Telephone and Data Systems (TDS) 8-K Results of Operations and Financial Condition

NEWS RELEASE                         

As previously announced, TDS will hold a teleconference May 6, 2011 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Conference Calls page ofwww.teldta.com.

Contact:	Jane W. McCahon, Vice President, Corporate Relations (312) 592-5379;jane.mccahon@teldta.com
	Julie D. Mathews, Manager, Investor Relations (312) 592-5341;julie.mathews@teldta.com

FOR RELEASE: IMMEDIATE

TDS REPORTS FIRST QUARTER 2011 RESULTS

U.S. Cellular accelerates 4G/LTE deployment and increases capacity for data usage

Note: Comparisons are year over year unless otherwise noted.

1Q 2011 Highlights

TDS Corporate

§       Operating revenues increased 3 percent to $1.3 billion.

§       Repurchased 407,281 TDS Special Common Shares for $11.6 million.

U.S. Cellular

§   A net loss of 31,000 retail customers, reflecting a loss of 22,000 postpaid customers and 9,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.

§Service revenues were $985.1 million, up 2.1 percent.

§   PostpaidARPU (average revenue per unit) increased to $51.21 from $50.70.

§       Postpaid churn improved to 1.37 percent from 1.41 percent.

§       5 percent increase in cell sites in service to 7,663.

TDS Telecom

§Operating revenues increased 2 percent to $199 million.

§Operating income increased 24 percent.

§managedIP stations (ILEC and CLEC) grew to 31,500 from 16,600.

CHICAGO – May 6, 2011 —Telephone and Data Systems, Inc. [NYSE:TDS, TDS.S]reported operating revenues of $1,258.7 million for the first quarter of 2011, an increase of 3 percent from $1,222.4 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $41.6 million and $0.40, respectively, for the first quarter of 2011, compared to $48.4 million and $0.45, respectively, in the comparable period one year ago.

“U.S. Cellular and TDS Telecom continued to make progress on their strategic priorities in the quarter,” said LeRoy T. Carlson, Jr., TDS president and CEO. “Both companies are increasing their investments in network capabilities this year to enhance our customers’ experiences and to ensure strong foundations for future growth.

“U.S. Cellular continued to drive demand for smartphones and data use, leading to higher average revenue per customer. The high expected lifetime value of smartphone customers is an important part of the company’s long-term strategy, and justifies the initial impact on profitability. To ensure outstanding data experiences for our customers, and better manage the long-term costs, U.S. Cellular is increasing data capacity and accelerating its 4G/LTE rollout, and has increased its capital expenditure guidance.

“U.S. Cellular’s customer additions were disappointing, particularly in light of growing levels of customer satisfaction.  The company is refocusing its marketing and sales strategies to increase awareness, consideration, and acquisition of potential switchers from other wireless carriers.

“TDS Telecom again delivered good financial results, continuing to increase revenues and improve operating margins. The company grew ILEC data revenues through its hosted and managed services offerings, and increases in high-speed data customers. TDS Telecom’s commercial strategy continued to drive growth inmanagedIP stations, and the company is actively pursuing additional opportunities to build its hosted and managed services offerings.”

Guidance for year ending Dec. 31, 2011

Guidance for the year ending Dec. 31, 2011 as of May 6, 2011 is provided below, compared to the previous guidance provided on Feb. 24, 2011.  TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise.  There can be no assurance that final results will not differ materially from this guidance. 

U.S. Cellular		Current Estimates	Previous Estimates (1)
	Service revenues	$4,000-$4,100 million	Unchanged
	Adjusted OIBDA (2) (4)	$775-$875 million	Unchanged
	Operating income (3) (4)	$185-$285 million	Unchanged
	Depreciation, amortization and accretion expenses, and losses on asset disposals and impairment of assets (3)	Approx. $590 million	Unchanged
	Capital expenditures (4)	$750-$800 million	Approx. $650 million
TDS Telecom
	Operating revenues	$780-$810 million	Unchanged
	Adjusted OIBDA (2)	$260-$290 million	Unchanged
	Operating income (3)	$75-$105 million	Unchanged
	Depreciation, amortization and accretion expenses, and losses on asset disposals and impairment of assets (3)	Approx. $185 million	Unchanged
	Capital expenditures (5)	$175-$200 million	Unchanged

(1)   The 2011 Estimated Results as disclosed in the TDS Annual Report on Form 10-K for the year ended December 31, 2010.

(2)   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.

(3)   The 2011 Estimated Results do not include any estimate for losses on impairment of assets since these cannot be predicted.

(4)   This guidance is based on U.S. Cellular’s current plans, which include a multi-year deployment of Long-term Evolution (“LTE”) technology commencing in 2011.  As customer demand for data services increases, and competitive conditions in the wireless industry evolve, such as the rate of deployment of LTE technology by other carriers, the timing of U.S. Cellular’s deployment of LTE and the timing of other capital expenditures to support data usage could change. These factors could affect U.S. Cellular’s estimated capital expenditures and operating expenses in 2011.

(5)   The capital expenditure guidance does not include federal grants of $105.1 million awarded to TDS Telecom through the Broadband Stimulus program under the American Recovery and Reinvestment Act for 44 projects to be completed between 2011and 2013.

2

Stock repurchase summary

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

Repurchase Period	# Shares	Cost (in millions)
2011 (first quarter)	407,281	$	11.6
2010 (full year)	2,394,476	$	68.1
2009 (full year)	6,374,741	$	176.6
2008 (full year)	5,861,822	$	199.6
Total	15,038,320	$	455.9

Conference call information

TDS will hold a conference call on May 6, 2011at 9:30 a.m. CDT.

§Access the live call on the Conference Calls page ofwww.teldta.com or athttp://www.videonewswire.com/event.asp?id=79230.

§        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 Investor Relations page ofwww.teldta.com. The call will be archived on the Conference Calls page ofwww.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 7.1 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 12,100 people as of March 31, 2011.

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

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; theaccess 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

3

United States Cellular Corporation Summary Operating Data (Unaudited)
Quarter Ended	3/31/2011			12/31/2010			9/30/2010			6/30/2010			3/31/2010
Total population
Consolidated markets(1)		91,090,000			90,468,000			90,468,000			90,468,000			90,468,000
Consolidated operating markets(1)		46,774,000			46,546,000			46,546,000			46,546,000			46,546,000
Market penetration at end of period
Consolidated markets(2)		6.6	%		6.7	%		6.7	%		6.8	%		6.8	%
Consolidated operating markets(2)		12.9	%		13.0	%		13.1	%		13.2	%		13.2	%
All customers
Total at end of period		6,033,000			6,072,000			6,103,000			6,144,000			6,147,000
Gross additions		293,000			327,000			338,000			349,000			358,000
Net additions (losses)		(39,000	)		(31,000	)		(41,000	)		(3,000	)		6,000
Smartphones sold as a percent of total devices sold(3)		42.5	%		39.6	%		23.6	%		15.8	%		16.6	%
Retail customers
Total at end of period		5,698,000			5,729,000			5,750,000			5,775,000			5,768,000
Smartphone penetration(3)(4)		20.2	%		16.6	%		12.0	%		10.1	%		8.9	%
Gross additions		256,000			292,000			301,000			307,000			305,000
Net retail additions (losses)(5)		(31,000	)		(21,000	)		(25,000	)		7,000			24,000
Net postpaid additions (losses)		(22,000	)		(10,000	)		(25,000	)		(22,000	)		(9,000	)
Net prepaid additions (losses)		(9,000	)		(11,000	)		—			29,000			33,000
Service revenue components (000s)
Retail service	$	864,602		$	864,905		$	865,766		$	863,836		$	865,039
Inbound roaming		64,386			67,545			72,901			60,902			51,942
Other		56,125			59,464			44,836			47,838			48,027
Total service revenues (000s)	$	985,113		$	991,914		$	983,503		$	972,576		$	965,008
Total ARPU(6)	$	54.29		$	54.37		$	53.53		$	52.71		$	52.41
Billed ARPU (7)	$	47.65		$	47.41		$	47.12		$	46.81		$	46.98
Postpaid ARPU(8)	$	51.21		$	50.99		$	50.82		$	50.55		$	50.70
Postpaid churn rate(9)		1.4	%		1.5	%		1.6	%		1.4	%		1.4	%
Capital expenditures (000s)	$	95,900		$	203,400		$	124,700		$	133,500		$	121,500
Cell sites in service		7,663			7,645			7,524			7,416			7,310

(1)    Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively.  See footnote (2) below.

(2)   Market Penetration is 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)    Smartphones represent wireless devices which run on a Blackberry, Windows Mobile, or Android operating system.

(4)    Smartphone penetration is calculated by dividing postpaid customers on smartphone service plans by total postpaid customers.

(5)    Includes net postpaid additions (losses) and net prepaid additions (losses).

(6)    Total ARPU - Average monthly service revenue per customer includes retail service, inbound roaming and other service revenues and is calculated by dividingtotalservice revenues by the number of months in the period and by the average total customers during the period.

(7)    Billed ARPU - Average monthly billed revenue per customer is calculated by dividing total retail service revenues by the number of months in the period and by the average total customers during the period. Retail service revenues include revenues attributable to postpaid, prepaid and reseller customers.

(8)    Postpaid ARPU - Average monthly revenue per postpaid customer is calculated by dividing total retail service revenues from postpaid customers by the number of months in the period and by the average postpaid customers during the period.

(9)    Represents the percentage of the retail postpaid customer base that disconnects service each month. This amount represents the average postpaid churn rate for each respective quarterly period.

4

TDS Telecom Summary Operating Data (Unaudited)
Quarter Ended		3/31/2011		12/31/2010		9/30/2010		6/30/2010		3/31/2010
TDS Telecom
	ILEC:
	Equivalent access lines(1)		765,300		767,200		773,800		779,200		778,700
	Physical access lines (2)		501,200		507,700		517,000		525,000		530,400
	High-speed data customers (3)		231,800		227,700		225,400		223,200		217,400
	Long-distance customers		370,600		370,100		370,800		369,100		365,600
	managedIP stations (4)		4,300		3,600		3,100		2,700		2,300
	Capital expenditures (000s)	$	22,100	$	55,700	$	33,000	$	28,200	$	20,200
	CLEC:
	Equivalent access lines (1)		331,000		335,400		338,700		343,100		349,300
	High-speed data customers (3)		32,300		33,100		33,900		35,000		36,000
	managedIP stations (4)		27,200		23,800		20,300		17,000		14,300
	Capital expenditures (000s)	$	4,200	$	6,200	$	5,500	$	5,400	$	3,200

(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 ofmanagedIP 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 DSL,managedIP and dedicated Internet circuit technologies.

(4)    The number of telephone handsets providing communications using packet networking technology.

5

 

Telephone and Data Systems, Inc. Consolidated Statement of Operations Highlights Three Months Ended March 31,
(Unaudited, dollars and shares in thousands, except per share amounts)
										Increase/ (Decrease)
				2011			2010			Amount			Percent
Operating revenues
	U.S. Cellular			$	1,057,092		$	1,023,857		$	33,235			3	%
	TDS Telecom				198,916			195,505			3,411			2	%
	All Other (1)				2,673			3,073			(400	)		(13	%)
					1,258,681			1,222,435			36,246			3	%
Operating expenses
	U.S. Cellular
		Expenses excluding depreciation, amortization and accretion			853,967			797,824			56,143			7	%
		Depreciation, amortization and accretion			145,045			143,233			1,812			1	%
		Loss on asset disposals, net			1,037			5,176			(4,139	)		(80	%)
					1,000,049			946,233			53,816			6	%
	TDS Telecom
		Expenses excluding depreciation, amortization and accretion			121,769			125,865			(4,096	)		(3	%)
		Depreciation, amortization and accretion			44,837			43,423			1,414			3	%
		Loss on asset disposals, net			104			345			(241	)		(70	%)
					166,710			169,633			(2,923	)		(2	%)
	All Other (1)
		Expenses excluding depreciation and amortization			2,116			1,930			186			10	%
		Depreciation and amortization			2,636			2,733			(97	)		(4	%)
		Loss on asset disposals, net			2			(90	)		92			>(100	%)
					4,754			4,573			181			4	%
			Total operating expenses		1,171,513			1,120,439			51,074			5	%
Operating income (loss)
	U.S. Cellular				57,043			77,624			(20,581	)		(27	%)
	TDS Telecom				32,206			25,872			6,334			24	%
	All Other (1)				(2,081	)		(1,500	)		(581	)		(39	%)
					87,168			101,996			(14,828	)		(15	%)
Investment and other income (expense)
	Equity in earnings of unconsolidated entities				19,388			24,903			(5,515	)		(22	%)
	Interest and dividend income				2,624			2,441			183			7	%
	Interest expense				(28,099	)		(28,958	)		859			3	%
	Other, net				80			(190	)		270			>(100	%)
			Total investment and other income (expense)		(6,007	)		(1,804	)		(4,203	)		>100	%
Income before income taxes					81,161			100,192			(19,031	)		(19	%)
	Income tax expense				28,917			37,923			(9,006	)		(24	%)
Net Income					52,244			62,269			(10,025	)		(16	%)
	Less: Net income attributable to noncontrolling interests, net of tax				(10,622	)		(13,855	)		3,233			23	%
Net income attributable to TDS shareholders					41,622			48,414			(6,792	)		(14	%)
	Preferred dividend requirement				(12	)		(12	)		—			—
Net income available to common shareholders				$	41,610		$	48,402		$	(6,792	)		(14	%)
Basic weighted average shares outstanding					104,025			105,938			(1,913	)		(2	%)
Basic earnings per share attributable to TDS shareholders				$	0.40		$	0.46		$	(0.06	)		(13	%)
Diluted weighted average shares outstanding					104,554			106,250			(1,696	)		(2	%)
Diluted earnings per share attributable to TDS shareholders				$	0.40		$	0.45		$	(0.05	)		(11	%)

(1)    Consists of Suttle Straus printing and distribution operations, corporate operations and intercompany eliminations.

N/M – Percentage change not meaningful

6

 

Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
ASSETS
		March 31, 2011		December 31, 2010
Current assets
	Cash and cash equivalents	$	592,010	$	368,134
	Restricted Cash - redemption of 7.6% Series A notes		282,500		—
	Short-term investments		299,518		402,882
	Accounts receivable from customers and others		490,266		512,946
	Inventory		113,352		116,330
	Net deferred income tax asset		37,079		37,079
	Prepaid expenses		87,796		76,935
	Prepaid income taxes		21,026		64,386
	Other current assets		15,516		17,384
			1,939,063		1,596,076
Investments
	Licenses		1,460,426		1,460,126
	Goodwill		728,455		728,455
	Other intangible assets		28,611		30,810
	Investments in unconsolidated entities		206,925		197,922
	Long-term investments		81,570		102,185
	Other investments		8,850		8,988
			2,514,837		2,528,486
Property, plant and equipment, net
	U.S. Cellular		2,567,274		2,615,072
	TDS Telecom		893,497		909,951
	Other		36,738		33,311
			3,497,509		3,558,334
Other assets and deferred charges			119,892		79,623
Total assets		$	8,071,301	$	7,762,519

7

 

Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights
(Unaudited, dollars in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
				March 31, 2011			December 31, 2010
Current liabilities
	Current portion of long-term debt			$	284,166		$	1,711
	Accounts payable				329,522			344,355
	Customer deposits and deferred revenues				182,123			171,781
	Accrued interest				19,322			2,718
	Accrued taxes				42,504			46,110
	Accrued compensation				67,124			99,020
	Other current liabilities				101,768			144,938
					1,026,529			810,633
Deferred liabilities and credits
	Net deferred income tax liability				634,544			585,468
	Other deferred liabilities and credits				408,378			404,892
Long-term debt					1,517,176			1,499,862
Noncontrolling interests with redemption features					894			855
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			2,113,848			2,107,929
		Special Common and Common Treasury shares, at cost			(748,063	)		(738,695	)
		Accumulated other comprehensive loss			(3,159	)		(3,208	)
		Retained earnings			2,475,301			2,446,626
			Total TDS shareholders’ equity		3,839,197			3,813,922
	Preferred shares				830			830
	Noncontrolling interests				643,753			646,057
		Total equity			4,483,780			4,460,809
Total liabilities and equity				$	8,071,301		$	7,762,519

8

 

Balance Sheet Highlights March 31, 2011
(Unaudited, dollars in thousands)
			U.S. Cellular		TDS Telecom		TDS Corporate & Other			Intercompany Eliminations			TDS Consolidated
Cash and cash equivalents			$	421,294	$	5,930	$	164,786		$	―		$	592,010
Affiliated cash investments				―		394,240		―			(394,240	)		―
Short-term investments				121,252		74,235		104,031			―			299,518
			$	542,546	$	474,405	$	268,817		$	(394,240	)	$	891,528
Licenses, goodwill and other intangible assets			$	1,947,786	$	463,589	$	(193,883	)	$	―		$	2,217,492
Investment in unconsolidated entities				171,485		3,809		40,348			(8,717	)		206,925
Long-term and other investments				39,770		1,440		49,210			―			90,420
			$	2,159,041	$	468,838	$	(104,325	)	$	(8,717	)	$	2,514,837
Property, plant and equipment, net			$	2,567,274	$	893,497	$	36,738		$	―		$	3,497,509
Long-term debt:
	Current portion		$	101	$	269	$	283,796		$	―		$	284,166
	Non-current portion			868,102		1,930		647,144			―			1,517,176
		Total	$	868,203	$	2,199	$	930,940		$	―		$	1,801,342
Preferred shares			$	―	$	―	$	830		$	―		$	830

9

Telephone and Data Systems, Inc.

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)

The following table presents TDS’ cash and cash equivalents and investments at March 31, 2011 and December 31, 2010.

		March 31, 2011		December 31, 2010
Cash and cash equivalents		$	592,010	$	368,134
Amounts included in short-term investments (1) (2)
	Government-backed securities (3)		225,033		305,612
	Certificates of deposit (4)		74,485		97,270
		$	299,518	$	402,882
Amounts included in long-term investments (1) (5)
	Government-backed securities (3)	$	81,570	$	102,185

(1)Designated as held-to-maturity investments and recorded at amortized cost on the Consolidated Balance Sheet.

(2)    Maturities are less than twelve months from the respective balance sheet dates.

(3)    Includes U.S. treasuries and corporate notes that are guaranteed under the FDIC’s Temporary Liquidity Guarantee Program.

(4)    TDS’ investments in certificates of deposits are insured by the FDIC.

(5)    At March 31, 2011, maturities range between 14 and 21 months from the balance sheet date.

10

 

Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
Three Months Ended March 31,
(Unaudited, dollars in thousands)
				2011			2010
Cash flows from operating activities
	Net income			$	52,244		$	62,269
		Add (deduct) adjustments to reconcile net income to netcash flows from operating activities
			Depreciation, amortization and accretion		192,518			189,389
			Bad debts expense		14,285			20,245
			Stock-based compensation expense		9,459			7,444
			Deferred income taxes, net		47,841			(13,874	)
			Equity in earnings of unconsolidated entities		(19,388	)		(24,903	)
			Distributions from unconsolidated entities		8,439			7,243
			Loss on asset disposals, net		1,143			5,431
			Other operating activities		2,034			948
		Changes in assets and liabilities
			Accounts receivable		8,438			9,648
			Inventory		2,978			(947	)
			Accounts payable		(15,134	)		(40,676	)
			Customer deposits and deferred revenues		10,342			784
			Accrued taxes		17,590			36,498
			Accrued interest		16,662			9,212
			Other assets and liabilities		(87,661	)		(58,051	)
					261,790			210,660
Cash flows from investing activities
	Additions to property, plant and equipment				(127,463	)		(146,622	)
	Cash paid for acquisitions and licenses				—			(21,118	)
	Cash paid for investments				—			(50,000	)
	Cash received for investments				122,785			15,561
	Transfer of cash to restricted cash				(282,500	)		—
	Other investing activities				(1,503	)		439
					(288,681	)		(201,740	)
Cash flows from financing activities
	Repayment of long-term debt				(402	)		(697	)
	Issuance of long-tem debt				300,000			—
	TDS Common Shares and Special Common Sharesreissued for benefit plans, net of tax payments				587			463
	U.S. Cellular Common Shares reissued for benefitplans, net of tax payments				1,305			486
	Repurchase of TDS Common and Special Common Shares				(11,603	)		(14,810	)
	Repurchase of U.S. Cellular Common Shares				(17,357	)		(5,186	)
	Dividends paid				(12,197	)		(11,891	)
	Payment of debt issuance costs				(9,848	)		—
	Distributions to noncontrolling interests				(686	)		(2,284	)
	Other financing activities				968			(527	)
					250,767			(34,446	)
Net increase (decrease) in cash and cash equivalents					223,876			(25,526	)
Cash and cash equivalents
	Beginning of period				368,134			670,992
	End of period			$	592,010		$	645,466

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TDS Telecom Highlights Three Months Ended March 31,
(Unaudited, dollars in thousands)
									Increase (Decrease)
			2011			2010			Amount			Percent
Local Telephone Operations
	Operating revenues
		Voice	$	43,170		$	44,558		$	(1,388	)		(3	%)
		Data		36,152			28,298			7,854			28	%
		Network access		66,172			67,942			(1,770	)		(3	%)
		Miscellaneous		10,322			9,358			964			10	%
				155,816			150,156			5,660			4	%
	Operating expenses
		Cost of services and products		47,684			46,492			1,192			3	%
		Selling, general and administrative expenses		38,193			41,737			(3,544	)		(8	%)
		Depreciation, amortization and accretion		39,347			37,058			2,289			6	%
		Loss on asset disposals, net		73			260			(187	)		(72	%)
				125,297			125,547			(250	)		—
	Operating income		$	30,519		$	24,609		$	5,910			24	%
Competitive Local Exchange Carrier Operations
		Revenues	$	45,328		$	47,743		$	(2,415	)		(5	%)
		Expenses (excluding Depreciation, amortization and accretion)		38,120			40,030			(1,910	)		(5	%)
		Depreciation, amortization and accretion		5,490			6,365			(875	)		(14	%)
		Loss on asset disposals, net		31			85			(54	)		(64	%)
				43,641			46,480			(2,839	)		(6	%)
	Operating income		$	1,687		$	1,263		$	424			34	%
Intercompany revenues			$	(2,228	)	$	(2,394	)	$	166			7	%
Intercompany expenses				(2,228	)		(2,394	)		166			7	%
Total TDS Telecom operating income			$	32,206		$	25,872		$	6,334			24	%

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Telephone and Data Systems, Inc. Financial Measures and Reconciliation (Unaudited, dollars in thousands)
Three Months Ended March 31, 2011				U.S. Cellular			TDS Telecom (1)			All Other (2)			Consolidated Total
	Operating revenues			$	1,057,092		$	198,916		$	2,673		$	1,258,681
	Deduct:
		U.S. Cellular equipment sales revenue			71,979
			Service revenues		985,113
	Operating income (loss)				57,043			32,206			(2,081	)		87,168
	Add (Deduct):
		Depreciation, amortization and accretion			145,045			44,837			2,636			192,518
		Loss on impairment of intangible assets			—			—			—			—
		(Gain) Loss on asset disposals			1,037			104			2			1,143
			Adjusted OIBDA (3)	$	203,125		$	77,147		$	557		$	280,829
			Adjusted OIBDA margin (4)		20.6	%		38.8	%
Three Months Ended March 31, 2010				U.S. Cellular			TDS Telecom (1)			All Other (2)			Consolidated Total
	Operating revenues			$	1,023,857		$	195,505		$	3,073		$	1,222,435
	Deduct:
		U.S. Cellular equipment sales revenue			58,849
			Service revenues		965,008
	Operating income				77,624			25,872			(1,500	)		101,996
	Add:
		Depreciation, amortization and accretion			143,233			43,423			2,733			189,389
		Loss on impairment of intangible assets			—			—			—			—
		Loss on asset disposals			5,176			345			(90	)		5,431
			Adjusted OIBDA (3)	$	226,033		$	69,640		$	1,143		$	296,816
			Adjusted OIBDA margin (4)		23.4	%		35.6	%
				TDS Consolidated
Three Months Ended March 31,				2011			2010
	Cash flows from operating activities			$	261,790		$	210,660
	Deduct:
		Capital expenditures			127,463			146,622
			Free cash flow (5)	$	134,327		$	64,038

(1)   Includes ILEC and CLEC intercompany eliminations.

(2)   Consists of a non-reportable segment (Suttle-Straus), corporate operations and, 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. 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.

(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 loss, and such net loss is included in adjusted OIBDA as a cost of earning service revenues 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.

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