TDS Reports Second Quarter 2010 Results

U.S. Cellular revises 2010 financial guidance

News provided by

Telephone and Data Systems, Inc.

Aug 05, 2010, 07:57 ET

CHICAGO, Aug. 5 /PRNewswire-FirstCall/ --

Note: Comparisons are year over year unless otherwise noted.

2Q 2010 Highlights

Enterprise/TDS Corporate

Operating revenues were $1.2 billion.
Repurchased 568,297 TDS Special Common Shares for $16.3 million.

Wireless/U.S. Cellular

7,000 retail net additions, reflecting a gain of 29,000 prepaid customers and a loss of 22,000 postpaid customers.
Service revenues were $972.6 million.
33 percent increase in data revenues to $215.3 million, representing 22 percent of total service revenues.
Retail service ARPU (average revenue per unit) was $46.81 compared to $46.82.
Retail postpaid churn remained low at 1.4 percent; postpaid customers comprised 94 percent of retail customers.
Expanded 3G network to cover approximately 98 percent of customers.
5 percent increase in cell sites in service to 7,416.

Wireline/TDS Telecom

13 percent increase in ILEC high-speed data customers.
26 percent increase in ILEC high-speed data revenues, representing 21 percent of ILEC revenues.
ILEC equivalent access lines remained stable at 779,200, due in part to acquisitions; ILEC physical access lines decreased 4 percent to 525,000.
Managed IP stations (ILEC and CLEC) grew to 19,700 from 7,600.
Approved for $114.5 million in Broadband Stimulus projects, receiving $85.9 million in federal grants and providing $28.6 million of capital expenditures over the next several years.

As previously announced, TDS will hold a teleconference Aug. 5 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Conference Calls page of www.teldta.com.

Telephone and Data Systems, Inc. (NYSE: TDS, TDS.S) reported operating revenues of $1

232.2 million for the second quarter of 2010, a decrease of less than 1 percent from $1,242.1 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $40.3 million and $0.38, respectively, for the second quarter of 2010, compared to $66.4 million and $0.60, respectively, in the comparable period one year ago.

"While our results reflect the intense wireless and wireline competition and the ongoing consumer and business economic uncertainty, we achieved a number of positive performance results in the quarter," said LeRoy T. Carlson, Jr., TDS president and CEO. "Our focus on high-quality data experiences led to significant data revenue increases at U.S. Cellular and TDS Telecom. We achieved reduced postpaid and prepaid wireless churn, and churn among TDS Telecom's Triple Play customers—who represent nearly one quarter of the residential customer base—remains very low.

"U.S. Cellular continued to add high-demand smartphones and data-optimized devices to its lineup. The increase in data use and resulting data revenues is helping to offset lower voice revenues from value-priced plans. U.S. Cellular's prepaid additions in the quarter reflect the popularity of our prepaid plans that include data. U.S. Cellular recently substantially completed its 3G network. In July, we launched the first of several high-demand Android(TM)-powered phones that will come this year. While spending on major strategic initiatives is impacting profitability, the company is making progress on these efforts. One early success is that we implemented systems to provide more customized service and product recommendations in our retail stores and customer care centers.

"TDS Telecom continued to respond to changing customer needs and market conditions with very competitive offerings that led to increased revenues and profitability in the quarter. Residential customers are responding well to our competitive broadband offerings, and to bundles of voice, broadband and video services. While TDS Telecom's commercial business continues to be affected by cautious spending by business customers due to the slow economy, the company is benefiting from cost reductions and from the inclusion of its recently acquired managed services operation.

"TDS' financial position remains strong, and we are committed to funding the investments to support future growth in our businesses."

Guidance

Guidance for the year ending Dec. 31, 2010 as of Aug. 5, 2010 is provided below, compared to previous guidance provided on May 10, 2010. There can be no assurance that final results will not differ materially from this guidance.


		Current guidance	Previous guidance
U.S. Cellular 2010 guidance as of Aug. 5, 2010 is as follows:
	Service revenue	$3,925-$4,000 million	$3,975-$4,075 million
	Adjusted OIBDA (1)	$800-$850 million	$850-$950 million
	Operating income	$200-$250 million	$250-$350 million
	Depreciation, amortization and accretion (2)	Approx. $600 million	Unchanged
	Capital expenditures	Approx. $600 million	Unchanged

		Current guidance	Previous guidance
TDS Telecom (ILEC and CLEC) 2010 guidance as of Aug. 5, 2010 is as follows:
	Operating revenues	$760-$790 million	Unchanged
	Adjusted OIBDA (1)	$250-$275 million	Unchanged
	Operating income	$80-$105 million	Unchanged
	Depreciation, amortization and accretion (2)	Approx. $170 million	Unchanged
	Capital expenditures (3)	Approx. $155 million	Unchanged
(1) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows. (2) The 2010 estimated results include estimated losses on disposals of assets, but does not include an estimate for losses on impairment of assets, since these cannot be predicted. (3) The capital expenditure guidance does not include amounts awarded to TDS Telecom through the Broadband Stimulus programs under the American Recovery and Reinvestment Act.

The foregoing guidance represents the views of management as of Aug. 5, 2010, and should not be assumed to be accurate as of any other date. TDS undertakes no legal duty to update such information, whether as a result of new information, future events or otherwise.

Stock repurchase summary

The following represents repurchases of TDS Common Shares and TDS Special Common Shares.


Repurchase Period	# Shares	Cost (in millions)
2010 (second quarter)	568,297	$	16.3
2010 (first quarter)	510,902	$	14.8
2009 (full year)	6,374,741	$	176.6
2008 (full year)	5,861,822	$	199.6
Total	13,315,762	$	407.3

Conference call information

TDS will hold a conference call on Aug. 5, 2010 at 9:30 a.m. CDT.

Access the live call on the Conference Calls page of www.teldta.com or at http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=67422&eventID=3258722.
Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

Before the call, certain financial and statistical information to be discussed during the call will be posted to the Conference Calls page of www.teldta.com. The call will be archived on the Conference Calls page of www.teldta.com.

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 500® company, provides wireless, local and long-distance telephone, and broadband services to approximately 7.3 million customers in 36 states through its business units, U.S. Cellular (wireless) and TDS Telecom (wireline). Founded in 1969 and headquartered in Chicago, TDS employed 12,300 people as of June 30, 2010.

Visit www.teldta.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

About U.S. Cellular

United States Cellular Corporation, the nation's sixth-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support and a high-quality network to approximately 6.1 million customers in 26 states. The Chicago-based company employed 8,900 full-time equivalent associates as of June 30, 2010.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: The ability of the company to successfully grow its markets; the overall economy; competition; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; and changes in customer growth rates, average monthly revenue per unit, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by U.S. Cellular and TDS Telecom. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by TDS to furnish this press release to the SEC, which are incorporated by reference herein.

For more information about TDS and its subsidiaries, visit:

TDS: www.teldta.com

U.S. Cellular: www.uscellular.com

TDS Telecom: www.tdstelecom.com


	United States Cellular Corporation Summary Operating Data

Quarter Ended			6/30/2010		3/31/2010		12/31/2009		9/30/2009		6/30/2009
Total population
	Consolidated markets (1)			90,468,000		90,468,000		89,712,000		85,118,000		83,726,000
	Consolidated operating markets (1)			46,546,000		46,546,000		46,306,000		46,306,000		46,306,000
Market penetration at end of period
	Consolidated markets (2)			6.8%		6.8%		6.8%		7.2%		7.4%
	Consolidated operating markets (2)			13.2%		13.2%		13.3%		13.2%		13.3%
All customers
	Total at end of period			6,144,000		6,147,000		6,141,000		6,131,000		6,155,000
	Gross additions			349,000		358,000		399,000		386,000		317,000
	Net additions (losses)			(3,000)		6,000		10,000		(24,000)		(88,000)
Retail customers
	Total at end of period			5,775,000		5,768,000		5,744,000		5,705,000		5,711,000
	Gross additions			307,000		305,000		354,000		351,000		286,000
	Net retail additions (losses) (3)			7,000		24,000		39,000		(6,000)		(59,000)
		Net postpaid additions (losses)		(22,000)		(9,000)		26,000		8,000		(32,000)
		Net prepaid additions (losses)		29,000		33,000		13,000		(14,000)		(27,000)
Service revenues components (000s)
	Voice and other retail service		$	648,565	$	663,759	$	677,107	$	690,576	$	708,847
	Data service			215,271		201,280		189,759		174,286		161,955
	Total retail service		$	863,836	$	865,039	$	866,866	$	864,862	$	870,802
	Inbound roaming			60,902		51,942		61,728		68,767		62,223
	Other			47,838		48,027		56,814		50,289		41,323
Total service revenues (000s) (4)			$	972,576	$	965,008	$	985,408	$	983,918	$	974,348

	Divided by average customers (000s)			6,151		6,137		6,139		6,138		6,199
	Divided by three months in each quarter			3		3		3		3		3

Average monthly revenue per unit (5)			$	52.71	$	52.41	$	53.51	$	53.43	$	52.39
	Voice and other retail service (5)		$	35.14	$	36.05	$	36.77	$	37.51	$	38.11
	Data service (5)		$	11.67	$	10.93	$	10.30	$	9.46	$	8.71
	Total retail service (5)		$	46.81	$	46.98	$	47.07	$	46.97	$	46.82

	Inbound roaming (5)		$	3.30	$	2.82	$	3.35	$	3.73	$	3.35
	Other (5)		$	2.60	$	2.61	$	3.09	$	2.73	$	2.22
Postpaid churn rate (6)				1.4%		1.4%		1.6%		1.7%		1.7%
Capital expenditures (000s)			$	133,500	$	121,500	$	189,000	$	128,900	$	91,200
Cell sites in service				7,416		7,310		7,279		7,161		7,043

(1) Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively, which is calculated by dividing customers by the total market population (without duplication of population in overlapping markets). (2) Calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas. (3) Calculated by adding net postpaid additions (losses) and net prepaid additions (losses). (4) U.S. Cellular adjusted previously reported service revenues for the three months ended March 31, 2010 and all quarterly periods in 2009. Previously reported service revenues for the quarterly period ended March 31, 2010 and for the quarterly periods ended December 31, September 30, and June 30, 2009 (as reported in U.S. Cellular's Form 8-K filed on May 10, 2010 for all such periods), were $965.2 million, $984.9 million, $983.4 million and $974.1 million, respectively. (5) Calculated by dividing the components of service revenues by the average customers and number of months in the quarter. (6) Calculated by dividing the total postpaid customer disconnects during the quarter by the average postpaid customer base for the quarter.


TDS Telecom Summary Operating Data

Quarter Ended		6/30/2010		3/31/2010		12/31/2009		9/30/2009		6/30/2009
TDS Telecom
ILEC
	Equivalent access lines (1)		779,200		778,700		775,900		772,700		775,800
	Physical access lines (2)		525,000		530,400		536,300		539,400		548,000
	High-speed data customers (3)		223,200		217,400		208,300		202,100		197,100
	Long-distance customers		369,100		365,600		362,800		356,500		354,100
	Managed IP stations (4)		2,700		2,300		1,900		1,500		1,200
	Capital expenditures (000s)	$	28,200	$	20,200	$	26,900	$	23,800	$	26,200
CLEC
	Equivalent access lines (1)		343,100		349,300		355,900		364,100		372,300
	High-speed data customers (3)		35,000		36,000		36,900		37,600		38,700
	Managed IP stations (4)		17,000		14,300		12,000		9,600		6,400
	Capital expenditures (000s)	$	5,400	$	3,200	$	6,800	$	4,700	$	5,700
(1) Sum of physical access lines and high-capacity data lines, adjusted to estimate the equivalent number of physical access lines in terms of capacity, plus the number of managed IP stations. (2) Individual circuits connecting customers to a telephone company's central office facilities. (3) The number of customers provided high-capacity data circuits via various technologies, including digital subscriber line ("DSL"), managed Internet Protocol ("Managed IP") and dedicated Internet circuit technologies. (4) The number of telephone handsets providing communications using packet networking technology.


Telephone and Data Systems, Inc.
Consolidated Statement of Operations Highlights
Three Months Ended June 30,
(Unaudited, dollars and shares in thousands, except per share amounts)

								Increase/ (Decrease)
				2010		2009 (1)		Amount		Percent
Operating revenues
	U.S. Cellular			$	1,029,893	$	1,042,143	$	(12,250)		(1)%
	TDS Telecom				199,206		195,960		3,246		2 %
	All Other (2)				3,120		3,967		(847)		(21)%
					1,232,219		1,242,070		(9,851)		(1)%
Operating expenses
	U.S. Cellular
		Expenses excluding depreciation, amortization
			and accretion		820,684		761,917		58,767		8 %
		Depreciation, amortization and accretion			144,455		138,777		5,678		4 %
		Loss on asset disposals, net			1,250		2,611		(1,361)		(52)%
					966,389		903,305		63,084		7 %
	TDS Telecom
		Expenses excluding depreciation, amortization
			and accretion		131,565		134,898		(3,333)		(2)%
		Depreciation, amortization and accretion			43,149		41,663		1,486		4 %
		Loss on asset disposals, net			(68)		402		(470)		>(100)%
					174,646		176,963		(2,317)		(1)%
	All Other (2)
		Expenses excluding depreciation and amortization			2,117		5,283		(3,166)		(60)%
		Depreciation and amortization			2,654		3,072		(418)		(14)%
		Loss on asset disposals, net			32		8		24		>100%
					4,803		8,363		(3,560)		(43)%

			Total operating expenses		1,145,838		1,088,631		57,207		5 %
Operating income (loss)
	U.S. Cellular				63,504		138,838		(75,334)		(54)%
	TDS Telecom				24,560		18,997		5,563		29 %
	All Other (2)				(1,683)		(4,396)		2,713		62 %
					86,381		153,439		(67,058)		(44)%
Investment and other income (expense)
	Equity in earnings of unconsolidated entities				25,997		18,363		7,634		42 %
	Interest and dividend income				2,674		2,902		(228)		(8)%
	Interest expense				(29,265)		(32,534)		3,269		10 %
	Other, net				(1,929)		(25)		(1,904)		>100%
			Total investment and other income (expense)		(2,523)		(11,294)		8,771		78 %
Income before income taxes					83,858		142,145		(58,287)		(41)%
	Income tax expense				31,469		55,242		(23,773)		(43)%
Net income					52,389		86,903		(34,514)		(40)%
	Less: Net income attributable to noncontrolling
		interests, net of tax			(12,102)		(20,539)		8,437		41 %
Net income attributable to TDS shareholders					40,287		66,364		(26,077)		(39)%
	Preferred dividend requirement				(12)		(13)		1		8 %
Net income available to common shareholders				$	40,275	$	66,351	$	(26,076)		(39)%

Basic weighted average shares outstanding					105,520		110,741		(5,221)		(5)%
Basic earnings per share attributable to
	TDS shareholders			$	0.38	$	0.60	$	(0.22)		(37)%

Diluted weighted average shares outstanding					105,907		110,971		(5,064)		(5)%
Diluted earnings per share attributable to
	TDS shareholders			$	0.38	$	0.60	$	(0.22)		(37)%
(1) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details. (2) Consists of a non-reportable segment (Suttle-Straus printing and distribution operations), corporate operations, intercompany eliminations and corporate investments.


Telephone and Data Systems, Inc.
Consolidated Statement of Operations Highlights
Six Months Ended June 30,
(Unaudited, dollars and shares in thousands, except per share amounts)

								Increase/ (Decrease)
				2010		2009 (1)		Amount		Percent
Operating revenues
	U.S. Cellular			$	2,053,750	$	2,096,487	$	(42,737)		(2)%
	TDS Telecom				394,711		395,262		(551)		—
	All Other (2)				6,193		8,547		(2,354)		(28)%
					2,454,654		2,500,296		(45,642)		(2)%
Operating expenses
	U.S. Cellular
		Expenses excluding depreciation, amortization
			and accretion		1,618,508		1,556,069		62,439		4%
		Depreciation, amortization and accretion			287,688		276,655		11,033		4%
		Loss on asset disposals, net			6,426		6,556		(130)		(2)%
					1,912,622		1,839,280		73,342		4%
	TDS Telecom
		Expenses excluding depreciation, amortization
			and accretion		257,430		265,643		(8,213)		(3)%
		Depreciation, amortization and accretion			86,572		83,526		3,046		4%
		Loss on asset disposals, net			277		617		(340)		(55)%
					344,279		349,786		(5,507)		(2)%
	All Other (2)
		Expenses excluding depreciation and amortization			4,047		11,641		(7,594)		(65)%
		Depreciation and amortization			5,387		6,324		(937)		(15)%
		Loss on asset disposals, net			(58)		18		(76)		>(100)%
					9,376		17,983		(8,607)		(48)%

			Total operating expenses		2,266,277		2,207,049		59,228		3%
Operating income (loss)
	U.S. Cellular				141,128		257,207		(116,079)		(45)%
	TDS Telecom				50,432		45,476		4,956		11%
	All Other (2)				(3,183)		(9,436)		6,253		66%
					188,377		293,247		(104,870)		(36)%
Investment and other income (expense)
	Equity in earnings of unconsolidated entities				50,900		43,700		7,200		16%
	Interest and dividend income				5,115		4,974		141		3%
	Interest expense				(58,223)		(63,044)		4,821		8%
	Other, net				(2,119)		474		(2,593)		>(100)%
		Total investment and other income (expense)			(4,327)		(13,896)		9,569		69%
Income before income taxes					184,050		279,351		(95,301)		(34)%
	Income tax expense				69,392		97,081		(27,689)		(29)%
Net income					114,658		182,270		(67,612)		(37)%
	Less: Net income attributable to noncontrolling
		interests, net of tax			(25,957)		(41,809)		15,852		38%
Net income attributable to TDS shareholders					88,701		140,461		(51,760)		(37)%
	Preferred dividend requirement				(25)		(26)		1		4%
Net income available to common shareholders				$	88,676	$	140,435	$	(51,759)		(37)%

Basic weighted average shares outstanding					105,728		111,486		(5,758)		(5)%
Basic earnings per share attributable to TDS
	shareholders			$	0.84	$	1.26	$	(0.42)		(33)%

Diluted weighted average shares outstanding					106,071		111,698		(5,627)		(5)%
Diluted earnings per share attributable to TDS
	shareholders			$	0.83	$	1.25	$	(0.42)		(34)%
(1) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details. (2) Consists of a non-reportable segment (Suttle-Straus printing and distribution operations), corporate operations, intercompany eliminations and corporate investments.


Telephone and Data Systems, Inc.
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)

ASSETS


		June 30,		December 31,
		2010		2009 (1)
Current assets
	Cash and cash equivalents	$	378,477	$	670,992
	Short-term investments		379,227		113,275
	Accounts receivable from customers and other		498,356		515,443
	Inventory		124,810		156,987
	Other current assets		185,377		190,974
			1,566,247		1,647,671

Investments
	Licenses		1,453,526		1,443,025
	Goodwill		718,635		707,840
	Other intangible assets		28,693		26,589
	Investments in unconsolidated entities		200,352		203,799
	Long-term investments		107,506		—
	Other investments		9,447		9,785
			2,518,159		2,391,038

Property, plant and equipment, net
	U.S. Cellular		2,571,340		2,601,338
	TDS Telecom		863,033		880,378
	Other		28,368		26,129
			3,462,741		3,507,845

Other assets and deferred charges			63,281		65,759

Total assets		$	7,610,428	$	7,612,313
(1) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details.


Telephone and Data Systems, Inc.
Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY


				June 30,		December 31,
				2010		2009 (1)

Current liabilities
	Current portion of long-term debt			$	2,038	$	2,509
	Accounts payable				312,527		347,348
	Customer deposits and deferred revenues				169,513		164,451
	Accrued interest				12,208		12,227
	Accrued taxes				84,346		62,568
	Accrued compensation				71,722		93,524
	Other current liabilities				98,467		117,081
					750,821		799,708

Deferred liabilities and credits
	Net deferred income tax liability				492,657		517,762
	Other deferred liabilities and credits				393,485		373,862

Long-term debt					1,492,500		1,492,908

Noncontrolling interests with redemption features					746		727

Equity
	TDS shareholders' equity
		Series A Common, Special Common and Common Shares,
			par value $.01		1,270		1,270
		Capital in excess of par value			2,098,380		2,088,807
		Special Common and Common Treasury shares, at cost			(706,987)		(681,649)
		Accumulated other comprehensive loss			(3,139)		(2,710)
		Retained earnings			2,420,862		2,358,580
			Total TDS shareholders' equity		3,810,386		3,764,298

	Preferred shares				831		832
	Noncontrolling interests				669,002		662,216

		Total equity			4,480,219		4,427,346

Total liabilities and equity				$	7,610,428	$	7,612,313
(1) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details.


Telephone and Data Systems, Inc.
Balance Sheet Highlights
June 30, 2010
(Unaudited, dollars in thousands)

		U.S. Cellular		TDS Telecom		TDS Corporate & Other		Intercompany Eliminations		TDS Consolidated
Cash and cash equivalents		$	232,853	$	33,190	$	112,434	$	—	$	378,477
Affiliated cash investments			—		333,562				(333,562)		—
Short-term investments			135,798		97,510		145,919		—		379,227
Notes receivable—affiliates			—				8,809		(8,809)		—
		$	368,651	$	464,262	$	267,162	$	(342,371)	$	757,704

Licenses, goodwill and other intangibles		$	1,941,939	$	450,330	$	(191,415)	$	—	$	2,200,854
Investment in unconsolidated entities			163,518		3,650		40,200		(7,016)		200,352
Long-term and other investments			45,130		1,927		69,896		—		116,953
		$	2,150,587	$	455,907	$	(81,319)	$	(7,016)	$	2,518,159

Property, plant and equipment, net		$	2,571,340	$	863,033	$	28,368	$	—	$	3,462,741

Notes payable—affiliates		$	—	$	8,809	$	333,562	$	(342,371)	$	—

Long-term debt
	Current portion	$	86	$	391	$	1,561	$	—	$	2,038
	Non-current portion		867,880		2,081		622,539		—		1,492,500
		$	867,966	$	2,472	$	624,100	$	—	$	1,494,538

Preferred shares		$	—	$	—	$	831	$	—	$	831

Telephone and Data Systems, Inc. Schedule of Cash and Cash Equivalents and Investments (Unaudited, dollars in thousands) In an effort to improve investment returns, during the second quarter of 2010, TDS elected to use a portion of its cash balance to directly purchase U.S. treasury securities and securities insured by the Federal Deposit Insurance Corporation ("FDIC"), as opposed to investing in money market funds. The maturity dates of such direct investments were staggered in order to maintain cash balances and liquidity at targeted levels. TDS also continues to invest in certificates of deposit that are insured by the FDIC. The following table presents TDS' cash and cash equivalents; and investments in U.S. treasury securities, commercial paper and certificates of deposit at June 30, 2010 and December 31, 2009.
			June 30,		December 31,
			2010		2009

	Cash and cash equivalents		$	378,477	$	670,992
	Amounts included in short-term investments
		U.S. treasury securities		180,732		—
		Certificates of deposit (1)		97,614		113,275
		Commercial paper (2)		100,881		—
			$	379,227	$	113,275
	Amounts included in long-term investments (3)
		U.S. treasury securities		30,181		—
		Commercial paper (2)		77,325		—
			$	107,506	$	—

(1) TDS' investments in certificates of deposits are insured by the FDIC. (2) TDS' investments in commercial paper are insured by the FDIC under its Temporary Liquidity Guarantee Program. (3) TDS' long-term investments have maturity dates between July 2011 and December 2012.


TDS Telecom Highlights
Three Months Ended June 30,
(Unaudited, dollars in thousands)

								Increase (Decrease)
				2010		2009		Amount		Percent
Local Telephone Operations
	Operating revenues
		Voice		$	45,738	$	46,879	$	(1,141)		(2)%
		Data			31,993		25,491		6,502		26%
		Network access			66,951		67,118		(167)		—
		Miscellaneous			9,576		8,720		856		10%
					154,258		148,208		6,050		4%
	Operating expenses
		Cost of services and products (excluding
			Depreciation, amortization and accretion
			expense reported below)		49,302		48,406		896		2%
		Selling, general and administrative expenses			44,167		45,083		(916)		(2)%
		Depreciation, amortization and accretion			36,847		35,302		1,545		4%
		Loss on asset disposals, net			(228)		283		(511)		>(100)%
					130,088		129,074		1,014		1%

	Operating income			$	24,170	$	19,134	$	5,036		26%

Competitive Local Exchange Carrier Operations
		Revenues		$	47,325	$	50,093	$	(2,768)		(6)%

		Expenses (excluding Depreciation, amortization
			and accretion expense reported below)		40,473		43,750		(3,277)		(7)%
		Depreciation, amortization and accretion			6,302		6,361		(59)		(1)%
		Loss on asset disposals, net			160		119		41		34%
					46,935		50,230		(3,295)		(7)%

	Operating income (loss)			$	390	$	(137)	$	527		>100%

Intercompany revenues				$	(2,377)	$	(2,341)	$	(36)		(2)%
Intercompany expenses					(2,377)		(2,341)		(36)		(2)%
					—		—		—

Total TDS Telecom operating income				$	24,560	$	18,997	$	5,563		29%


			TDS Telecom Highlights
			Six Months Ended June 30,
			(Unaudited, dollars in thousands)

								Increase (Decrease)
				2010		2009		Amount		Percent
Local Telephone Operations
	Operating revenues
		Voice		$	90,296	$	95,457	$	(5,161)		(5)%
		Data			60,291		50,551		9,740		19%
		Network access			134,893		134,949		(56)		—
		Miscellaneous			18,934		17,438		1,496		9%
					304,414		298,395		6,019		2%
	Operating expenses
		Cost of services and products (excluding
			Depreciation, amortization and accretion
			expense reported below)		95,794		96,090		(296)		—
		Selling, general and administrative expenses			85,904		86,112		(208)		—
		Depreciation, amortization and accretion			73,905		71,388		2,517		4%
		Loss on asset disposals, net			32		421		(389)		(92)%
					255,635		254,011		1,624		1%

	Operating income			$	48,779	$	44,384	$	4,395		10%

Competitive Local Exchange Carrier Operations
		Revenues		$	95,068	$	101,282	$	(6,214)		(6)%

		Expenses (excluding Depreciation, amortization
			and accretion expense reported below)		80,503		87,856		(7,353)		(8)%
		Depreciation, amortization and accretion			12,667		12,138		529		4%
		Loss on asset disposals, net			245		196		49		25%
					93,415		100,190		(6,775)		(7)%

	Operating income			$	1,653	$	1,092	$	561		51%

Intercompany revenues				$	(4,771)	$	(4,415)	$	(356)		(8)%
Intercompany expenses					(4,771)		(4,415)		(356)		(8)%
					—		—		—

Total TDS Telecom operating income				$	50,432	$	45,476	$	4,956		11%


Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows
(Unaudited)

				Six Months Ended
				June 30,
				2010		2009 (1)

				(Dollars in thousands)
Cash flows from operating activities
	Net income			$	114,658	$	182,270
	Add (deduct) adjustments to reconcile net income to net cash flows
		from operating activities
			Depreciation, amortization and accretion		379,647		366,505
			Bad debts expense		39,633		42,761
			Stock-based compensation expense		16,743		14,394
			Deferred income taxes, net		(28,881)		18,882
			Equity in earnings of unconsolidated entities		(50,900)		(43,700)
			Distributions from unconsolidated entities		48,740		13,239
			Loss on asset disposals, net		6,645		7,191
			Other operating activities		3,381		2,125
		Changes in assets and liabilities from operations
			Accounts receivable		(20,985)		(68,283)
			Inventory		32,177		(9,928)
			Accounts payable		(35,572)		(63,963)
			Customer deposits and deferred revenues		4,217		(5,151)
			Accrued taxes		24,209		60,406
			Accrued interest		102		513
			Other assets and liabilities		(31,468)		(73,300)
					502,346		443,961

Cash flows from investing activities
	Additions to property, plant and equipment				(317,950)		(290,821)
	Cash paid for acquisitions and licenses				(28,264)		(15,042)
	Cash paid for investments				(385,000)		(109,055)
	Cash received for investments				15,661		—
	Other investing activities				1,479		2,040
					(714,074)		(412,878)

Cash flows from financing activities
	Repayment of long-term debt				(1,280)		(1,655)
	TDS Common Shares and Special Common Shares reissued for benefit plans,
		net of tax payments			845		743
	U.S. Cellular Common Shares reissued for benefit plans, net of tax payments				144		(405)
	Repurchase of TDS Special Common Shares				(31,092)		(86,565)
	Repurchase of U.S. Cellular Common Shares				(21,423)		(19,332)
	Dividends paid				(23,732)		(23,814)
	Payment of debt issuance costs				—		(9,959)
	Distributions to noncontrolling interests				(4,314)		(3,417)
	Other financing activities				65		769
					(80,787)		(143,635)

Net decrease in cash and cash equivalents					(292,515)		(112,552)

Cash and cash equivalents
	Beginning of period				670,992		777,309
	End of period			$	378,477	$	664,757
(1) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details.


Telephone and Data Systems, Inc.
Financial Measures and Reconciliations
(Unaudited, dollars in thousands)
											Consolidated
Three Months Ended June 30, 2010					U.S. Cellular		TDS Telecom (1)		All Other (2)		Total

	Operating revenues			$	1,029,893	$	199,206	$	3,120	$	1,232,219
	Deduct:
		U.S. Cellular equipment sales revenue			57,317
			Service revenues	$	972,576

	Operating income			$	63,504	$	24,560	$	(1,683)	$	86,381
	Add:
		Depreciation, amortization and accretion			144,455		43,149		2,654		190,258
		(Gain) Loss on asset disposals			1,250		(68)		32		1,214
			Adjusted OIBDA (3)(6)	$	209,209	$	67,641	$	1,003	$	277,853

			Adjusted OIBDA margin (4)		21.5%		34.0%
											Consolidated
Three Months Ended June 30, 2009					U.S. Cellular (7)		TDS Telecom (1)(7)		All Other (2)		Total (7)

	Operating revenues			$	1,042,143	$	195,960	$	3,967	$	1,242,070
	Deduct:
		U.S. Cellular equipment sales revenue			67,795
			Service revenues	$	974,348

	Operating income			$	138,838	$	18,997	$	(4,396)	$	153,439
	Add (Deduct):
		Depreciation, amortization and accretion			138,777		41,663		3,072		183,512
		Loss on asset disposals			2,611		402		8		3,021
			Adjusted OIBDA (3)(6)	$	280,226	$	61,062	$	(1,316)	$	339,972

			Adjusted OIBDA margin (4)		28.8%		31.2%


				TDS Consolidated
Three Months Ended June 30,					2010		2009

	Cash flows from operating activities			$	291,686	$	220,711
	Deduct:
		Capital expenditures			171,328		125,585
			Free cash flow (5)	$	120,358	$	95,126


	Telephone and Data Systems, Inc.
	Financial Measures and Reconciliations
	(Unaudited, dollars in thousands)
												Consolidated
	Six Months Ended June 30, 2010					U.S. Cellular		TDS Telecom (1)		All Other (2)		Total

		Operating revenues			$	2,053,750	$	394,711	$	6,193	$	2,454,654
		Deduct:
			U.S. Cellular equipment sales revenue			116,166
				Service revenues	$	1,937,584

		Operating income			$	141,128	$	50,432	$	(3,183)	$	188,377
		Add:
			Depreciation, amortization and accretion			287,688		86,572		5,387		379,647
			(Gain) Loss on asset disposals			6,426		277		(58)		6,645
				Adjusted OIBDA (3)(6)	$	435,242	$	137,281	$	2,146	$	574,669

				Adjusted OIBDA margin (4)		22.5%		34.8%
												Consolidated
	Six Months Ended June 30, 2009					U.S. Cellular (7)		TDS Telecom (1)(7)		All Other (2)		Total (7)

		Operating revenues			$	2,096,487	$	395,262	$	8,547	$	2,500,296
		Deduct:
			U.S. Cellular equipment sales revenue			138,685
				Service revenues	$	1,957,802

		Operating income			$	257,207	$	45,476	$	(9,436)	$	293,247
		Add (Deduct):
			Depreciation, amortization and accretion			276,655		83,526		6,324		366,505
			Loss on asset disposals			6,556		617		18		7,191
				Adjusted OIBDA (3)(6)	$	540,418	$	129,619	$	(3,094)	$	666,943

				Adjusted OIBDA margin (4)		27.6%		32.8%


					TDS Consolidated
	Six Months Ended June 30,					2010		2009

		Cash flows from operating activities			$	502,346	$	443,961
		Deduct:
			Capital expenditures			317,950		290,821
				Free cash flow (5)	$	184,396	$	153,140
(1) Includes ILEC and CLEC intercompany eliminations. (2) Consists of a non-reportable segment (Suttle-Straus), corporate operations, intercompany eliminations between U.S. Cellular, TDS Telecom and corporate investments. Amounts in this column are presented only to reconcile to consolidated totals and may not otherwise be meaningful. (3) Adjusted OIBDA is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows. (4) Adjusted OIBDA margin is defined as adjusted OIBDA divided by service revenues (U.S. Cellular) and operating revenues (TDS Telecom). Equipment revenues are excluded from the denominator of the U.S. Cellular calculation since equipment is generally sold at a net negative margin, and the equipment subsidy is effectively a cost for purposes of assessing business results. TDS believes that this calculation method is consistent with the method used by certain investors to assess U.S. Cellular's business results. Adjusted OIBDA margin may also be commonly referred to by management as operating cash flow margin. (5) Free cash flow is defined as cash flows from operating activities minus capital expenditures. Free cash flow is a non-GAAP financial measure. TDS believes that free cash flow as reported by TDS is useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after consideration of capital expenditures. (6) Adjusted OIBDA excludes the net gain or loss on asset disposals and loss on impairment of assets, if any, in order to show operating results on a more comparable basis from period to period. TDS does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual, and accordingly, they may be incurred in the future. (7) Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details.

Revision of Prior Period Amounts

In preparing its financial statements for the three months ended March 31, 2010, TDS discovered certain errors related to accounting for operating revenues and sales tax liabilities. The quantification of these errors was subsequently refined during the second quarter of 2010. These errors resulted in the overstatement of operating revenues and understatement of sales tax liabilities for the years ended December 31, 2009, 2008, 2007, and the three months ended March 31, 2010. In addition to recording these adjustments, TDS recorded other adjustments to prior-year amounts to correct other immaterial items. In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 ("SAB 99 and SAB 108"), TDS evaluated these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendment of previously filed reports was not required. However, if the adjustments to correct the cumulative errors had been recorded in the first or second quarter of 2010, TDS believes the impact would have been significant to those respective periods and would impact comparisons to prior periods. As permitted by SAB 108, TDS revised in the current filing its comparative consolidated financial statements for these immaterial amounts. In addition, on August 5, 2010, TDS filed a Current Report on Form 8-K (Items 8.01 and 9.01) with the SEC to revise financial statements and other financial information previously included in its Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the period ended March 31, 2010.

The Consolidated Balance Sheet at December 31, 2009 was revised to reflect the cumulative effect of these errors, which resulted in a decrease to retained earnings of $13.0 million. Also, in accordance with SAB 108, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows have been revised as follows:


Consolidated Balance Sheet — December 31, 2009

				As previously
	(Dollars in thousands)			reported (1)		Adjustment		Revised

	Accounts receivable from customers and others		$	511,914	$	3,529	$	515,443
	Total current assets			1,644,142		3,529		1,647,671
	Total assets			7,608,784		3,529		7,612,313
	Customer deposits and deferred revenues			167,963		(3,512)		164,451
	Accrued taxes			39,644		22,924		62,568
	Total current liabilities			780,296		19,412		799,708
	Retained earnings			2,371,587		(13,007)		2,358,580
	Total TDS shareholders' equity			3,777,305		(13,007)		3,764,298
	Noncontrolling interests			665,092		(2,876)		662,216
	Total equity			4,443,229		(15,883)		4,427,346
	Total liabilities and equity			7,608,784		3,529		7,612,313


Consolidated Statement of Operations — Three Months Ended June 30, 2009

				As previously
	(Dollars in thousands, except per share amounts)			reported (2)		Adjustment		Revised

	Operating revenues		$	1,242,477	$	(407)	$	1,242,070
	Total operating expenses			1,087,877		754		1,088,631
	Operating income			154,600		(1,161)		153,439
	Interest expense			(32,245)		(289)		(32,534)
	Total investment and other income (expense)			(11,005)		(289)		(11,294)
	Income before income taxes			143,595		(1,450)		142,145
	Income tax expense			53,036		2,206		55,242
	Net income			90,559		(3,656)		86,903
	Net income attributable to noncontrolling interests,
		net of tax		(20,828)		289		(20,539)
	Net income attributable to TDS shareholders			69,731		(3,367)		66,364
	Net income available to common shareholders			69,718		(3,367)		66,351
	Basic earnings attributable to TDS shareholders			0.63		(0.03)		0.60
	Diluted earnings attributable to TDS shareholders			0.63		(0.03)		0.60


Consolidated Statement of Operations — Six Months Ended June 30, 2009

				As previously
	(Dollars in thousands, except per share amounts)			reported (2)		Adjustment		Revised

	Operating revenues		$	2,499,123	$	1,173	$	2,500,296
	Total operating expenses			2,208,314		(1,265)		2,207,049
	Operating income			290,809		2,438		293,247
	Interest expense			(62,350)		(694)		(63,044)
	Total investment and other income (expense)			(13,202)		(694)		(13,896)
	Income before income taxes			277,607		1,744		279,351
	Income tax expense			93,674		3,407		97,081
	Net income			183,933		(1,663)		182,270
	Net income attributable to noncontrolling interests,
		net of tax		(42,194)		385		(41,809)
	Net income attributable to TDS shareholders			141,739		(1,278)		140,461
	Net income available to common shareholders			141,713		(1,278)		140,435
	Basic earnings attributable to TDS shareholders			1.27		(0.01)		1.26
	Diluted earnings attributable to TDS shareholders			1.27		(0.02)		1.25


Consolidated Statement of Cash Flows — Six Months Ended June 30, 2009

				As previously
	(Dollars in thousands)			reported (2)		Adjustment		Revised

	Net income		$	183,933	$	(1,663)	$	182,270
	Depreciation, amortization and accretion			366,115		390		366,505
	Deferred income taxes, net			16,237		2,645		18,882
	Loss on asset disposals			4,912		2,279		7,191
	Change in accounts receivable			(62,870)		(5,413)		(68,283)
	Change in customer deposits and deferred revenues			(4,824)		(327)		(5,151)
	Change in accrued taxes			56,741		3,665		60,406
	Change in other assets and liabilities			(71,724)		(1,576)		(73,300)
	Cash flows from operating activities			443,961		—		443,961
(1) In Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 25, 2010. (2) In Quarterly Report on Form 10-Q for the period ended June 30, 2009 filed on August 6, 2009.