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 expenditures 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, 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 with acceptable terms.

TDS will continue to monitor the rapidly changing business and market conditions and is reducing costs and intends to take other appropriate actions, as necessary, to meet its liquidity needs. Due to its lack of scale and structural disadvantages, UScellular has higher costs per subscriber than its competitors and is balancing the timing of investments, such as its continued 5G deployment, with liquidity considerations. TDS Telecom has entered into and may continue to enter into agreements to divest of certain non-strategic assets, including in certain cases the associated E-ACAM build-out obligations, as well as slow the pace of and reprioritize its fiber deployment plans and reduce or defer planned capital expenditures as a means to lower its funding needs and meet its obligations. 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, which may result in fewer opportunities to deploy fiber as competitors continue their deployments.

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 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 March 31, 2025.

Financing

Revolving Credit Agreements

TDS and UScellular have unsecured revolving credit agreements with maximum borrowing capacities of $400 million and $300 million, respectively. Amounts under the agreements may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. As of March 31, 2025, there were no outstanding borrowings under the agreements, and TDS' and UScellular's unused borrowing capacity was $399 million and $300 million, respectively.

In April 2025, TDS and UScellular amended the revolving credit agreements to extend the maturity dates to July 2027 and allow for permitted dispositions, as specified in the amendments. The amendments also include a provision that will be triggered upon the sale of the UScellular wireless operations to T-Mobile, which accelerates the maturity date to the earliest of (i) 270 days following the consummation of the sale of the UScellular wireless operations to T-Mobile, (ii) the date on which UScellular receives net proceeds from the cumulative sale of wireless spectrum licenses to AT&T, Verizon and other parties that equals or exceeds $1.1 billion, or (iii) July 20, 2027. Additionally, the amendment to the UScellular revolving credit agreement includes a provision that will be triggered upon UScellular receiving net proceeds from the cumulative sale of wireless spectrum licenses to AT&T, Verizon and other parties that equals or exceeds $500 million, which provision would automatically reduce the maximum borrowing capacity of the UScellular revolving credit agreement from $300 million to $150 million five business days after UScellular's receipt of such net proceeds.

Unsecured Term Loan Agreements

TDS has unsecured term loan agreements with maximum borrowing capacities of $875 million. The maturity dates for the agreements range from July 2028 to July 2031. As of March 31, 2025, the outstanding borrowings were $783 million and the unused borrowing capacity was $75 million.

UScellular has unsecured term loan agreements with maximum borrowing capacities of $800 million. The maturity dates for the agreements range from July 2026 to July 2031. As of March 31, 2025, UScellular has borrowed the full amount available under the agreements and the outstanding borrowings were $718 million.

In April 2025, UScellular amended its $300 million unsecured term loan agreement due July 2026 to extend the maturity date to July 2027 and allow for permitted dispositions, as specified in the amendment.

Secured Term Loan Agreement

TDS has a secured term loan agreement with maximum borrowing capacity of $300 million. In February 2025, TDS amended the agreement to extend the maturity date to the earlier of (i) September 2026 and (ii) the scheduled maturity date of TDS' existing revolving credit agreement (which had a then existing maturity date of July 2026, which has since been extended as described above). As of March 31, 2025, the outstanding borrowings under the agreement were $300 million, which is the full amount available under the agreement.

In April 2025, TDS amended the secured term loan agreement to extend the maturity date to the earliest of (i) 270 days following the consummation of the sale of the UScellular wireless operations to T-Mobile, (ii) the date on which UScellular receives net proceeds from the cumulative sale of wireless spectrum licenses to AT&T, Verizon and other parties that equals or exceeds $1.1 billion, or (iii) July 20, 2027, and to allow for permitted dispositions, as specified in the amendment.

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, based on gross debt, 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 and including 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 they were in compliance as of March 31, 2025 with all such financial covenants.

The TDS $375 million term loan agreement with a maturity date of May 2029 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 and including March 31, 2025; 4.25 to 1.00 from April 1, 2025 and thereafter. TDS believes that it was in compliance as of March 31, 2025 with such financial covenant.

In April 2025, the TDS and UScellular revolving credit agreements, UScellular $300 million unsecured term loan agreement and TDS $300 million secured term loan agreement were amended to require, upon the consummation of the sale of the UScellular wireless operations to T-Mobile, TDS and UScellular to maintain the Consolidated Leverage Ratio, based on net debt, as of the end of any fiscal quarter from and including the quarter in which such sale occurs at a level not to exceed 3.50 to 1.00.

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 three months ended March 31, 2025 and 2024, were as follows:

Capital Expenditures

UScellular’s capital expenditures for the three months ended March 31, 2025 and 2024, were $53 million and $131 million, respectively.

In 2019-2023, UScellular focused capital expenditures on 5G coverage and predominantly used low-band spectrum to launch 5G services in portions of substantially all of its markets. During 2023 and 2024, UScellular focused on deploying 5G over its mid-band spectrum, largely overlapping areas already covered with low-band 5G service to enhance speed and capacity for UScellular’s mobility and fixed wireless services. Capital expenditures decreased by $78 million or 60% in line with the expectations that continued 5G deployment in 2025 will focus on adding speed and capacity to existing areas.

Capital expenditures for the full year 2025 are expected to be used principally for the following purposes:

▪Continue to deploy 5G using 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 three months ended March 31, 2025 and 2024, were $59 million and $87 million, respectively.

Capital expenditures for the full year 2025 are expected to be between $375 million and $425 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 2025 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.

Divestitures

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

See Note 6 — Divestitures in the Notes to Consolidated Financial Statements for additional information related to divestitures.

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; E-ACAM obligations; 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 9 — 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.

Common Share Repurchase Program

During the three months ended March 31, 2025, UScellular repurchased 328,835 Common Shares for $21 million at an average cost per share of $63.49. As of March 31, 2025, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 658,107.

Dividends

TDS paid quarterly dividends per outstanding share of $0.04 and $0.19 in the first quarter of 2025 and 2024, respectively. It is uncertain at this time how the outcome of the ongoing strategic alternatives review process for UScellular, TDS' available opportunities to reinvest in its businesses, or TDS' ongoing liquidity needs, may impact the decisions of the TDS Board of Directors regarding the declaration of future dividends.

TDS paid quarterly dividends per outstanding Series UU depositary share (each representing 1/1,000th of a Preferred Share) of $0.414 in the first quarter of 2025 and 2024.

TDS paid quarterly dividends per outstanding Series VV depositary share (each representing 1/1,000th of a Preferred Share) of $0.375 in the first quarter of 2025 and 2024.

UScellular has not paid any cash dividends in recent periods and currently intends to retain all earnings for use in UScellular’s business. However, UScellular expects the agreement with T-Mobile combined with various wireless spectrum license transactions that were announced to deliver substantial proceeds. When the T-Mobile transaction closes, which is subject to regulatory approval, UScellular expects the UScellular Board of Directors to declare the first of potentially several, special dividends to UScellular shareholders.