TDS Reports Second Quarter Results

2008-08-07 07:02:00

TDS Reports Second Quarter Results

        Note: Comparisons are year over year unless otherwise noted.

                             2Q 2008 Highlights

                          Enterprise/TDS Corporate

      - 7 percent increase in operating revenues, to $1,274.4 million.

        - 3 percent decrease in operating income, to $149.7 million.

 - Repurchased 1,015,650 TDS special common shares using $39.6 million of a

  $250 million stock repurchase program authorized in 2007 ($38.7 million

                                 remains).

                         Wireless/U.S. Cellular(R)

        - 9 percent increase in service revenues, to $987.4 million.

         - 45 percent increase in data revenues, to $123.7 million.

   - 5.7 percent increase in ARPU (average monthly revenue per unit), to

                                  $53.27.

   - Retail postpay churn remained flat at 1.4 percent; postpay customers

                 comprised 95 percent of retail customers.

                            Wireline/TDS Telecom

  - 7 percent increase in operating income, to $35.2 million, despite a 4

                  percent decrease in operating revenues.

 - 29 percent increase in ILEC DSL (digital subscriber line) customers, to

                164,100; CLEC DSL customers totaled 42,500.

       - 24 percent increase in ILEC data revenue, to $21.7 million.

  - Acquired Mosinee Telephone Company, LLC in May; 4,900 physical access

                            lines in Wisconsin.

   - ILEC equivalent access lines grew nearly 2 percent to 774,300; ILEC

                 physical access lines declined to 577,000.



    CHICAGO, Aug. 7 /EMWNews/ -- Telephone and Data Systems,

Inc. (Amex: TDS, TDS.S) reported operating revenues of $1,274.4 million for

the second quarter of 2008, an increase of seven percent from $1,192.8

million in the comparable period one year ago. The company recorded

operating income of $149.7 million, down from $154 million in the second

quarter of 2007. Net income available to common and diluted earnings per

share were $87.7 million and $0.75, respectively, for the second quarter of

2008, compared to a net loss available to common and diluted loss per share

of $8.6 million and $.08, respectively, in the comparable period one year

ago.



    "We continue to experience steady gains in service and data revenues

and in average revenue per customer at our wireless business, U.S.

Cellular(R), and improved operating margins through cost controls at TDS

Telecom, our wireline business," said LeRoy T. Carlson, Jr., TDS president

and CEO. "The company overall increased its year-over-year operating

revenues, and at the corporate level we continued the share repurchase

program begun in 2007.



    "Both businesses have challenges, as well as opportunities. The market

for wireless voice services continues to mature, and the wireline sector

has ongoing competition from cable and wireless companies. Consumer

anxieties related to the slow economy might also be having an impact. At

U.S. Cellular, however, the low churn rate for retail postpay customers,

together with continued increases in data revenues and sales of high-ARPU

plans and smartphones, demonstrate that customers believe in U.S.

Cellular's commitment to excellent network quality, customer service, and

product and service selection. As wireless voice penetration increases,

customer loyalty and demand for data services are critical to ongoing

wireless growth and profitability.



    "TDS Telecom achieved double-digit increases in DSL customers and

related revenues, and added equivalent access lines in its ILEC operation,

although physical access lines continued to decline. The company also

increased its operating income through effective cost controls, despite a

decline in operating revenues.



    "As part of its goal to be the preferred broadband provider in its

markets, TDS Telecom continues to increase the broadband speeds offered to

its residential and commercial customers, and to develop new broadband

services. The company's Triple Play bundles of voice, high-speed data, and

Dish Network(TM) TV services enable it to compete effectively with cable

offerings. In the second quarter, TDS Telecom exceeded sales targets for

both Triple Play bundles and DISH Network services."



    Settlement of variable prepaid forward contracts



    During the second quarter of 2008, the company settled all of its

outstanding Deutsche Telekom (DT) forward contracts and disposed of its

remaining DT shares. In the quarter, interest and dividend income decreased

$130.3 million primarily due to a $118 million decrease in DT dividend

income as a result of the disposition of DT shares prior to the 2008

dividend by DT. Additionally, interest expense decreased $19.7 million due

to the settlement of the variable prepaid forward contracts. In the second

quarter of 2007, the company recorded a $220.2 million loss related to its

DT, Vodafone Group Plc and VeriSign marketable equity securities and

related variable prepaid forward contracts.



    Guidance



    Guidance for the year ending Dec. 31, 2008 is as follows. There can be

no assurance that final results will not differ materially from this

guidance.




U.S. Cellular 2008 guidance as of Aug. 7, 2008 is as follows: Net Retail Customer Additions 175,000 - 225,000 Service Revenues $3.9 - 4.0 billion* Operating Income $385 - 435 million Depreciation, Amortization & Accretion** Approx. $615 million* Capital Expenditures $525 - 575 million * Unchanged from guidance issued on May 7, 2008 ** Includes losses on exchanges and disposals of assets TDS Telecom (ILEC and CLEC) 2008 guidance as of Aug. 7, 2008 is as follows and remains unchanged from previous guidance issued on May 7, 2008: Operating Revenues $810 - 840 million Operating Income $110 - 140 million Depreciation, Amortization & Accretion Approx. $160 million Capital Expenditures $130 - 160 million This guidance represents the views of management as of August 7, 2008 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. TDS special common share repurchase summary In 2007, the TDS Board of Directors authorized the repurchase of up to $250 million in special common shares. As of June 30, 2008, $38.7 million remained under the authorization.
Repurchase Period # Shares Price (in millions) 2008 (second quarter) 1,015,650 $39.6 2008 (first quarter) 1,041,016 $45.1 2007 (full year) 2,076,979 $126.7 Total 4,133,645 $211.3 Conference call information TDS will hold a conference call on August 7, 2008 at 10:00 a.m. Chicago time.
-- Access the live call online at http://www.videonewswire.com/event.asp?id=50620 or on the Conference Calls page of http://www.teldta.com. -- Access the call by phone at 800/723-6498 (US/Canada) and use conference ID 6948709. Before the call, certain financial and statistical information to be discussed during the call will be posted to the Conference Calls page of http://www.teldta.com, together with reconciliations to generally accepted accounting principles (GAAP) of any non-GAAP information to be disclosed. The call will be archived on the Conference Calls page of http://www.teldta.com.

    About TDS



    Telephone and Data Systems, Inc. (TDS), a Fortune 500(R) company,

provides wireless, local and long-distance telephone, and broadband

services to nearly 7.4 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 11,700 full-time equivalent

employees as of June 30, 2008. For more information about TDS, visit

http://www.teldta.com.



    About U.S. Cellular(R)



    United States Cellular Corporation, the nation's sixth-largest,

full-service wireless carrier, provides a comprehensive range of wireless

products and services, excellent customer support, and a high-quality

network to nearly 6.2 million customers in 26 states. The Chicago-based

company employed 8,400 full-time equivalent associates as of June 30, 2008.

For more information about U.S. Cellular, visit http://www.uscellular.com.



    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

U.S. Cellular to successfully manage and grow the operations of more

recently launched markets; changes in the overall economy, competition, the

access to and pricing of unbundled network elements, the state and federal

telecommunications regulatory environment, and 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; risks and uncertainties relating to

restatements and possible future restatements; ability to remediate the

material weakness; 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 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.



    As Previously Announced, TDS(TM) will Hold a Teleconference Aug. 7,

2008, at 10:00 a.m. Chicago time. Interested parties may listen to the call

live via the Internet by accessing the Conference Calls page of

http://www.teldta.com.




UNITED STATES CELLULAR CORPORATION SUMMARY OPERATING DATA 6/30/2008 3/31/2008 12/31/2007 9/30/2007 6/30/2007 Quarter Ended Total Population: Consolidated markets(1) 82,875,000 82,846,000 82,371,000 81,841,000 81,581,000 Consolidated operating markets(1) 45,493,000 45,262,000 44,955,000 44,955,000 44,955,000 All customers: Customer units(2) 6,194,000 6,175,000 6,102,000 6,058,000 6,010,000 Gross customer unit additions 365,000 409,000 436,000 447,000 418,000 Net customer unit additions 16,000 74,000 44,000 48,000 37,000 Market penetration at end of period: Consolidated markets(3) 7.5% 7.5% 7.4% 7.4% 7.4% Consolidated operating markets(3) 13.6% 13.6% 13.6% 13.5% 13.4% Retail customers: Customer units(2) 5,677,000 5,640,000 5,564,000 5,500,000 5,448,000 Gross customer unit additions 318,000 360,000 367,000 374,000 347,000 Net customer unit additions 34,000 85,000 64,000 52,000 71,000 Cell sites in service 6,596 6,452 6,383 6,255 6,140 Average monthly revenue per unit (4) $53.27 $52.24 $52.57 $52.73 $50.42 Retail service revenue per unit (4) $45.62 $45.30 $45.45 $45.02 $43.87 Inbound roaming revenue per unit (4) $3.40 $2.94 $3.09 $3.36 $2.68 Long-distance /other revenue per unit (4) $4.25 $4.00 $4.03 $4.35 $3.87 Minutes of use (MOU) (5) 1,012 948 906 887 858 Retail postpay churn rate per month (6) 1.4% 1.4% 1.5% 1.6% 1.4% Construction Expenditures (000s) $137,800 $111,700 $188,100 $130,600 $137,100 (1) "Total population of consolidated markets" and "Total population of consolidated operating markets" are used only for the purposes of calculating 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) All customer units and Retail customer units as of June 30, 2008 include one time adjustments, resulting from a review of U.S. Cellular's customer reporting procedures. (3) 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. (4) Per unit revenue measurements are derived from Service Revenues as reported in Financial Highlights for each respective quarter as follows: Service Revenues per Financial Highlights $987,352 $962,094 $957,896 $954,540 $906,218 Components: Retail service revenue during quarter 845,564 834,213 828,169 814,948 788,535 Inbound roaming revenue during quarter 63,033 54,089 56,358 60,843 48,084 Long-distance /other revenue during quarter 78,755 73,792 73,369 78,749 69,599 Divided by average customers during quarter (000s) 6,178 6,139 6,074 6,034 5,991 Divided by three months in each quarter 3 3 3 3 3 Average monthly revenue per unit $53.27 $52.24 $52.57 $52.73 $50.42 Retail service revenue per unit $45.62 $45.30 $45.45 $45.02 $43.87 Inbound roaming revenue per unit $3.40 $2.94 $3.09 $3.36 $2.68 Long-distance /other revenue per unit $4.25 $4.00 $4.03 $4.35 $3.87 (5) Average monthly local minutes of use per customer (without roaming). (6) Retail postpay churn rate per month is calculated by dividing the total monthly retail postpay customer disconnects during the quarter by the average retail postpay customer base for the quarter. TELEPHONE AND DATA SYSTEMS, INC. SUMMARY OPERATING DATA 6/30/2008 3/31/2008 12/31/2007 9/30/2007 6/30/2007 Quarter Ended TDS Telecom ILEC: Access line equivalents(1) 774,300 767,100 762,700 763,000 761,200 Access lines 577,000 579,200 585,600 595,100 601,600 Digital Subscriber Lines (DSL) customers 164,100 154,800 143,500 135,500 127,400 Long Distance customers 346,100 344,900 345,200 346,400 346,500 Construction Expenditures (000s) $22,800 $14,600 $41,300 $23,500 $30,900 CLEC: Access line equivalents(1) 417,200 426,700 435,000 443,700 448,400 Percent of access lines on-switch 94.4% 94.3% 94.0% 93.9% 93.7% Digital Subscriber Lines (DSL) customers 42,500 43,100 43,300 43,600 43,800 Construction Expenditures (000s) $4,700 $3,500 $5,700 $3,400 $4,800 (1) Equivalent access lines are the sum of physical access lines and high-capacity data lines adjusted to estimate the equivalent number of physical access lines in terms of capacity. A physical access line is the individual circuit connecting a customer to a telephone company's central office facilities. TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS HIGHLIGHTS Three Months Ended June 30, (Unaudited, dollars and shares in thousands, except per share amounts) Increase (Decrease) 2008 2007 Amount Percent Operating Revenues U.S. Cellular $1,060,592 $971,646 $88,946 9.2% TDS Telecom 207,424 216,301 (8,877) (4.1)% All Other(1) 6,335 4,887 1,448 29.6% 1,274,351 1,192,834 81,517 6.8% Operating Expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 791,213 699,318 91,895 13.1% Depreciation, amortization and accretion 145,258 146,024 (766) (0.5)% (Gain) Loss on asset disposals, net 6,219 2,832 3,387 N/M 942,690 848,174 94,516 11.1% TDS Telecom Expenses excluding depreciation, amortization and accretion 132,911 144,805 (11,894) (8.2)% Depreciation, amortization and accretion 39,071 38,444 627 1.6% (Gain) Loss on asset disposals, net 219 --- 219 N/M 172,201 183,249 (11,048) (6.0)% All Other(1) Expenses excluding depreciation and amortization 6,020 4,227 1,793 42.4% Depreciation and amortization 3,697 3,229 468 14.5% 9,717 7,456 2,261 30.3% Total Operating Expenses 1,124,608 1,038,879 85,729 8.3% Operating Income (Loss) U.S. Cellular 117,902 123,472 (5,570) (4.5)% TDS Telecom 35,223 33,052 2,171 6.6% All Other(1) (3,382) (2,569) (813) (31.6)% 149,743 153,955 (4,212) (2.7)% Investment and Other Income (Expense) Equity in earnings of unconsolidated entities 22,909 23,875 (966) (4.0)% Interest and dividend income 17,455 147,768 (130,313) (88.2)% Gain (loss) on investments and financial instruments 3,088 (220,199) 223,287 N/M Interest expense (35,570) (55,245) 19,675 35.6% Other, net 1,902 (1,868) 3,770 N/M 9,784 (105,669) 115,453 N/M Income Before Income Taxes and Minority Interest 159,527 48,286 111,241 N/M Income tax expense 53,261 26,700 26,561 99.5% Income Before Minority Interest 106,266 21,586 84,680 N/M Minority share of income (18,509) (30,213) 11,704 38.7% Net Income (Loss) 87,757 (8,627) 96,384 N/M Preferred dividend requirement 13 13 --- 0.0% Net Income (Loss) Available to Common $87,744 $(8,640) $96,384 N/M Basic Weighted Average Common Shares Outstanding 116,267 117,031 (764) (0.7)% Basic Earnings (Loss) Per Share $0.75 $(0.07) $0.82 N/M Diluted Weighted Average Common Shares Outstanding 116,814 117,031 (217) (0.2)% Diluted Earnings (Loss) Per Share $0.75 $(0.08) $0.83 N/M (1) Consists of Suttle Straus printing and distribution operations and intercompany eliminations. N/M - Percentage change not meaningful TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS HIGHLIGHTS Six Months Ended June 30, (Unaudited, dollars and shares in thousands, except per share amounts) Increase/ (Decrease) 2008 2007 Amount Percent Operating Revenues U.S. Cellular $2,098,448 $1,906,320 $192,128 10.1% TDS Telecom 413,500 433,923 (20,423) (4.7)% All Other(1) 11,504 9,148 2,356 25.8% 2,523,452 2,349,391 174,061 7.4% Operating Expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 1,563,900 1,376,212 187,688 13.6% Depreciation, amortization and accretion 287,788 291,976 (4,188) (1.4)% Loss on asset disposals, net 9,892 6,137 3,755 61.2% 1,861,580 1,674,325 187,255 11.2% TDS Telecom Expenses excluding depreciation, amortization and accretion 261,717 285,001 (23,284) (8.2)% Depreciation, amortization and accretion 78,579 78,349 230 0.3% (Gain) on asset disposals, net 198 --- 198 N/M 340,494 363,350 (22,856) (6.3)% All Other(1) Expenses excluding depreciation and amortization 10,209 9,588 621 6.5% Depreciation and amortization 7,817 5,376 2,441 45.4% 18,026 14,964 3,062 20.5% Total Operating Expenses 2,220,100 2,052,639 167,461 8.2% Operating Income (Loss) U.S. Cellular 236,868 231,995 4,873 2.1% TDS Telecom 73,006 70,573 2,433 3.4% All Other(1) (6,522) (5,816) (706) (12.1)% 303,352 296,752 6,600 2.2% Investment and Other Income (Expense) Equity in earnings of unconsolidated entities 44,379 47,571 (3,192) (6.7)% Interest and dividend income 27,201 163,964 (136,763) (83.4)% Gain (loss) on investments and financial instruments (402) 35,671 (36,073) N/M Interest expense (76,950) (113,046) 36,096 31.9% Other, net 1,703 (4,092) 5,795 N/M (4,069) 130,068 (134,137) N/M Income Before Income Taxes and Minority Interest 299,283 426,820 (127,537) (29.9)% Income tax expense 102,512 167,938 (65,426) (39.0)% Income Before Minority Interest 196,771 258,882 (62,111) (24.0)% Minority share of income (35,527) (48,184) 12,657 26.3% Net Income 161,244 210,698 (49,454) (23.5)% Preferred dividend requirement 26 26 --- 0.0% Net Income Available to Common $161,218 $210,672 $(49,454) (23.5)% Basic Weighted Average Common Shares Outstanding 116,919 116,935 (16) (0.0)% Basic Earnings Per Share $1.38 $1.80 $(0.42) (23.3)% Diluted Weighted Average Common Shares Outstanding 117,500 118,432 (932) (0.8)% Diluted Earnings Per Share $1.37 $1.76 $(0.39) (22.2)% (1) Consists of Suttle Straus printing and distribution operations and intercompany eliminations. N/M - Percentage change not meaningful TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEET HIGHLIGHTS (Unaudited, dollars in thousands) ASSETS June 30, December 31, 2008 2007 Current Assets Cash and cash equivalents $1,125,163 $1,174,446 Marketable equity securities 32,020 1,917,893 Accounts receivable from customers and other 542,664 530,421 Inventory 126,083 115,818 Other current assets 144,569 137,010 1,970,499 3,875,588 Investments Licenses 1,829,014 1,516,629 Goodwill 695,696 679,129 Customer lists 29,069 25,851 Investments in unconsolidated entities 209,053 206,418 Other investments 11,032 11,509 2,773,864 2,439,536 Property, Plant and Equipment, net U.S. Cellular 2,566,940 2,595,096 TDS Telecom 888,521 900,267 Other 29,752 29,739 3,485,213 3,525,102 Other Assets and Deferred Charges 51,910 53,917 Total Assets $8,281,486 $9,894,143 TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEET HIGHLIGHTS (Unaudited, dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 2008 2007 Current Liabilities Notes payable $50,000 $ --- Prepaid forward contracts --- 1,005,512 Current portion of long-term debt 4,390 3,860 Derivative liability --- 711,692 Accounts payable 307,572 308,882 Customer deposits and deferred revenues 176,574 166,191 Accrued interest 14,676 18,456 Accrued taxes 310,861 40,439 Accrued compensation 61,840 91,703 Net deferred income tax liability --- 327,162 Other current liabilities 122,877 125,622 1,048,790 2,799,519 Deferred Liabilities and Credits Net deferred income tax liability 595,420 555,593 Asset retirement obligation 182,495 173,468 Other deferred liabilities and credits 149,726 154,602 927,641 883,663 Long-Term Debt 1,635,147 1,632,226 Minority Interest in Subsidiaries 679,938 651,537 Preferred Shares 860 860 Common Stockholders' Equity Common Shares, $.01 par value 566 566 Special Common Shares, $.01 par value 630 629 Series A Common Shares, $.01 par value 65 64 Capital in excess of par value 2,055,677 2,048,110 Treasury Shares, at cost Common Shares (118,506) (120,544) Special Common Shares (283,682) (204,914) Accumulated other comprehensive income 9,546 511,776 Retained earnings 2,324,814 1,690,651 3,989,110 3,926,338 Total Liabilities and Stockholders' Equity $8,281,486 $9,894,143 BALANCE SHEET HIGHLIGHTS June 30, 2008 (Unaudited, dollars in thousands) TDS U.S. TDS Corporate Intercompany TDS Cellular Telecom & Other Eliminations Consolidated Cash and cash equivalents $101,155 $3,542 $1,020,466 $--- $1,125,163 Affiliated cash investments --- 1,154,070 --- (1,154,070) --- Marketable equity securities 16,508 --- 15,512 --- 32,020 Notes receivable -- affiliates --- --- 260,582 (260,582) --- $117,663 $1,157,612 $1,296,560 $(1,414,652) $1,157,183 Licenses, goodwill and customer lists $2,299,097 $417,827 $(163,145) $--- $2,553,779 Investment in unconsolidated entities 157,162 6,512 $50,711 (5,332) 209,053 Other investments 4,359 2,957 3,716 --- 11,032 $2,460,618 $427,296 $(108,718) $(5,332) $2,773,864 Property, Plant and Equipment, net $2,566,940 $888,521 $29,752 $--- $3,485,213 Notes payable: external $50,000 $--- $--- $--- $50,000 Long-term Debt: Current portion $455 $474 $1,418,113 $(1,414,652) $4,390 Non-current portion 1,007,054 2,872 625,221 --- 1,635,147 Total $1,007,509 $3,346 $2,043,334 $(1,414,652) $1,639,537 Preferred Shares $--- $--- $860 $--- $860 Construction expenditures: Quarter ended 6/30/08 $137,810 $27,511 $1,275 - $166,596 Six months ended 6/30/08 $249,500 $45,593 $3,968 - $299,061 TDS Telecom Highlights Three Months Ended June 30, (Unaudited, dollars in thousands) Increase (Decrease) 2008 2007 Amount Percent Local Telephone Operations Operating Revenues Voice $50,925 $56,447 $(5,522) (9.8)% Data 21,738 17,541 4,197 23.9% Network access 70,727 77,029 (6,302) (8.2)% Miscellaneous 9,809 8,086 1,723 21.3% 153,199 159,103 (5,904) (3.7)% Operating Expenses Cost of services and products 46,873 50,717 (3,844) (7.6)% Selling, general and administrative expenses 41,416 44,060 (2,644) (6.0)% Depreciation, amortization and accretion 33,502 32,224 1,278 4.0% (Gain) on asset disposals (25) --- (25) N/M 121,766 127,001 (5,235) (4.1)% Operating Income $31,433 $32,102 $(669) (2.1)% Competitive Local Exchange Carrier Operations Revenues $55,888 $58,767 $(2,879) (4.9)% Expenses excluding depreciation, amortization and accretion 46,285 51,597 (5,312) (10.3)% Depreciation, amortization and accretion 5,569 6,220 (651) (10.5)% Loss on asset disposals 244 --- 244 N/M 52,098 57,817 (5,719) (9.9)% Operating Income $3,790 $950 $2,840 N/M Intercompany revenues (1,663) (1,569) (94) N/M Intercompany expenses (1,663) (1,569) (94) N/M --- --- --- Total TDS Telecom Operating Income $35,223 $33,052 $2,171 6.6% N/M - Percentage change not meaningful. TDS Telecom Highlights Six Months Ended June 30, (Unaudited, dollars in thousands) Increase (Decrease) 2008 2007 Amount Percent Local Telephone Operations Operating Revenues Voice $102,501 $113,969 $(11,468)(10.1)% Data 42,924 33,963 8,961 26.4 % Network access 140,809 153,202 (12,393) (8.1)% Miscellaneous 18,780 15,561 3,219 20.7 % 305,014 316,695 (11,681) (3.7)% Operating Expenses Cost of services and products 91,707 99,814 (8,107) (8.1)% Selling, general and administrative expenses 83,897 85,919 (2,022) (2.4)% Depreciation, amortization and accretion 67,126 66,270 856 1.3 % (Gain) on asset disposals (46) --- (46) N/M 242,684 252,003 (9,319) (3.7)% Operating Income $62,330 $64,692 $(2,362) (3.7)% Competitive Local Exchange Carrier Operations Revenues $112,017 $120,117 $(8,100) (6.7)% Expenses excluding depreciation, amortization and accretion 89,644 102,157 (12,513)(12.2)% Depreciation, amortization and accretion 11,453 12,079 (626) (5.2)% Loss on asset disposals 244 --- 244 N/M 101,341 114,236 (12,895)(11.3)% Operating Income $10,676 $5,881 $4,795 81.5 % Intercompany revenues (3,531) (2,889) (642) N/M Intercompany expenses (3,531) (2,889) (642) N/M --- --- --- Total TDS Telecom Operating Income $73,006 $70,573 $2,433 3.4% N/M - Percentage change not meaningful. TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30, (Unaudited, dollars in thousands) 2008 2007 (Dollars in thousands) Cash Flows from Operating Activities Net income $ 161,244 $ 210,698 Add (Deduct) adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and accretion 374,184 375,701 Bad debts expense 36,806 26,991 Stock-based compensation expense 9,022 10,879 Deferred income taxes (316,269) (61,814) (Gain) loss on investments and financial instruments 402 (35,671) Equity in earnings of unconsolidated entities (44,379) (47,571) Distributions from unconsolidated entities 45,810 43,435 Minority share of income 35,527 48,184 Loss on asset disposals, net 10,090 6,137 Noncash interest expense 7,930 10,635 Other noncash expense 247 1,788 Excess tax benefit from stock awards (1,706) (17,598) Other operating activities (2,350) (5,000) Changes in assets and liabilities Change in accounts receivable (59,440) (43,884) Change in inventory (20,830) (1,213) Change in accounts payable (4,171) (5,792) Change in customer deposits and deferred revenues 10,303 19,469 Change in accrued taxes 304,231 128,672 Change in accrued interest (3,780) (712) Change in other assets and liabilities (47,432) (44,784) 495,439 618,550 Cash Flows from Investing Activities Additions to property, plant and equipment (299,061) (304,559) Cash paid for acquisitions (334,350) (20,569) Cash received from divestitures 6,838 4,277 Proceeds from sale of investments 226,644 10,547 Settlement of derivative liabilities (17,404) - Other investing activities (934) (242) (418,267) (310,546) Cash Flows from Financing Activities Issuance of notes payable 100,000 25,000 Issuance of long-term debt - 2,857 Repayment of notes payable (50,000) (60,000) Repayment of variable prepaid forward contracts (47,357) - Repayment of long-term debt (6,442) (1,679) TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax payments 1,494 74,339 U.S. Cellular Common Shares reissued for benefit plans, net of tax payments (1,878) 9,223 Excess tax benefit from stock awards 1,706 17,598 Repurchase of TDS Special Common Shares (83,013) (7,036) Repurchase of U.S. Cellular Common Shares (14,516) (49,057) Dividends paid (23,922) (22,798) Distributions to minority partners (4,594) (4,676) Other financing activities 2,067 (1,869) (126,455) (18,098) Net Increase (Decrease) in Cash and Cash Equivalents (49,283) 289,906 Cash and Cash Equivalents - Beginning of period 1,174,446 1,013,325 End of period $ 1,125,163 $ 1,303,231

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