December 31, 2021 Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount (Dollars in millions) Franchise rights $ 255 $ Customer lists Internet protocol addresses Other Total 26 34 1 (85) $ (25) (2) — 170 $ 255 $ 1 32 1 27 5 1 (68) $ (23) — — 187 4 5 1 $ 316 $ (112) $ 204 $ 288 $ (91) $ 197 Amortization expense for intangible assets was $21 million, $21 million and $26 million for the years ended December 31, 2022, 2021 and 2020, respectively. Based on the current balance of finite-lived intangible assets, the estimated amortization expense is $22 million, $19 million, $19 million, $19 million and $19 million for the years 2023 through 2027, respectively. Note 8 Investments in Unconsolidated Entities Investments in unconsolidated entities consist of amounts invested in entities in which TDS holds a noncontrolling interest. TDS' Investments in unconsolidated entities are accounted for using the equity method, measurement alternative method or net asset value practical expedient method as shown in the table below. The carrying value of measurement alternative method investments represents cost minus any impairments plus or minus any observable price changes. December 31, (Dollars in millions) Equity method investments: 2022 2021 Capital contributions, loans, advances and adjustments $ 115 $ Cumulative share of income Cumulative share of distributions Total equity method investments Measurement alternative method investments Investments recorded using the net asset value practical expedient Total investments in unconsolidated entities 55 2,615 (2,262) 468 18 9 $ 495 $ 115 2,460 (2,118) 457 22 — 479 The following tables, which are based on unaudited information provided in part by third parties, summarize the combined assets, liabilities and equity, and results of operations of TDS’ equity method investments: December 31, (Dollars in millions) Assets Current Noncurrent Total assets Liabilities and Equity Current liabilities Noncurrent liabilities Partners’ capital and shareholders’ equity Total liabilities and equity Year Ended December 31, (Dollars in millions) Results of Operations Revenues Operating expenses Operating income Other income (expense), net Net income 2022 2021 $ $ $ $ 1,106 $ 6,486 7,592 $ 767 $ 1,249 5,576 7,592 $ 1,257 6,189 7,446 710 1,260 5,476 7,446 2022 2021 2020 $ 7,303 $ 7,127 $ 5,684 1,619 (19) 5,152 1,975 14 $ 1,600 $ 1,989 $ 6,702 4,753 1,949 13 1,962 Note 9 Property, Plant and Equipment TDS’ Property, plant and equipment in service and under construction, and related accumulated depreciation and amortization, as of December 31, 2022 and 2021, were as follows: December 31, (Dollars in millions) Land Buildings Leasehold and land improvements Cable and wire Network and switching equipment Cell site equipment Office furniture and equipment Other operating assets and equipment System development Work in process Total property, plant and equipment, gross Accumulated depreciation and amortization Total property, plant and equipment, net Useful Lives (Years) 2022 2021 N/A 5-40 1-30 15-40 3-10 7-25 3-10 1-12 1-7 N/A $ 63 $ 532 1,538 2,609 2,706 4,248 296 200 2,070 709 14,971 (10,211) $ 4,760 $ 62 541 1,476 2,403 2,671 4,150 346 176 1,864 576 14,265 (9,904) 4,361 Depreciation and amortization expense totaled $882 million, $851 million and $862 million in 2022, 2021 and 2020, respectively. In 2022, 2021 and 2020, (Gain) loss on asset disposals, net included charges of $27 million, $26 million and $27 million, respectively, related to disposals of assets from service in the normal course of business. Note 10 Leases Lessee Agreements TDS’ most significant leases are for land and tower spaces, network facilities, retail spaces, and offices. Nearly all of TDS’ leases are classified as operating leases, although it does have a small number of finance leases. 56 TDS has agreements with both lease and nonlease components, which are accounted for separately. As part of the present value calculation for the lease liabilities, TDS uses an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on TDS' unsecured rates, adjusted to approximate the rates at which TDS would be required to borrow on a collateralized basis over a term similar to the recognized lease term. TDS applies the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. The cost of nonlease components in TDS’ lease portfolio (e.g., utilities and common area maintenance) are not typically predetermined at lease commencement and are expensed as incurred at their relative standalone price. Variable lease expense occurs when, subsequent to the lease commencement, lease payments are made that were not originally included in the lease liability calculation. TDS’ variable lease payments are primarily a result of leases with escalations that are tied to an index. The incremental changes due to the index changes are recorded as variable lease expense and are not included in the right- of-use assets or lease liabilities. The identified lease term determines the periods to which expense is allocated and is also utilized in the right-of-use asset and liability calculations. Many of TDS’ leases include renewal and early termination options. At lease commencement, the lease terms include options to extend the lease when TDS is reasonably certain that it will exercise the options. The lease terms do not include early termination options unless TDS is reasonably certain to exercise the options. TDS has applied the portfolio approach in cases where asset classes have similar lease characteristics including tower space, retail, and certain ground lease asset classes. The following table shows the components of lease cost included in the Consolidated Statement of Operations: Year Ended December 31, 2022 2021 2020 (Dollars in millions) Operating lease cost Variable lease cost Total $ $ 206 $ 12 218 $ 198 $ 10 208 $ The following table shows supplemental cash flow information related to lease activities: Year Ended December 31, (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Right-of-use assets obtained in exchange for lease obligations: Operating leases $ $ 2022 2021 2020 204 $ 204 $ 125 $ 188 $ 184 11 195 188 157 The table below shows a weighted-average analysis for lease terms and discount rates for operating leases: December 31, Weighted Average Remaining Lease Term Weighted Average Discount Rate The maturities of lease liabilities are as follows: (Dollars in millions) 2023 2024 2025 2026 2027 Thereafter Total lease payments1 Less: Imputed interest Present value of lease liabilities 2022 2021 12 years 3.9 % 12 years 3.8 % Operating Leases $ $ $ 182 178 150 116 94 681 1,401 347 1,054 1 Lease payments exclude $42 million of legally binding lease payments for leases signed but not yet commenced. 57 Lessor Agreements TDS’ most significant lessor leases are for tower space and colocation space. All of TDS’ lessor leases are classified as operating leases. A lease is generally present in a contract if the lessee controls the use of identified property, plant, or equipment for a period of time in exchange for consideration. TDS’ lessor agreements with lease and nonlease components are generally accounted for separately; however, certain service agreements with insignificant lease components are accounted for as nonlease transactions. The identified lease term determines the periods to which revenue is allocated over the term of the lease. Many of TDS’ leases include renewal and early termination options. At lease commencement, lease terms include options to extend the lease when TDS is reasonably certain that lessees will exercise the options. Lease terms would not include periods after the date of a termination option that lessees are reasonably certain to exercise. Variable lease income occurs when, subsequent to the lease commencement, lease payments are received that were not originally included in the lease receivable calculation. TDS’ variable lease income is primarily a result of leases with escalations that are tied to an index. The incremental increases due to the index changes are recorded as variable lease income. The following table shows the components of lease income which are included in Service revenues in the Consolidated Statement of Operations: Year Ended December 31, (Dollars in millions) Operating lease income 2022 2021 2020 $ 120 $ 109 $ 105 The maturities of expected lease payments to be received are as follows: (Dollars in millions) 2023 2024 2025 2026 2027 Thereafter Total future lease maturities Operating Leases $ $ 98 90 72 40 21 39 360 Note 11 Asset Retirement Obligations UScellular is subject to asset retirement obligations associated with its leased cell sites, switching office sites, retail store sites and office locations. Asset retirement obligations generally include obligations to restore leased land, towers, retail store and office premises to their pre-lease conditions. TDS Telecom owns poles, cable and wire and certain buildings and also leases office space and property used for housing central office switching equipment and fiber cable. These assets and leases often have removal or remediation requirements. For example, TDS Telecom’s poles, cable and wire are often located on property that is not owned by TDS Telecom and may be subject to the provisions of easements, permits, or leasing arrangements. Pursuant to these terms, TDS Telecom is often required to remove these assets and return the property to its original condition at a future date. Asset retirement obligations are included in Other deferred liabilities and credits in the Consolidated Balance Sheet.  In 2022 and 2021, UScellular and TDS Telecom performed a review of the assumptions and estimated future costs related to asset retirement obligations. The results of the reviews and other changes in asset retirement obligations during 2022 and 2021, were as follows: (Dollars in millions) Balance at beginning of year Additional liabilities accrued Revisions in estimated cash outflows Disposition of assets Accretion expense Balance at end of year 2022 2021 $ 469 $ 19 11 (1) 26 $ 524 $ 377 28 42 (1) 23 469 58 Note 12 Debt Revolving Credit Agreements At December 31, 2022, TDS and UScellular had revolving credit agreements available for general corporate purposes. Amounts under the revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in July 2026.  The following table summarizes the revolving credit agreements as of December 31, 2022: (Dollars in millions) Maximum borrowing capacity Letters of credit outstanding Amount borrowed Amount available for use TDS UScellular $ $ $ $ 400 $ 1 $ — $ 399 $ 300 — — 300 Borrowings under the TDS revolving credit agreement bear interest at a rate of London Inter-bank Offered Rate (LIBOR) plus 1.50%. Borrowings under the UScellular revolving credit agreement bear interest at a rate of Secured Overnight Financing Rate (SOFR) plus 1.60%. TDS and UScellular may select a borrowing period of either one, two, three or six months (or other period of twelve months or less if requested by TDS or UScellular and approved by the lenders). TDS’ and UScellular’s credit spread and commitment fees on their revolving credit 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.  During 2022, UScellular borrowed and repaid $75 million under its revolving credit agreement. Term Loan Agreements At December 31, 2022, TDS and UScellular had senior term loan credit agreements available for general corporate purposes. The following tables summarizes the term loan credit agreements as of December 31, 2022: TDS: (Dollars in millions) Maximum borrowing capacity Amount borrowed and outstanding Amount borrowed and repaid Amount available for use Interest rate Maturity date Quarterly installments UScellular: (Dollars in millions) Maximum borrowing capacity Amount borrowed and outstanding Amount borrowed and repaid Amount available for use Interest rate Maturity date Quarterly installments Term Loan 1 Term Loan 2 Total $ $ $ $ 200 $ 198 $ 2 $ — $ 300 $ 299 $ 1 $ — $ 500 497 3 — LIBOR plus 2.00% LIBOR plus 2.50% July 2028 July 2031 $0.5 million from December 2021 to maturity date $0.75 million from December 2022 to September 2026; $2 million from December 2026 to maturity date Term Loan 1 Term Loan 2 Term Loan 3 Total $ $ $ $ 300 $ 300 $ — $ — $ 300 $ 296 $ 4 $ — $ 200 $ 200 $ — $ — $ 800 796 4 — SOFR plus 1.60% SOFR plus 2.10% SOFR plus 2.60% July 2026 July 2028 July 2031 $2 million from March 2023 to December 2023; $4 million from March 2024 to December 2025; $8 million from March 2026 to maturity date 59 $0.75 million from December 2021 to maturity date $0.5 million from December 2022 to September 2026; $1 million from December 2026 to maturity date In 2022, TDS borrowed $300 million and UScellular borrowed $500 million under the term loan agreements. 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. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable on the five-year anniversary of the first borrowing, which is in 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. Borrowings bear interest at a rate of SOFR plus 1.60% and are due and payable on the five-year anniversary of the first borrowing, which is in January 2027. During 2022, UScellular borrowed $150 million, which is the full amount available under the agreement. Receivables Securitization Agreement At December 31, 2022, UScellular, through its subsidiaries, had a $450 million receivables securitization agreement for securitized borrowings using its equipment installment receivables for general corporate purposes. Amounts under the receivables securitization agreement may be borrowed, repaid and reborrowed from time to time until maturity in March 2024. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in April 2024. The outstanding borrowings bear interest at floating rates. 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 under the agreement was $175 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement. As of December 31, 2022, the USCC Master Note Trust held $447 million of assets pledged as collateral for the receivables securitization agreement. In connection with entering into the receivables securitization agreement in 2017, UScellular formed a wholly-owned subsidiary, USCC Master Note Trust (Trust), which qualifies as a bankruptcy remote entity. Under the terms of the agreement, UScellular, through its subsidiaries, transfers eligible equipment installment receivables to the Trust. The Trust then utilizes the transferred assets as collateral for notes payables issued to third party financial institutions. Since UScellular retains effective control of the transferred assets in the Trust, any activity associated with this receivables securitization agreement will be treated as a secured borrowing. Therefore, TDS will continue to report equipment installment receivables and any related balances on the Consolidated Balance Sheet. Cash received from borrowings under the receivables securitization agreement will be reported as Debt. Refer to Note 15 — Variable Interest Entities for additional information. 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 form involves the sale of receivables by the repo subsidiary and the commitment to repurchase at the end of the applicable repurchase term, which may extend up to one month. The transaction is accounted for as a one-month secured borrowing. The outstanding borrowings bear interest at a rate of SOFR plus 1.25%. Although the lender holds a security interest in the receivables, the repo subsidiary retains effective control and collection risk of the receivables, and therefore, any activity associated with the repurchase agreement will be treated as a secured borrowing. UScellular will continue to report equipment installment plan receivables and any related balances on the Consolidated Balance Sheet. 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. The outstanding borrowings are included in Other current liabilities in the December 31, 2022 Consolidated Balance Sheet. As of December 31, 2022 UScellular held $524 million of assets available for inclusion in the repurchase facility; these assets are distinct from the assets held by the USCC Master Note Trust for UScellular's receivables securitization agreement. In 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. 60 Financial Covenants and Other 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. In connection with UScellular’s revolving credit agreements, UScellular term loan agreements and the UScellular export credit financing agreement TDS and UScellular entered into subordination agreements together with the administrative agents for the lenders under each agreement. Pursuant to these subordination agreements, (a) any consolidated funded indebtedness from UScellular to TDS will be unsecured and (b) any (i) consolidated funded indebtedness from UScellular to TDS (other than “refinancing indebtedness” as defined in the subordination agreements) in excess of $105 million and (ii) refinancing indebtedness in excess of $250 million will be subordinated and made junior in right of payment to the prior payment in full of obligations to the lenders under each agreement. As of December 31, 2022, UScellular had no outstanding consolidated funded indebtedness or refinancing indebtedness that was subordinated to each agreement pursuant to the subordination agreements. Certain TDS and UScellular wholly-owned subsidiaries have jointly and severally unconditionally guaranteed the payment and performance of the obligations of TDS and UScellular under the revolving credit agreements, term loan agreements and export credit agreements. Other subsidiaries that meet certain criteria will be required to provide a similar guaranty in the future. UScellular entered into a performance guaranty whereby UScellular guarantees the performance of certain wholly-owned subsidiaries under the receivables securitization agreement and repurchase agreement. Other Long-Term Debt Long-term debt as of December 31, 2022 and 2021, was as follows: Issuance date Maturity date Call date (any time on or after) Principal Amount December 31, 2022 December 31, 2021 Less Unamortized discount and debt issuance costs Less Unamortized discount and debt issuance costs Total Total Principal Amount (Dollars in millions) UScellular Unsecured Senior Notes Dec 2003 and Dec 2003 and June 2004 Dec 2033 June 2004 $ 544 $ 11 $ 533 $ 544 $ 12 $ 532 6.70% 6.25% 5.50% 5.50% Aug 2020 Sep 2069 Sep 2025 Dec 2020 Mar 2070 Mar 2026 May 2021 Jun 2070 Jun 2026 UScellular Term Loans TDS Term Loans EIP Securitization TDS Export Credit Financing UScellular Export Credit Financing Finance lease obligations Other long-term notes Total long-term debt Long-term debt, current Long-term debt, noncurrent 500 500 500 796 497 275 50 150 7 3 17 17 16 6 4 — — 1 — — 483 483 484 790 493 275 50 149 7 3 500 500 500 299 200 450 — — 7 1 17 17 16 3 2 — — — — — 483 483 484 296 198 450 — — 7 1 $ 3,822 $ 72 $ 3,750 $ 3,001 $ 67 $ 2,934 $ $ 19 3,731 $ $ 6 2,928 In 2021, TDS redeemed $836 million of outstanding Senior Notes and UScellular redeemed $917 million of outstanding Senior Notes. At time of redemption, $57 million of interest expense was recorded related to unamortized debt issuance costs for the notes. The notes were redeemed at a price of 100% of the principal amount, including accrued and unpaid interest to the redemption date. 61 UScellular may redeem its 6.25% Senior Notes, 5.5% March 2070 Senior Notes and 5.5% June 2070 Senior Notes, in whole or in part at any time after the respective call date, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest. UScellular may redeem the 6.7% Senior Notes, in whole or in part, at any time prior to maturity at a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus accrued and unpaid interest, or (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 30 basis points. Interest on the Senior Notes outstanding at December 31, 2022, is payable quarterly, with the exception of UScellular's 6.7% Senior Notes for which interest is payable semi-annually.  The annual requirements for principal payments on long-term debt are approximately $19 million, $26 million, $26 million, $275 million and $218 million for the years 2023 through 2027, respectively. These amounts do not include payments on the $275 million of outstanding borrowings under the receivables securitization agreement. If the maturity date of the facility is not extended, principal repayments begin in April 2024. Principal repayments are not scheduled but are instead based on actual receivable collections. The covenants associated with TDS and its subsidiaries’ long-term debt obligations, among other things, restrict TDS’ ability, subject to certain exclusions, to incur additional liens, enter into sale and leaseback transactions, and sell, consolidate or merge assets. UScellular’s long-term debt notes do not contain any provisions resulting in acceleration of the maturities of outstanding debt in the event of a change in UScellular’s credit rating. Note 13 Employee Benefit Plans Defined Contribution Plans TDS sponsors a qualified noncontributory defined contribution pension plan. The plan provides benefits for certain employees of TDS Corporate, TDS Telecom and UScellular. Under this plan, pension costs are calculated separately for each participant and are funded annually. Total pension costs were $17 million, $16 million and $16 million in 2022, 2021 and 2020, respectively. In addition, TDS sponsors a defined contribution retirement savings plan (401(k) plan). Total costs incurred from TDS’ contributions to the 401(k) plan were $28 million, $27 million and $27 million in 2022, 2021 and 2020, respectively. TDS also sponsors an unfunded nonqualified deferred supplemental executive retirement plan for certain employees to offset the reduction of benefits caused by the limitation on annual employee compensation under the tax laws. Other Post-Retirement Benefits TDS sponsors a defined benefit post-retirement plan that provides medical benefits to retirees and that covers certain employees of TDS Corporate and TDS Telecom, which is not significant to TDS’ financial position or operating results. The plan is contributory, with retiree contributions adjusted annually. TDS recognizes the funded status of the plan as a component of Other assets and deferred charges in the Consolidated Balance Sheet as of December 31, 2022 and 2021. Changes in the funded status are included in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheet before affecting such amounts for income taxes to the extent that such changes are not recognized in earnings as a component of net periodic benefit cost.  The post-retirement benefit fund invests mainly in mutual funds that hold U.S. equities, international equities, and debt securities. The post-retirement benefit fund does not hold any debt or equity securities issued by TDS, UScellular or any related parties. The fair value of the plan assets of the post-retirement benefit fund was $66 million and $77 million as of December 31, 2022 and 2021, respectively. The total plan benefit obligations were $44 million and $54 million as of December 31, 2022 and 2021, respectively. Therefore, the total funded status was an asset of $22 million and $23 million as of December 31, 2022 and 2021, respectively. TDS is not required to set aside current funds for its future retiree health insurance benefits. The decision to contribute to the plan assets is based upon several factors, including the funded status of the plan, market conditions, alternative investment opportunities, tax benefits and other circumstances. In accordance with applicable income tax regulations, annual contributions to fund the costs of future retiree medical benefits may not exceed certain thresholds. TDS has not determined whether it will make a contribution to the plan in 2023. Note 14 Commitments and Contingencies Indemnifications TDS enters into agreements in the normal course of business that provide for indemnification of counterparties. The terms of the indemnifications vary by agreement. The events or circumstances that would require TDS to perform under these indemnities are transaction specific; however, these agreements may require TDS to indemnify the counterparty for costs and losses incurred from litigation or claims arising from the underlying transaction. TDS is unable to estimate the maximum potential liability for these types of indemnifications as the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, TDS has not made any significant indemnification payments under such agreements. 62 Legal Proceedings TDS is involved or may be involved from time to time in legal proceedings before the FCC, other regulatory authorities, and/or various state and federal courts. If TDS believes that a loss arising from such legal proceedings is probable and can be reasonably estimated, an amount is accrued in the financial statements for the estimated loss. If only a range of loss can be determined, the best estimate within that range is accrued; if none of the estimates within that range is better than another, the low end of the range is accrued. The assessment of the expected outcomes of legal proceedings is a highly subjective process that requires judgments about future events. The legal proceedings are reviewed at least quarterly to determine the adequacy of accruals and related financial statement disclosures. The ultimate outcomes of legal proceedings could differ materially from amounts accrued in the financial statements. TDS had no significant accruals with respect to legal proceedings and unasserted claims as of December 31, 2022 and 2021. TDS is unable to estimate any contingent loss in excess of the amounts accrued. In April 2018, the United States Department of Justice (DOJ) notified TDS that it was conducting inquiries of UScellular and TDS under the federal False Claims Act relating to UScellular’s participation in wireless spectrum license auctions 58, 66, 73 and 97 conducted by the FCC. UScellular is/was a limited partner in several limited partnerships which qualified for the 25% bid credit in each auction. The investigation arose from civil actions under the Federal False Claims Act brought by private parties in the U.S. District Court for the Western District of Oklahoma. In November and December 2019, following the DOJ’s investigation, the DOJ informed TDS and UScellular that it would not intervene in the above-referenced actions. Subsequently, the private party plaintiffs filed amended complaints in both actions in the U.S. District Court for the Western District of Oklahoma and are continuing the action on their own. In July 2020, these actions were transferred to the U.S. District Court for the District of Columbia. TDS and UScellular believe that UScellular’s arrangements with the limited partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and FCC rules. At this time, TDS cannot predict the outcome of any proceeding. Note 15 Variable Interest Entities Consolidated VIEs TDS consolidates VIEs in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary. TDS reviews the criteria for a controlling financial interest at the time it enters into agreements and subsequently when events warranting reconsideration occur. These VIEs have risks similar to those described in the “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2022. UScellular formed USCC EIP LLC (Seller/Sub-Servicer), USCC Receivables Funding LLC (Transferor) and the Trust, collectively the special purpose entities (SPEs), to facilitate a securitized borrowing using its equipment installment plan receivables. Under a Receivables Sale Agreement, UScellular wholly-owned, majority-owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment plan contracts to the Seller/Sub-Servicer. The Seller/Sub-Servicer aggregates device equipment installment plan contracts, and performs servicing, collection and all other administrative activities related to accounting for the equipment installment plan contracts. The Seller/Sub-Servicer sells the eligible equipment installment plan receivables to the Transferor, a bankruptcy remote entity, which subsequently sells the receivables to the Trust. The Trust, which is bankruptcy remote and isolated from the creditors of UScellular, will be responsible for issuing asset-backed variable funding notes (Notes), which are collateralized by the equipment installment plan receivables owned by the Trust. Given that UScellular has the power to direct the activities of these SPEs, and that these SPEs lack sufficient equity to finance their activities, UScellular is deemed to have a controlling financial interest in the SPEs and, therefore, consolidates them. All transactions with third parties (e.g., issuance of the asset-backed variable funding notes) will be accounted for as a secured borrowing due to the pledging of equipment installment plan contracts as collateral, significant continuing involvement in the transferred assets, subordinated interests of the cash flows, and continued evidence of control of the receivables. Refer to Note 12 — Debt, Receivables Securitization Agreement for additional details regarding the securitization agreement for which these entities were established.     The following VIEs were formed to participate in FCC auctions of wireless spectrum licenses and to fund, establish, and provide wireless service with respect to any FCC wireless spectrum licenses won in the auctions: ▪ ▪ Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; and King Street Wireless, L.P. (King Street Wireless) and King Street Wireless, Inc., the general partner of King Street Wireless. These particular VIEs are collectively referred to as designated entities. The power to direct the activities that most significantly impact the economic performance of these VIEs is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships. The general partner of each partnership needs the consent of the limited partner, an indirect TDS subsidiary, to sell or lease certain wireless spectrum licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships. Although the power to direct the activities of these VIEs is shared, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs. Therefore, in accordance with GAAP, these VIEs are consolidated. 63 TDS also consolidates other VIEs that are limited partnerships that provide wireless service. A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partner. For certain limited partnerships, UScellular is the general partner and manages the operations. In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner. Therefore, these limited partnerships also are recognized as VIEs and are consolidated under the variable interest model. The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in TDS’ Consolidated Balance Sheet. December 31, (Dollars in millions) Assets Cash and cash equivalents Accounts receivable Inventory, net Other current assets Licenses Property, plant and equipment, net Operating lease right-of-use assets Other assets and deferred charges Total assets Liabilities Current liabilities Long-term operating lease liabilities Other deferred liabilities and credits Total liabilities1 2022 2021 $ 29 $ 700 4 36 638 115 41 478 22 692 2 44 637 108 42 382 $ 2,041 $ 1,929 $ $ 92 $ 36 28 156 $ 28 37 23 88 1 Total liabilities does not include amounts borrowed under the receivables securitization agreement. See Note 12 — Debt for additional information. Unconsolidated VIEs TDS manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model. TDS’ total investment in these unconsolidated entities was $4 million at both December 31, 2022 and 2021, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet. The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities. Other Related Matters TDS made contributions, loans or advances to its VIEs totaling $282 million, $36 million and $111 million during 2022, 2021 and 2020, respectively; of which $249 million in 2022 and $83 million in 2020 are related to USCC EIP LLC as discussed above. TDS may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of wireless spectrum licenses granted in various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit or receivables securitization agreements and/or other long- term debt. There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support. The limited partnership agreement of Advantage Spectrum also provides the general partner with a put option whereby the general partner may require the limited partner, a subsidiary of UScellular, to purchase its interest in the limited partnership. In June 2022, the limited partnership agreement was amended and the general partner’s put option related to its interest in Advantage Spectrum will now be exercisable in the third quarter of 2023, and if not exercised at that time, will be exercisable in the third quarter of 2024. The greater of the carrying value of the general partner's investment or the value of the put option, net of any borrowings due to TDS, is recorded as Noncontrolling interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP, minority share of income or changes in the redemption value of the put option, net of interest accrued on the loans, are recorded as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated Statement of Operations. 64 Note 16 Noncontrolling Interests The following schedule discloses the effects of Net income attributable to TDS shareholders and changes in TDS’ ownership interest in UScellular on TDS’ equity: Year Ended December 31, 2020 2022 2021 (Dollars in millions) Net income attributable to TDS shareholders Transfers (to) from noncontrolling interests $ 62 $ 156 $ 226 Change in TDS’ Capital in excess of par value from UScellular's issuance of UScellular shares Change in TDS’ Capital in excess of par value from UScellular’s repurchases of UScellular shares Purchase of ownership in subsidiaries from noncontrolling interests Net transfers (to) from noncontrolling interests Net income attributable to TDS shareholders after transfers (to) from noncontrolling interests (19) 35 — 16 (49) 17 — (32) (38) 14 (9) (33) $ 78 $ 124 $ 193 Mandatorily Redeemable Noncontrolling Interests in Finite-Lived Subsidiaries TDS’ consolidated financial statements include certain noncontrolling interests that meet the GAAP definition of mandatorily redeemable financial instruments. These mandatorily redeemable noncontrolling interests represent interests held by third parties in consolidated partnerships, where the terms of the underlying partnership agreement provide for a defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be extinguished and the remaining net proceeds are to be distributed to the noncontrolling interest holders and TDS in accordance with the respective partnership agreements. The termination dates of these mandatorily redeemable noncontrolling interests range from 2085 to 2092. The estimated aggregate amount that would be due and payable to settle all of these noncontrolling interests, assuming an orderly liquidation of the finite-lived consolidated partnerships on December 31, 2022, net of estimated liquidation costs, is $20 million. This amount excludes redemption amounts recorded in Noncontrolling interests with redemption features in the Consolidated Balance Sheet. The estimate of settlement value was based on certain factors and assumptions which are subjective in nature. Changes in those factors and assumptions could result in a materially larger or smaller settlement amount. The corresponding carrying value of the mandatorily redeemable noncontrolling interests in finite-lived consolidated partnerships at December 31, 2022, was $6 million, and is included in Noncontrolling interests in the Consolidated Balance Sheet. The excess of the aggregate settlement value over the aggregate carrying value of these mandatorily redeemable noncontrolling interests is due primarily to the unrecognized appreciation of the noncontrolling interest holders’ share of the underlying net assets in the consolidated partnerships. Neither the noncontrolling interest holders’ share, nor TDS’ share, of the appreciation of the underlying net assets of these subsidiaries is reflected in the consolidated financial statements. Note 17 Shareholders’ Equity Common Stock Series A Common Shares are convertible on a share-for-share basis into Common Shares. In matters other than the election of directors, each Series A Common Share is entitled to ten votes per share, compared to one vote for each Common Share. The Series A Common Shares are entitled to elect eight directors, and the Common Shares elect four. TDS has reserved 7,411,000 Common Shares at December 31, 2022, for possible issuance upon conversion of Series A Common Shares. On August 2, 2013, the Board of Directors of TDS authorized a $250 million stock repurchase program for the purchase of TDS Common Shares from time to time pursuant to open market purchases, block transactions, private purchases or otherwise, depending on market conditions. This authorization does not have an expiration date. As of December 31, 2022, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS' program was $138 million. In November 2009, UScellular announced by Form 8-K that the Board of Directors of UScellular authorized the repurchase of up to 1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis. In December 2016, the UScellular Board amended this authorization to provide that, beginning on January 1, 2017, the authorized repurchase amount with respect to a particular year will be any amount from zero to 1,300,000 Common Shares, as determined by the Pricing Committee of the Board of Directors, and that if the Pricing Committee did not specify an amount for any year, such amount would be zero for such year. The Pricing Committee has not specified any increase in the authorization since that time. The Pricing Committee also was authorized to decrease the cumulative amount of the authorization at any time, but has not taken any action to do so at this time. As of December 31, 2022, the total cumulative amount of Common Shares authorized to be purchased is 1,927,000. The authorization provides that share repurchases will be made pursuant to open market purchases, block purchases, private purchases, or otherwise, depending on market prices and other conditions. This authorization does not have an expiration date. 65 Preferred Stock In March 2021, TDS issued 16,800 shares of TDS’ 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock (Preferred Shares) for $25,000 per Preferred Share, for total gross proceeds of $420 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 16,800,000 depositary shares (Depositary Shares), each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $406 million after payment of issuance costs of $14 million. The proceeds were for general corporate purposes, including but not limited to, the funding of capital expenditures associated with TDS Telecom's fiber program and retirement of existing debt. In August 2021, TDS issued 27,600 shares of TDS’ 6.000% Series VV Preferred Shares for $25,000 per Preferred Share, for total gross proceeds of $690 million. The Preferred Shares were issued to a depositary to facilitate the issuance of 27,600,000 Depositary Shares, each representing 1/1,000th of a Preferred Share. TDS received net cash proceeds of $668 million after payment of issuance costs of $22 million. The proceeds were for general corporate purposes, including but not limited to, the funding of capital expenditures associated with TDS Telecom's fiber program and retirement of existing debt. Each holder of Depositary Shares is entitled to a proportional fractional interest in all rights and preferences of the Preferred Shares, including dividend, voting, redemption and liquidation rights. The Preferred Shares have no maturity or mandatory redemption date and are not redeemable at the option of the holders. Dividends on the Preferred Shares, when declared, are payable quarterly at a rate equal to 6.625% per year for the Series UU Preferred Shares and 6.000% for the Series VV Preferred Shares. As of December 31, 2022, there were no dividends in arrears. The Preferred Shares rank senior to TDS’ Common Shares and junior to all of TDS’ existing and future indebtedness outstanding under TDS’ credit facilities and unsecured senior notes. The Series VV Preferred Shares rank on parity with the Series UU Preferred Shares. Upon voluntary or involuntary liquidation, holders of Preferred Shares are entitled to a liquidating distribution of $25,000 per Preferred Share after satisfaction of liabilities and obligations to creditors. The Preferred Shares have voting rights only if certain limited conditions are met. TDS may, at its option, redeem the Series UU Preferred Shares (a) in whole or in part, on or after March 31, 2026 at a redemption price of $25,000 per Preferred Share, or (b) in whole but not in part, any time prior to March 31, 2026, within 120 days after a credit rating downgrade as specified in the offering prospectus, at a redemption price of $25,500 per Preferred Share, or (c) in whole or in part, within 120 days of the occurrence of a change in control as specified in the offering prospectus, at a redemption price of $25,000 per Preferred Share, plus, in each case, all accumulated and unpaid dividends (whether or not declared) up to the redemption date. TDS may, at its option, redeem the Series VV Preferred Shares (a) in whole or in part, on or after September 30, 2026 at a redemption price of $25,000 per Preferred Share, or (b) in whole but not in part, any time prior to September 30, 2026, within 120 days after a credit rating downgrade as specified in the offering prospectus, at a redemption price of $25,500 per Preferred Share, or (c) in whole or in part, within 120 days of the occurrence of a change in control as specified in the offering prospectus, at a redemption price of $25,000 per Preferred Share, plus, in each case, all accumulated and unpaid dividends (whether or not declared) up to the redemption date. The Preferred Shares are convertible, at the option of the holder, to shares of TDS Common Shares upon a change of control as specified in the offering prospectus. The conversion right is the lesser of (a) Common Shares equal to $25,000 per Preferred Share plus any accumulated and unpaid dividends, divided by the TDS Common Stock price, or (b) 2,773.200 Common Shares for each Series UU Preferred Share and 2,584.000 Common Shares for each Series VV Preferred Share, which represents one-half the conversion rate at the time of closing. In both cases, certain other adjustments and provisions may impact the conversion. Tax-Deferred Savings Plan At December 31, 2022, TDS has reserved 988,000 Common Shares for issuance under the TDS Tax-Deferred Savings Plan, a qualified profit-sharing plan pursuant to Sections 401(a) and 401(k) of the Internal Revenue Code. Participating employees have the option of investing their contributions and TDS’ contributions in a TDS Common Share fund, a UScellular Common Share fund or certain unaffiliated funds. 66 Note 18 Stock-Based Compensation TDS Consolidated The following table summarizes stock-based compensation expense recognized during 2022, 2021 and 2020: Year Ended December 31, (Dollars in millions) Stock option awards Restricted stock unit awards Performance share unit awards Deferred compensation bonus and matching stock unit awards Awards under Non-Employee Director compensation plan Total stock-based compensation, before income taxes Income tax benefit 2022 2021 2020 $ 1 $ 2 $ 28 11 — 2 42 (11) 29 16 — 2 49 (12) Total stock-based compensation expense, net of income taxes $ 31 $ 37 $ 3 30 17 1 2 53 (13) 40 At December 31, 2022, unrecognized compensation cost for all stock-based compensation awards was $54 million and is expected to be recognized over a weighted average period of 1.9 years. The following table provides a summary of the classification of stock-based compensation expense included in the Consolidated Statement of Operations for the years ended: December 31, (Dollars in millions) Selling, general and administrative expense Cost of services expense Total stock-based compensation expense 2022 2021 2020 $ $ 36 $ 6 42 $ 44 $ 5 49 $ 48 5 53 TDS’ tax benefits realized from the exercise of stock options and the vesting of other awards totaled $7 million in 2022. TDS (Excluding UScellular) The information in this section relates to stock-based compensation plans using the equity instruments of TDS. Participants in these plans are employees of TDS Corporate and TDS Telecom and Non-employee Directors of TDS. Information related to plans using the equity instruments of UScellular are shown in the UScellular section following the TDS section. Under the TDS Long-Term Incentive Plans, TDS may grant fixed and performance-based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit awards to key employees. TDS had reserved 20,700,000 Common Shares at December 31, 2022, for equity awards granted and to be granted under the TDS Long-Term Incentive Plans in effect. At December 31, 2022, the only types of awards outstanding are fixed non-qualified stock option awards, restricted stock unit awards, performance share awards and deferred compensation stock unit awards. TDS has also established a Non-Employee Directors’ compensation plan under which it has reserved 81,000 TDS Common Shares at December 31, 2022, for issuance as compensation to members of the Board of Directors who are not employees of TDS. TDS uses treasury stock to satisfy requirements for shares issued pursuant to its various stock-based compensation plans. Long-Term Incentive Plans – Restricted Stock Units TDS grants restricted stock unit awards to key employees. Each outstanding restricted stock unit is convertible into one Common Share Award. The restricted stock unit awards currently outstanding were granted in 2020, 2021 and 2022 and will vest in 2023, 2024 and 2025, respectively. TDS estimates the fair value of restricted stock units by reducing the grant-date price of TDS’ shares by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at the appropriate risk-free interest rate, since employees are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. The fair value is then recognized as compensation cost on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.  67 A summary of TDS nonvested restricted stock units and changes during 2022 is presented in the table below: Common Restricted Stock Units Nonvested at December 31, 2021 Granted Vested Forfeited Nonvested at December 31, 2022 Number Weighted Average Grant Date Fair Value 1,592,000 $ 784,000 $ (411,000) $ (141,000) $ 1,824,000 $ 22.25 15.34 27.91 20.23 18.16 The total fair values as of the respective vesting dates of restricted stock units vested during 2022, 2021 and 2020 were $7 million, $11 million and $7 million, respectively. The weighted average grant date fair value per share of the restricted stock units granted in 2022, 2021 and 2020 was $15.34, $23.34 and $17.19, respectively. Long-Term Incentive Plans – Performance Share Units Beginning in 2016, TDS granted performance share units to certain TDS executive officers, and beginning in 2019, to certain key TDS Corporate and TDS Telecom employees. Each recipient may be entitled to shares of TDS common stock equal to 0% to 200% of a communicated target award depending on the achievement of predetermined performance-based and market-based operating targets over three years. Performance-based operating targets for the TDS awards include Total Revenue and Return on Capital. Market- based operating targets are measured against TDS’ total shareholder return relative to a defined peer group. Performance-based operating targets for the TDS Telecom employees' awards include Total Revenue, Return on Capital and Adjusted EBITDA. Performance shares accumulate dividend equivalents, which are forfeitable if the performance metrics are not achieved. If the predetermined performance-based and market-based operating targets are met, the units granted in 2020, 2021 and 2022 will vest in 2023, 2024 and 2025, respectively. TDS estimates fair value of performance-based operating targets using TDS’ closing stock price on the date of grant. An estimate of the number of performance units expected to vest based upon achieving the performance-based operating targets is made and the fair value is expensed on a straight-line basis over the requisite service period. Each reporting period these estimates are reviewed and stock compensation expense is adjusted accordingly to reflect the new estimates of total units expected to vest. If any part of the performance share units do not vest as a result of the established performance-based operating targets not being achieved, the related stock compensation expense is reversed. TDS estimates the market-based operating target’s fair value using an internally developed valuation model. This estimated fair value approximated TDS’ closing stock price at the date of grant for market-based share units granted in 2022, 2021 and 2020. This market- based operating target value determined at the date of grant is expensed on a straight-line basis over the requisite service period and the stock compensation expense is not adjusted during the performance period for the subsequent changes in the value of the market- based unit awards and will not be reversed even if the market-based operating target is not achieved. A summary of TDS nonvested performance share units and changes during 2022 is presented in the table below: Common Performance Share Units Nonvested at December 31, 2021 Granted Vested Change in units based on approved performance factors Forfeited Accumulated dividend equivalents Nonvested at December 31, 2022 Number Weighted Average Grant Date Fair Value 1,085,000 $ 522,000 $ (227,000) $ 63,000 $ (156,000) $ 62,000 $ 1,349,000 $ 23.46 17.42 30.72 30.72 25.79 20.00 19.81 The total fair value of performance share units that vested during 2022, 2021 and 2020 was $5 million, $3 million and $2 million, respectively. The weighted average grant date fair value per share of the performance share units granted in 2022, 2021 and 2020 was $17.42, $25.36 and $19.15, respectively. 68 Long-Term Incentive Plan – Stock Options TDS' last stock option grant occurred in 2021. Stock options granted to key employees are exercisable over a specified period not in excess of ten years. Stock options generally vest over periods up to three years from the date of grant. Stock options outstanding at December 31, 2022, expire between 2023 and 2031. However, vested stock options typically expire 30 days after the effective date of an employee’s termination of employment for reasons other than retirement. Employees who leave at the age of retirement have 90 days (or one year if they satisfy certain requirements) within which to exercise their vested stock options. The exercise price of options equals the market value of TDS common stock on the date of grant. TDS estimated the fair value of stock options granted in 2021 and 2020 using the Black-Scholes valuation model and the assumptions shown in the table below: Expected life Expected annual volatility rate Dividend yield Risk-free interest rate 2021 2020 6.3 years 6.2 years 36.6 % 2.8 % 1.1 % 35.0 % 3.6 % 0.5 % Pre-vesting forfeitures and expected life are estimated based on historical experience related to similar awards, giving considerations to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. TDS believes that its historical experience provides the best estimates of future pre-vesting forfeitures and future expected life. The expected volatility assumption is based on historical volatility of TDS’ common stock over a period commensurate with the expected life. The dividend yield assumption is equal to the dividends declared in the most recent year as a percentage of the share price on the date of grant. The risk-free interest rate assumption is determined using the U.S. Treasury Yield Curve Rate with a term length that approximates the expected life of the stock options. A summary of TDS stock options (total and portion exercisable) and changes during 2022 is presented in the tables and narrative below. Common Share Options Outstanding at December 31, 2021 Exercised Forfeited Expired Outstanding at December 31, 2022 (2,539,000 exercisable) Number of Options Weighted Average Exercise Prices Aggregate Intrinsic Value (in millions) Weighted Average Remaining Contractual Life (in years) 4,088,000 $ (1,000) $ (86,000) $ (903,000) $ 3,098,000 $ $ 25.50 19.15 22.42 22.82 26.37 $ 27.34 $ — — 4.2 3.3 The weighted average grant date fair value per share of the TDS stock options granted in 2021 and 2020 was $6.86 and $4.24, respectively. TDS did not grant options in 2022. The aggregate intrinsic value of TDS stock options exercised in 2022 and 2021 was less than $1 million. There were no TDS stock options exercised in 2020. The aggregate intrinsic value at December 31, 2022, presented in the table above represents the total pre-tax intrinsic value (the difference between TDS’ closing stock prices and the exercise price, multiplied by the number of in-the-money options) that would have been received by option holders had all options been exercised on December 31, 2022. Long-Term Incentive Plans – Deferred Compensation Stock Units Certain TDS employees may elect to defer receipt of all or a portion of their annual bonuses and to receive a company matching contribution on the amount deferred. All bonus compensation that is deferred by employees electing to participate is immediately vested and is deemed to be invested in TDS Common Share units. The amount of TDS’ matching contribution depends on the portion of the annual bonus that is deferred. Participants receive a 25% stock unit match for amounts deferred up to 50% of their total annual bonus and a 33% match for amounts that exceed 50% of their total annual bonus; such matching contributions also are deemed to be invested in TDS Common Share units and vest over three years. Compensation of Non-Employee Directors TDS issued 51,000, 50,000 and 43,000 Common Shares under its Non-Employee Director plan in 2022, 2021 and 2020, respectively. 69 Dividend Reinvestment Plans TDS had reserved 2,234,000 Common Shares at December 31, 2022, for issuance under Automatic Dividend Reinvestment and Stock Purchase Plans and 198,000 Series A Common Shares for issuance under the Series A Common Share Automatic Dividend Reinvestment Plan. These plans enabled holders of TDS’ Common Shares to reinvest cash dividends in Common Shares and holders of Series A Common Shares to reinvest cash dividends in Series A Common Shares. The purchase price of the shares is 95% of the market value, based on the average of the daily high and low sales prices for TDS’ Common Shares on the New York Stock Exchange for the ten trading days preceding the date on which the purchase is made. These plans are considered non-compensatory plans; therefore, no compensation expense is recognized for stock issued under these plans. UScellular The information in this section relates to stock-based compensation plans using the equity instruments of UScellular. Participants in these plans are employees of UScellular and Non-employee Directors of UScellular. Information related to plans using the equity instruments of TDS are shown in the previous section. UScellular has established the following stock-based compensation plans: Long-Term Incentive Plans and a Non-Employee Director compensation plan. Under the UScellular Long-Term Incentive Plans, UScellular may grant fixed and performance-based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit awards to key employees. At December 31, 2022, the only types of awards outstanding are fixed non-qualified stock option awards, restricted stock unit awards, performance share awards and deferred compensation stock unit awards. Under the Non-Employee Director compensation plan, UScellular may grant Common Shares to members of the Board of Directors who are not employees of UScellular or TDS. At December 31, 2022, UScellular had reserved 18,037,000 Common Shares for equity awards granted and to be granted under the Long-Term Incentive Plans and 62,000 Common Shares for issuance under the Non-Employee Director compensation plan. UScellular uses treasury stock to satisfy requirements for Common Shares issued pursuant to its various stock-based compensation plans. Long-Term Incentive Plans – Restricted Stock Units Restricted stock unit awards granted to key employees generally vest after three years. The restricted stock unit awards currently outstanding were granted in 2020, 2021 and 2022 and will vest in 2023, 2024 and 2025, respectively. UScellular estimates the fair value of restricted stock units based on the closing market price of UScellular shares on the date of grant. The fair value is then recognized as compensation cost on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. A summary of UScellular nonvested restricted stock units and changes during 2022 is presented in the table below: Common Restricted Stock Units Nonvested at December 31, 2021 Granted Vested Forfeited Nonvested at December 31, 2022 Number Weighted Average Grant Date Fair Value 1,601,000 $ 881,000 $ (321,000) $ (161,000) $ 2,000,000 $ 35.57 30.35 45.70 33.10 31.84 The total fair value of restricted stock units that vested during 2022, 2021 and 2020 was $9 million, $22 million and $20 million, respectively. The weighted average grant date fair value per share of the restricted stock units granted in 2022, 2021 and 2020 was $30.35, $36.68 and $29.18, respectively. Long-Term Incentive Plans – Performance Share Units Beginning in 2017, UScellular granted performance share units to key employees. The performance share units generally vest after three years. Beginning with the 2021 grants, each recipient may be entitled to shares of UScellular common stock equal to 0% to 200% of a communicated target award depending on the achievement of a predetermined performance based operating target over the performance period, which is generally a three-year period beginning on January 1 in the year of grant to December 31 of the third year. The performance-based operating target for the 2021 and 2022 grants is Return on Capital. 70 Prior to the 2021 grants, each recipient was entitled to shares of UScellular common stock equal to 50% to 200% of a communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which was generally a one-year period beginning on January 1 in the year of grant to December 31 in the year of grant. The remaining time through the end of the vesting period is considered the “time-based period”. Performance-based operating targets for grants made in 2020 included Consolidated Total Service Revenues, Consolidated Operating Cash Flow, Consolidated Capital Expenditures and Postpaid Handset Voluntary Defections; and for grants made prior to 2020 included Simple Free Cash Flow, Consolidated Total Operating Revenues and Postpaid Handset Voluntary Defections. Grants made prior to 2021 are subject to vesting during the time- based period and their performance share unit award agreements provide that in no event shall the awards be less than 50% of the target opportunity as of their grant dates. The performance share units currently outstanding were granted in 2020, 2021 and 2022 and will vest in 2023, 2024 and 2025, respectively. Additionally, UScellular granted performance share units during 2020 to a newly appointed President and Chief Executive Officer. The recipient may be entitled to shares of UScellular common stock equal to 100% of the communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which is any two calendar-year period commencing no earlier than January 1, 2021 and ending no later than December 31, 2026. Performance-based operating targets include Average Total Revenue Growth and Average Annual Return on Capital. If one, or both, of the performance targets are not satisfied, the award will be forfeited. UScellular estimates the fair value of performance share units using UScellular’s closing stock price on the date of grant. An estimate of the number of performance share units expected to vest based upon achieving the performance-based operating targets is made and the aggregate fair value is expensed on a straight-line basis over the requisite service period. Each reporting period, during the performance period, the estimate of the number of performance share units expected to vest is reviewed and stock compensation expense is adjusted as appropriate to reflect the revised estimate of the aggregate fair value of the performance share units expected to vest.  A summary of UScellular’s nonvested performance share units and changes during 2022 is presented in the table below: Common Performance Share Units Nonvested at December 31, 2021 Granted Vested Forfeited Nonvested at December 31, 2022 Number Weighted Average Grant Date Fair Value 1,049,000 $ 487,000 $ (183,000) $ (105,000) $ 1,248,000 $ 35.17 31.35 44.44 32.99 32.51 The total fair value of performance share units that vested during 2022, 2021 and 2020 was $6 million, $22 million and $11 million, respectively. The weighted average grant date fair value per share of the performance share units granted in 2022, 2021 and 2020 was $31.35, $37.67 and $29.71, respectively. Long-Term Incentive Plans – Stock Options UScellular's last stock option grant occurred in 2016. Stock options outstanding, and the related weighted average exercise price, at December 31, 2022 and 2021 were 348,000 units at $42.41 and 378,000 units at $42.18, respectively. All stock options are exercisable and expire between 2023 and 2026. The aggregate intrinsic value of UScellular stock options exercised in 2021 was less than $1 million. No stock options were exercised in 2022 or 2020. Long-Term Incentive Plans – Deferred Compensation Stock Units Certain UScellular employees may elect to defer receipt of all or a portion of their annual bonuses and to receive a company matching contribution on the amount deferred. All bonus compensation that is deferred by employees electing to participate is immediately vested and is deemed to be invested in UScellular Common Share stock units. Beginning with the 2021 performance year, the amount of UScellular's matching contribution is a 33% match for the amount of their total annual bonus that is deferred into the program. Prior to the 2021 performance year, the amount of UScellular’s matching contribution was a 25% match for amounts deferred up to 50% of their total annual bonus and a 33% match for amounts that exceeded 50% of their total annual bonus. Matching contributions are also deemed to be invested in UScellular Common Share stock units and vest over three years. Compensation of Non-Employee Directors UScellular issued 22,000, 20,000 and 19,000 Common Shares in 2022, 2021 and 2020, respectively, under its Non-Employee Director compensation plan.  71 Note 19 Business Segment Information UScellular and TDS Telecom are billed for services they receive from TDS, consisting primarily of information processing, accounting, finance, and general management services. Such billings are based on expenses specifically identified to UScellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to UScellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if UScellular and TDS Telecom operated on a stand-alone basis. Financial data for TDS’ reportable segments for 2022, 2021 and 2020, is as follows. See Note 1 — Summary of Significant Accounting Policies for additional information. Year ended or as of December 31, 2022 (Dollars in millions) Operating revenues Service Equipment and product sales Total operating revenues Cost of services (excluding Depreciation, amortization and accretion reported below) Cost of equipment and products Selling, general and administrative Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Operating income (loss) Equity in earnings of unconsolidated entities Interest and dividend income Interest expense Other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Add back: Depreciation, amortization and accretion Loss on impairment of licenses (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Interest expense Income tax expense (benefit) Adjusted EBITDA1 Investments in unconsolidated entities Total assets Capital expenditures UScellular TDS Telecom Corporate, Eliminations and Other Total $ 3,125 $ 1,019 $ 96 $ 1,044 4,169 755 1,216 1,408 700 3 19 (1) 69 158 8 (163) — 72 37 35 700 3 19 (1) 163 37 1 1,020 418 1 313 215 — 7 — 66 — 2 7 1 76 23 53 215 — 7 — (7) 23 128 224 72 103 47 14 — 1 — (13) 1 7 (18) — (23) (7) (16) 14 — 1 — 18 (7) 4,240 1,173 5,413 1,245 1,320 1,768 929 3 27 (1) 122 159 17 (174) 1 125 53 72 929 3 27 (1) 174 53 $ $ $ $ 956 $ 291 $ 10 $ 1,257 452 $ 4 $ 39 $ 495 11,119 $ 3,056 $ 375 $ 14,550 717 $ 556 $ 12 $ 1,285 72 Year Ended or as of December 31, 2021 (Dollars in millions) Operating revenues Service Equipment and product sales Total operating revenues Cost of services (excluding Depreciation, amortization and accretion reported below) Cost of equipment and products Selling, general and administrative Depreciation, amortization and accretion (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Operating income (loss) Equity in earnings of unconsolidated entities Interest and dividend income Interest expense Other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Add back: Depreciation, amortization and accretion (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net Interest expense Income tax expense (benefit) Adjusted EBITDA1 Investments in unconsolidated entities Total assets Capital expenditures UScellular TDS Telecom Corporate, Eliminations and Other Total $ 3,115 $ 1,005 $ 96 $ 1,007 4,122 790 1,118 1,345 678 23 (2) 170 179 6 (175) — 180 20 160 678 23 (2) 175 20 1 1,006 404 1 291 198 2 — 110 — 1 5 (1) 114 24 90 198 2 — (5) 24 105 201 73 86 41 19 1 — (19) 3 4 (62) — (73) (11) (62) 19 1 — 62 (11) 4,216 1,113 5,329 1,267 1,205 1,677 895 26 (2) 261 182 11 (232) (1) 221 33 188 895 26 (2) 232 33 $ $ $ $ 1,054 $ 310 $ 8 $ 1,372 439 $ 4 $ 36 $ 479 10,341 $ 2,645 $ 507 $ 13,493 780 $ 411 $ 10 $ 1,201 73 Year Ended or as of December 31, 2020 (Dollars in millions) Operating revenues Service Equipment and product sales Total operating revenues Cost of services (excluding Depreciation, amortization and accretion reported below) Cost of equipment and products Selling, general and administrative Depreciation, amortization and accretion (Gain) loss on asset disposals, net (Gain) loss on license sales and exchanges, net Operating income (loss) Equity in earnings of unconsolidated entities Interest and dividend income Gain (loss) on investments Interest expense Other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Add back: Depreciation, amortization and accretion (Gain) loss on asset disposals, net (Gain) loss on license sales and exchanges, net Gain (loss) on investments Interest expense Income tax expense (benefit) Adjusted EBITDA1 Investments in unconsolidated entities Total assets Capital expenditures Numbers may not foot due to rounding. UScellular TDS Telecom Corporate, Eliminations and Other Total $ 3,067 $ 975 $ 94 $ 970 4,037 782 1,011 1,368 683 25 (5) 173 179 8 2 (112) — 250 17 233 683 25 (5) (2) 112 17 1 976 392 1 270 203 1 — 110 — 5 — 4 (1) 117 18 100 203 1 — — (4) 18 118 212 70 98 43 23 1 — (24) 2 2 — (60) — (79) (16) (64) 23 1 — — 60 (16) 4,136 1,089 5,225 1,244 1,110 1,681 909 27 (5) 259 181 15 2 (168) (1) 288 19 269 909 27 (5) (2) 168 19 $ $ $ $ 1,063 $ 317 $ 5 $ 1,385 435 $ 4 $ 38 $ 477 9,681 $ 2,359 $ 484 $ 12,525 940 $ 368 $ 9 $ 1,317 1 Adjusted earnings before interest, taxes, depreciation, amortization and accretion (Adjusted EBITDA) is a segment measure reported to the chief operating decision maker for purposes of assessing the segments' performance. Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.  74                 Note 20 Supplemental Cash Flow Disclosures Following are supplemental cash flow disclosures regarding interest paid and income taxes paid. Year Ended December 31, (Dollars in millions) Interest paid Income taxes paid, net of (refunds received) 2022 2021 2020 $ 164 $ (119) 177 $ 6 160 (23) Following are supplemental cash flow disclosures regarding transactions related to stock-based compensation awards. In certain situations, TDS and UScellular withhold shares that are issuable upon the exercise of stock options or the vesting of restricted shares to cover, and with a value equivalent to, the exercise price and/or the amount of taxes required to be withheld from the stock award holder at the time of the exercise or vesting. TDS and UScellular then pay the amount of the required tax withholdings to the taxing authorities in cash. TDS: Year Ended December 31, (Dollars in millions) Common Shares withheld Aggregate value of Common Shares withheld Cash disbursements for payment of taxes UScellular: Year Ended December 31, (Dollars in millions) Common Shares withheld Aggregate value of Common Shares withheld Cash disbursements for payment of taxes Software License Agreements 2022 2021 2020 225,000 223,000 153,000 4 $ 5 $ (4) $ (5) $ 3 (3) 2022 2021 2020 154,000 438,000 376,000 5 $ 16 $ 11 (5) $ (16) $ (11) $ $ $ $ Certain software licenses are recorded as acquisitions of property, plant and equipment and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition, and are treated as non-cash activity in the Consolidated Statement of Cash Flows. Such acquisitions of software licenses that are not reflected as Cash paid for additions to property, plant and equipment were $130 million, $22 million and $19 million for the years ended 2022, 2021 and 2020, respectively. At December 31, 2022, liabilities of $65 million and $76 million related to software license agreements were recorded to Other current liabilities and Other deferred liabilities and credits, respectively, and at December 31, 2021, liabilities of $18 million and $13 million related to software license agreements were recorded to Other current liabilities and Other deferred liabilities and credits, respectively. Note 21 Certain Relationships and Related Transactions Sidley Austin LLP is the principal law firm of TDS and its subsidiaries: Walter C.D. Carlson, a trustee and beneficiary of a voting trust that controls TDS, the non-executive Chair of the Board and member of the Board of Directors of TDS and a director of UScellular, a subsidiary of TDS is Senior Counsel at Sidley Austin LLP; and John P. Kelsh, the General Counsel and/or an Assistant Secretary of TDS and UScellular and certain other subsidiaries of TDS is a partner at Sidley Austin LLP. Walter C.D. Carlson does not provide legal services to TDS or its subsidiaries. TDS, UScellular and their subsidiaries incurred legal costs from Sidley Austin LLP of $8 million, $10 million and $11 million in 2022, 2021 and 2020, respectively. The Audit Committee of the Board of Directors of TDS is responsible for the review and evaluation of all related-party transactions as such term is defined by the rules of the New York Stock Exchange. 75                               Reports of Management Management’s Responsibility for Financial Statements Management of Telephone and Data Systems, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America and, in management’s opinion, were fairly presented. The financial statements included amounts that were based on management’s best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. PricewaterhouseCoopers LLP (PCAOB ID 238), an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and has expressed herein its unqualified opinion on these financial statements. Management’s Report on Internal Control Over Financial Reporting  Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. TDS’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). TDS’ internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and, where required, the board of directors of the issuer; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the issuer’s assets that could have a material effect on the interim or annual consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of TDS’ management, including its principal executive officer and principal financial officer, TDS conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2022, based on the criteria established in the 2013 version of Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that TDS maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 version of Internal Control — Integrated Framework issued by the COSO. The effectiveness of TDS’ internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in the firm’s report. 76 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Telephone and Data Systems, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Telephone and Data Systems, Inc. and its subsidiaries (“the Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of changes in equity, and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 77 Revenue Recognition - Retail Service and Equipment and Product Sales Revenue for the UScellular segment As described in Note 2 to the consolidated financial statements, the Company generates revenues from retail services through the sale of wireless services including voice, messaging, and data services, as well as revenues from equipment and product sales through the sale of wireless devices and accessories. The Company recognizes wireless service revenue as the wireless service is provided to the customer. Wireless services are generally billed and paid in advance on a monthly basis. The Company offers a comprehensive range of wireless devices such as handsets, tablets, mobile hotspots, home phones, and routers for use by its customers. The Company also sells wireless devices to agents and other third-party distributors for resale. The Company also offers customers the option to purchase certain devices and accessories under installment contracts over a specified time period. The Company recognizes revenue in equipment and product sales revenues when control of the device or accessory is transferred to the customer, agent or third-party distributor, which is generally upon delivery. The UScellular segment’s retail service and equipment and product sales revenue was $2,793 million and $1,044 million, respectively, for the year ended December 31, 2022. The principal consideration for our determination that performing procedures relating to revenue recognition - retail service and equipment and product sales revenue for the UScellular segment is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the retail service and equipment and product sales revenue recognition processes. These procedures also included, among others, (i) testing whether the criteria for recognition of retail service and equipment and product sales revenue had been met by obtaining and inspecting invoices, shipping documents, where applicable, and cash receipts from customers for a sample of revenue transactions, (ii) testing discounts and rebates for a sample of transactions, (iii) evaluating the allocation of the transaction price to the performance obligations, where applicable, (iv) recalculating the appropriateness of the retail service and equipment and product sales revenue recognized based on the terms of each arrangement for a sample of transactions, and (v) confirming a sample of outstanding customer invoice balances as of December 31, 2022, and obtaining and inspecting source documents such as invoices, sales contracts, shipping documents, and subsequent cash receipts, for confirmations not returned. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 16, 2023 We have served as the Company’s auditor since 2002. 78 Common Stock Information Telephone and Data Systems, Inc. Shareholder Information TDS' Common Shares are listed on the New York Stock Exchange under the symbol “TDS.” As of January 31, 2023, the last trading day of the month, TDS Common Shares were held by 1,599 record owners, and the Series A Common Shares were held by 64 record owners. TDS paid quarterly dividends per outstanding share of $0.180 in 2022, $0.175 in 2021 and $0.170 in 2020. 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 has paid cash dividends on its common stock since 1974. The Common Shares of United States Cellular Corporation, an 84%-owned subsidiary of TDS, are listed on the New York Stock Exchange under the symbol “USM.” Stock Performance Graph The following chart provides a comparison of TDS’ cumulative total return to shareholders (stock price appreciation plus dividends) during the previous five years to the returns of the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones U.S. Telecommunications Index. Note: Cumulative total return assumes reinvestment of dividends. TDS Common Shares (NYSE: TDS) $ 100 $ 119.58 $ 95.69 $ 72.43 $ 81.18 $ 44.43 S&P 500 Index Dow Jones U.S. Telecommunications Index 100 100 95.62 93.27 125.72 119.28 148.85 112.22 191.58 102.50 156.88 96.60 2017 2018 2019 2020 2021 2022 The comparison above assumes $100.00 invested at the close of trading on the last trading day of 2017, in TDS Common Shares, S&P 500 Index and the Dow Jones U.S. Telecommunications Index. Dividend Reinvestment Plan TDS’ dividend reinvestment plans provide its common shareholders with a convenient and economical way to participate in the future growth of TDS. Holders of record of ten (10) or more Common Shares may purchase Common Shares with their reinvested dividends at a five percent discount from market price. Common Shares may also be purchased on a monthly basis through optional cash payments by participants in this plan. The initial ten (10) shares cannot be purchased directly from TDS. An authorization card and prospectus will be mailed automatically by the transfer agent to all registered record holders with ten (10) or more shares. Once enrolled in the plan, there are no brokerage commissions or service charges for purchases made under the plan.  79 Investor relations TDS’ annual report, SEC filings and news releases are available to investors, securities analysts and other members of the investment community. These reports are provided, without charge, upon request to our Investor Relations department. Investors may also access these and other reports through the Investor Relations portion of the TDS website (www.tdsinc.com).  Questions regarding lost, stolen or destroyed certificates, consolidation of accounts, transferring of shares and name or address changes should be directed to: Julie Mathews, IRC, Director — Investor Relations julie.mathews@tdsinc.com General inquiries by investors, securities analysts and other members of the investment community should be directed to: Colleen Thompson, Vice President — Corporate Relations colleen.thompson@tdsinc.com Directors and executive officers See “Election of Directors” and “Executive Officers” sections of the Proxy Statement issued in 2023 for the 2023 Annual Meeting. Principal counsel Sidley Austin LLP, Chicago, Illinois Transfer agent Computershare Trust Company, N.A. 150 Royall St., Suite 101 Canton, MA 02021 877.337.1575 Independent registered public accounting firm PricewaterhouseCoopers LLP 80 We are grateful to the associates of the TDS Family of Businesses for their dedication and innovation in providing outstanding experiences for our customers. Telephone and Data Systems, Inc. 30 N. LaSalle Street, Suite 4000 Chicago, IL 60602 Tel: 312.630.1900 tdsinc.com

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