TELEPHONE DATA SYSTEMS INC DE

Sources of Liquidity

TDS and its subsidiaries operate capital-intensive businesses. In the past, TDS’ existing cash and investment balances, funds available under its financing agreements, preferred share offerings, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets, pay dividends and to fund acquisitions. There is no assurance that this will be the case in the future. TDS has incurred negative free cash flow at times in past periods, and this could occur in future periods.

TDS believes that existing cash and investment balances, funds available under its financing agreements, its ability to obtain future external financing, potential dispositions and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its day-to-day operating needs and debt service requirements. In addition, TDS retains the ability, as described below, to reduce its capital and operating expenditures at TDS Telecom to lower its funding needs.

TDS may require substantial additional funding for, among other uses, capital expenditures, making additional investments including new technologies, fiber deployments and E-ACAM builds, acquisitions of providers of telecommunications services, agreements to purchase goods or services, leases, repurchases of shares, or payment of dividends. It may be necessary from time to time to increase the size of its existing credit facilities, to amend existing or put in place new credit agreements, to obtain other forms of financing, issue equity securities, or to divest assets in order to fund potential expenditures. TDS' liquidity would be adversely affected if it is unable to obtain short or long-term financing on acceptable terms.

TDS will continue to monitor the rapidly changing business and market conditions and is taking and intends to take appropriate actions, as necessary, to meet its liquidity needs. Specifically, TDS Telecom has elected to divest of certain non-strategic assets as well as slow the pace of its fiber deployment and reduce or defer planned capital expenditures as a means to lower its funding needs. It is possible that TDS Telecom will be required, if it is unable to access capital on acceptable terms, to substantially reduce its plans for fiber deployment, in both the short and long-term.

Cash and Cash Equivalents

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

Cash and Cash Equivalents

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.

In addition to Cash and cash equivalents, TDS and UScellular had available undrawn borrowing capacity from the following debt facilities at June 30, 2024. See the Financing section below for further details.

Financing

Revolving Credit Agreements

TDS has a revolving credit agreement with maximum borrowing capacity of $400 million. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. During the six months ended June 30, 2024, TDS borrowed $100 million and repaid $200 million under the agreement. As of June 30, 2024, there were no outstanding borrowings and the unused borrowing capacity was $399 million.

Receivables Securitization Agreement

UScellular, through its subsidiaries, has a receivables securitization agreement that permits securitized borrowings using its equipment installment plan receivables. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until September 2025. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. During the six months ended June 30, 2024, UScellular borrowed $40 million and repaid $188 million under the agreement. As of June 30, 2024, the outstanding borrowings under the agreement were $2 million and the unused borrowing capacity was $448 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.

Term Loan Agreement

In May 2024, TDS entered into a $375 million unsecured term loan credit agreement. At closing, $300 million was drawn, less original issue discount, and the remaining $75 million may be drawn until November 2025. The maturity date of the agreement is May 2029.

Debt Covenants

The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. TDS and UScellular are required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.00 to 1.00 from April 1, 2024 through March 31, 2025; 3.75 to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe that they were in compliance as of June 30, 2024 with all such financial covenants.

The term loan agreement entered into in May 2024 requires TDS to comply with certain affirmative and negative covenants, which includes a financial covenant that may restrict the borrowing capacity available. TDS is required to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.50 to 1.00 from April 1, 2024 through March 31, 2025; 4.25 to 1.00 from April 1, 2025 and thereafter. TDS believes that it was in compliance as of June 30, 2024 with such financial covenant.

Other Long-Term Financing

TDS has an effective shelf registration statement on Form S-3 to issue senior or subordinated securities, common shares, preferred shares and depositary shares.

UScellular has an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares.

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

Credit Ratings

Following the execution of the Securities Purchase Agreement in May 2024, Moody’s placed TDS and UScellular's issuer credit ratings on a review for downgrade. There was no change to the Ba1 rating issued by Moody’s in October 2023. At the same time, Fitch Ratings placed TDS and UScellular’s issuer credit ratings on rating watch negative. There was no change to the BB+ rating issued by Fitch Ratings in October 2023. There was no change to the Standard & Poor’s credit ratings or outlook.

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the six months ended June 30, 2024 and 2023, were as follows:

Capital Expenditures

UScellular’s capital expenditures for the six months ended June 30, 2024 and 2023, were $295 million and $351 million, respectively.

Capital expenditures for the full year 2024 are expected to be between $550 million and $650 million. These expenditures are expected to be used principally for the following purposes:

▪Enhance and maintain UScellular's network capacity and coverage, including continued deployment of 5G with a focus on network deployment that uses mid-band spectrum to provide additional speed and capacity to accommodate increased data usage by current customers; and

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

TDS Telecom’s capital expenditures for the six months ended June 30, 2024 and 2023, were $164 million and $262 million, respectively.

Capital expenditures for the full year 2024 are expected to be between $310 million and $340 million. These expenditures are expected to be used principally for the following purposes:

▪Continue to expand fiber deployment primarily in expansion markets;

▪Support broadband growth and success-based spending; and

▪Maintain and enhance existing infrastructure including build-out requirements of state broadband and E-ACAM programs.

TDS intends to finance its capital expenditures for 2024 using primarily Cash flows from operating activities, existing cash balances and additional debt financing from its existing agreements and/or other forms of available financing.

Acquisitions and Divestitures

TDS may be engaged in negotiations (subject to all applicable regulations) relating to the acquisition and divestiture of companies, properties, assets and other possible businesses. In general, TDS does not disclose such transactions until there is a definitive agreement.

See Note 7 — Divestitures in the Notes to Consolidated Financial Statements for additional information related to divestitures.

The strategic alternatives review process is ongoing as UScellular seeks to opportunistically monetize its spectrum assets that are not subject to the Securities Purchase Agreement.

Other Obligations

TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; preferred stock dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; and other agreements to purchase goods or services. TDS has taken and expects to continue to take steps to reduce and defer capital expenditures to lower its funding needs. Refer to Liquidity and Capital Resources within this MD&A for additional information.

Variable Interest Entities

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