Edgar Filing: TELEPHONE & DATA SYSTEMS INC /DE/

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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Telephone and Data Systems, Inc.
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EXPLANATORY NOTE

The purpose of this Schedule 14A is to file a press release issued by Telephone and Data Systems, Inc. (“TDS”) on May 2, 2014 relating to earnings for the first quarter of 2014.

IMPORTANT INFORMATION: TDS and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of TDS in connection with the TDS 2014 annual meeting of shareholders. Information regarding TDS directors and executive officers and other participants that may be soliciting proxies on behalf of the TDS board of directors and their respective interests in TDS by security holdings or otherwise is set forth in TDS’s definitive proxy statement relating to its 2014 annual meeting, as filed with the Securities and Exchange Commission (“SEC”) on April 18, 2014. The 2014 proxy statement, other solicitation material and other reports that TDS files with the SEC, when available, can be obtained free of charge at the SEC’s web site at www.sec.gov or from TDS as provided on its website at www.teldta.com. TDS SHAREHOLDERS ARE ADVISED TO READ CAREFULLY THE PROXY STATEMENT AND OTHER SOLICITATION MATERIAL FILED BY TDS IN CONNECTION WITH THE TDS 2014 ANNUAL MEETING OF SHAREHOLDERS BEFORE MAKING ANY VOTING DECISION BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION RELATING TO THE ELECTION OF DIRECTORS OF TDS.

Exhibit 99.l NEWS RELEASE

As previously announced, TDS will hold a teleconference May 2, 2014 at 9:30 a.m. CDT. Interested parties may listen to the call live via the Events & Presentations page of investors.teldta.com.

FOR IMMEDIATE RELEASE

TDS reports first quarter 2014 results

CHICAGO, (May 2, 2014) — Telephone and Data Systems, Inc. (NYSE:TDS) reported operating revenues of $1,196.0 million for the first quarter of 2014, versus $1,308.6 million for the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $18.3 million and $0.16 respectively, for the first quarter of 2014, compared to $1.4 million and $0.01, respectively, in the comparable period one year ago.

Year-over-year comparisons are affected by U.S. Cellular’s divestiture transaction, the deconsolidation of certain U.S. Cellular partnerships, and acquisitions at TDS Telecom, in 2013.

“Our businesses made significant progress in the quarter to execute on their customer strategies and improve operating efficiency,” said LeRoy T. Carlson, Jr., TDS president and CEO. “While we have considerable work to do to improve our financial and operating performance, I believe we’re focused on the right areas.

“U.S. Cellular continues to attract new customers and drive smartphone adoption and data use, leading to higher average revenue per customer. Substantial progress has been made to restore high standards of service following the billing system conversion, and U.S. Cellular has already leveraged the system to deliver new services like our Shared Connect Plans and no contract Simple Connect Plans.

“TDS Telecom increased average revenue per customer for both residential and commercial wireline customers, with higher-tier TDS TV packages and faster broadband speeds, and new managedIP plans. We also continued to improve the overall efficiency of the wireline business. Revenues increased 77 percent at OneNeck IT Solutions, our hosted and managed services business, driven by revenues from acquisitions and increased revenues for recurring services.

“As we continued to execute our integration and customer strategies for Baja Broadband, we also agreed to acquire Bend Broadband, a premier cable and broadband provider to residential and business customers in Central Oregon. BendBroadband’s high-capacity, all-digital network, technology leadership, and customer-centered approach will be tremendous assets as we develop a premier cable broadband business.”

2014 Estimated Results

U.S. Cellular capital expenditures for 2014 are expected to be approximately $640 million, down from $738 million in 2013.

TDS Telecom estimates for full-year 2014 results are shown below. Such estimates represent management’s view as of May 2, 2014. Such forward-looking statements should not be assumed to be current as of any future date. 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 such estimated results.

	TDS Telecom 2014 Estimated Results (1)
	Current	Previous
(Dollars in millions)
Operating revenues	$1,050-$1,100	Unchanged
Adjusted income before income taxes (2)	$250-$280	Unchanged
Capital expenditures	$200	Unchanged

(1) These estimates do not reflect the effects of the acquisition of BendBroadband.

(2) Adjusted income before income taxes is defined as income before income taxes, adjusted for the items set forth in the reconciliation below. Adjusted income before income taxes excludes these items in order to show operating results on a more comparable basis from period to period. In addition, TDS may exclude other items from adjusted income before income taxes if such items help reflect operating results on a more comparable basis. TDS does not intend to imply that any such amounts that are excluded are non-recurring, infrequent or unusual; such amounts may occur in the future. Adjusted income before income taxes is not a measure of financial performance under Generally Accepted Accounting Principles in the United States (“GAAP”) and should not be considered as an alternative to income before income taxes as an indicator of the company’s operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity. TDS believes adjusted income before income taxes is a useful measure of TDS’ operating results before significant recurring non-cash charges, discrete gains and losses, and financing charges (interest expense). The following table provides a reconciliation of income before income taxes to adjusted income before income taxes for 2014 estimated results, three months ended March 31, 2014, and 2013 actual results:

	TDS Telecom
		Actual Results
	2014 Estimated Results	Three Months Ended March 31, 2014	Year Ended December 31, 2013
(Dollars in millions)
Income before income taxes	$25-$55	$19	$49
Depreciation, amortization and accretion expense	$225	$54	$203
(Gain) loss on investments	―	―	($1)
Interest expense	―	―	($2)
Adjusted income before income taxes	$250-$280	$73	$249

Stock repurchase summary

TDS began repurchasing under its $250 million repurchase authorization on Aug. 5, 2013. The following represents repurchases of TDS Common Shares.

Repurchase Period	# Shares	Cost (in millions)
2014 (first quarter)	157,891	$	3.8
2013 (full year)	338,851	$	9.7
Total	496,742	$	13.5

Conference Call Information

TDS will hold a conference call on May 2, 2014 at 9:30 a.m. CST.

· Access the live call on the Events & Presentations page of investors.teldta.com or at http://www.videonewswire.com/event.asp?id=99006.

· 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 investors.teldta.com. The call will be archived on the Events & Presentations page of investors.teldta.com.

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 500® company, provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services to approximately 5.8 million customers nationwide through its business units, U.S. Cellular, TDS Telecom, OneNeck IT Solutions and Baja Broadband. Founded in 1969 and headquartered in Chicago, TDS employed 10,600 people as of March 31, 2014.

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

Contacts

Jane McCahon, Vice President, Corporate Relations and Corporate Secretary

312- 592-5379

jane.mccahon@teldta.com

Julie Mathews, Investor Relations Manager

312- 592-5341

julie.mathews@teldta.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: impacts of any pending acquisition and divestiture transactions, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and 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 on acceptable terms; 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; changes in customer growth rates, average monthly revenue per user, 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 Current Report used by TDS to furnish this press release to the Securities and Exchange Commission (“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

OneNeck IT Solutions: www.oneneck.com

United States Cellular Corporation
*Total Markets Summary Operating Data (Unaudited)**

As of or for the Quarter Ended			3/31/2014		12/31/2013		9/30/2013		6/30/2013		3/31/2013
Retail Customers
	Postpaid
		Total at end of period		4,174,000		4,267,000		4,343,000		4,412,000		5,060,000
		Gross additions		197,000		176,000		165,000		165,000		191,000
		Net additions (losses)		(93,000)		(71,000)		(60,000)		(120,000)		(74,000)
		ARPU (1)	$	57.59	$	53.53	$	54.64	$	54.18	$	54.85
		Churn rate (2)		2.3%		1.9%		1.7%		2.0%		1.7%
		Smartphone penetration (3) (4)		53.1%		50.8%		47.1%		45.5%		43.5%
	Prepaid
		Total at end of period		356,000		343,000		370,000		381,000		446,000
		Gross additions		85,000		63,000		65,000		77,000		104,000
		Net additions (losses)		13,000		(26,000)		(11,000)		(7,000)		23,000
		ARPU (1)	$	32.22	$	31.66	$	28.72	$	31.69	$	33.31
		Churn rate (2)		6.9%		8.3%		6.8%		6.8%		6.2%
Total customers at end of period				4,684,000		4,774,000		4,875,000		4,968,000		5,736,000
Billed ARPU (1)			$	53.93	$	50.25	$	50.92	$	50.60	$	51.13
Service revenue ARPU (1)			$	60.19	$	57.05	$	58.36	$	57.45	$	57.63
Smartphones sold as a percent of total devices sold				73.0%		79.6%		65.2%		66.0%		61.7%
Total population
		Consolidated markets (5)		54,817,000		58,013,000		84,025,000		84,025,000		93,943,000
		Consolidated operating markets (5)		31,729,000		31,759,000		31,822,000		31,822,000		47,440,000
Market penetration at end of period
		Consolidated markets (6)		8.5%		8.2%		5.8%		5.9%		6.1%
		Consolidated operating markets (6)		14.8%		15.0%		15.3%		15.6%		12.1%
Capital expenditures (000s)			$	89,581	$	208,135	$	242,459	$	168,497	$	118,410
Total cell sites in service				6,165		6,975		7,687		7,748		8,027
Owned towers				4,448		4,448		4,422		4,411		4,411

* Represents U.S. Cellular’s consolidated markets. These results include markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and is not adjusted in prior periods for subsequent divestitures or deconsolidations.

Refer to U.S. Cellular’s Form 8-K filed on May 3, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three months ended March 31, 2013, as if the transactions had occurred at the beginning of the period.

United States Cellular Corporation
*Core Markets Summary Operating Data (Unaudited)**

As of or for the Quarter Ended			3/31/2014		12/31/2013		9/30/2013		6/30/2013		3/31/2013
Retail Customers
	Postpaid
		Total at end of period		4,174,000		4,267,000		4,343,000		4,412,000		4,463,000
		Gross additions		197,000		176,000		165,000		165,000		176,000
		Net additions (losses)		(93,000)		(71,000)		(60,000)		(53,000)		(33,000)
		ARPU (1)	$	57.59	$	53.53	$	54.64	$	54.44	$	54.21
		Churn rate (2)		2.3%		1.9%		1.7%		1.6%		1.6%
		Smartphone penetration (3) (4)		53.1%		50.8%		47.1%		45.5%		43.0%
	Prepaid
		Total at end of period		356,000		343,000		370,000		381,000		373,000
		Gross additions		85,000		63,000		65,000		76,000		91,000
		Net additions (losses)		13,000		(26,000)		(11,000)		8,000		31,000
		ARPU (1)	$	32.22	$	31.66	$	28.72	$	31.65	$	32.92
		Churn rate (2)		6.9%		8.3%		6.8%		6.0%		5.6%
Total customers at end of period				4,684,000		4,774,000		4,875,000		4,968,000		5,005,000
Billed ARPU (1)			$	53.93	$	50.25	$	50.92	$	50.98	$	50.93
Service revenue ARPU (1)			$	60.19	$	57.05	$	58.36	$	57.88	$	57.14
Smartphones sold as a percent of total devices sold				73.0%		79.6%		65.2%		66.1%		62.1%
Total population
		Consolidated markets (5)		54,817,000		58,013,000		84,025,000		84,025,000		84,025,000
		Consolidated operating markets (5)		31,729,000		31,759,000		31,822,000		31,822,000		31,822,000
Market penetration at end of period
		Consolidated markets (6)		8.5%		8.2%		5.8%		5.9%		6.0%
		Consolidated operating markets (6)		14.8%		15.0%		15.3%		15.6%		15.7%
Capital expenditures (000s)			$	89,581	$	211,247	$	239,332	$	171,166	$	107,907
Total cell sites in service				6,165		6,161		6,127		6,113		6,113
Owned towers				3,883		3,883		3,857		3,846		3,846

* U.S. Cellular’s Core Markets excludes the results of the Divestiture Markets and NY1 and NY2 Partnerships for the periods presented.

(1) ARPU metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period. These revenue bases and customer populations are shown below:

a. Postpaid ARPU consists of total postpaid service revenues and postpaid customers.

b. Prepaid ARPU consists of total prepaid service revenues and prepaid customers.

c. Billed ARPU consists of total postpaid, prepaid and reseller service revenues and postpaid, prepaid and reseller customers.

d. Service revenue ARPU consists of total retail service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2) Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(3) Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding tablets.

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

(5) Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (6) below.

(6) 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.

TDS Telecom
Summary Operating Data (Unaudited)

Quarter Ended			3/31/2014		12/31/2013		9/30/2013		6/30/2013		3/31/2013
TDS Telecom
Wireline
	Residential connections
		Voice (1)		348,700		352,100		358,100		364,100		368,600
		Broadband (2)		229,000		227,000		229,500		231,700		229,500
		IPTV (3)		15,900		13,800		12,200		10,500		9,000
		Wireline residential connections		593,600		592,900		599,800		606,300		607,100

	Commercial connections
		Voice (1)		212,200		218,400		223,800		229,100		235,700
		Broadband (2)		26,600		27,100		27,600		28,200		28,800
		managedIP (4)		131,000		127,600		121,000		112,000		103,400
		Wireline commercial connections		369,800		373,100		372,400		369,300		367,900

	Total Wireline connections			963,400		966,000		972,200		975,600		975,000

	Total residential revenue per connection (5)		$	40.79	$	40.93	$	41.12	$	40.10	$	39.99

Cable
	Cable Connections
		Video (6)		68,700		69,100		70,300
		Broadband (7)		63,000		61,000		59,800
		Voice (7)		17,700		17,200		16,800
		Cable connections		149,400		147,300		146,900

	Total residential revenue per connection (5)		$	57.37	$	55.27	$	55.67

(1) The individual circuit connecting a customer to TDS Telecom’s central office facilities.

(2) The number of customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.

(3) The number of customers provided video services using IP networking technology.

(4) The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.

(5) Total residential revenue divided by the average number of total residential connections.

(6) Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service.

(7) Broadband and voice connections reflect billable number of lines into a building for high speed data and voice services, respectively.



TDS Telecom
Capital Expenditures (000s)

Quarter Ended		3/31/2014		12/31/2013		9/30/2013		6/30/2013		3/31/2013
Wireline	$	22,900	$	46,000	$	32,800	$	33,300	$	27,900
Cable		6,200		7,000		1,400		—		—
HMS		2,800		9,200		2,400		2,300		2,600
	$	31,900	$	62,200	$	36,600	$	35,600	$	30,500

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)
								Change
				2014		2013		Amount		Percent
Operating revenues
	U.S. Cellular			$	925,811	$	1,081,746	$	(155,935)		(14%)
	TDS Telecom				262,416		217,061		45,355		21%
	All Other (1)				7,735		9,766		(2,031)		(21%)
					1,195,962		1,308,573		(112,611)		(9%)
Operating expenses
	U.S. Cellular
		Expenses excluding depreciation, amortization and accretion			846,645		878,070		(31,425)		(4%)
		Depreciation, amortization and accretion			167,753		189,845		(22,092)		(12%)
		(Gain) loss on asset disposals, net			1,934		5,434		(3,500)		(64%)
		(Gain) loss on sale of business and other exit costs, net			(6,900)		6,931		(13,831)		>(100%)
		(Gain) loss on license sales and exchanges			(91,446)		—		(91,446)		N/M
					917,986		1,080,280		(162,294)		(15%)
	TDS Telecom
		Expenses excluding depreciation, amortization and accretion			190,303		159,486		30,817		19%
		Depreciation, amortization and accretion			53,775		49,491		4,284		9%
		(Gain) loss on asset disposals, net			344		193		151		78%
					244,422		209,170		35,252		17%
	All Other (1)
		Expenses excluding depreciation and amortization			9,326		9,239		87		1%
		Depreciation and amortization			3,391		2,741		650		24%
		(Gain) loss on asset disposals, net			152		(11)		163		>(100%)
					12,869		11,969		900		8%

			Total operating expenses		1,175,277		1,301,419		(126,142)		(10%)
Operating income (loss)
	U.S. Cellular				7,825		1,466		6,359		>100%
	TDS Telecom				17,994		7,891		10,103		>100%
	All Other (1)				(5,134)		(2,203)		(2,931)		>(100%)
					20,685		7,154		13,531		>100%
Investment and other income (expense)
	Equity in earnings of unconsolidated entities				37,327		27,089		10,238		38%
	Interest and dividend income				2,486		1,578		908		58%
	Interest expense				(28,707)		(24,498)		(4,209)		(17%)
	Other, net				160		(154)		314		>(100%)
		Total investment and other income			11,266		4,015		7,251		>100%
Income before income taxes					31,951		11,169		20,782		>100%
	Income tax expense				11,657		4,180		7,477		>100%
Net income					20,294		6,989		13,305		>100%
	Less: Net income attributable to noncontrolling interests, net of tax				2,040		5,570		(3,530)		(63%)
Net income attributable to TDS shareholders					18,254		1,419		16,835		>100%
	TDS Preferred dividend requirement				(12)		(12)		—		—
Net income available to common shareholders				$	18,242	$	1,407	$	16,835		>100%

Basic weighted average shares outstanding					108,988		108,255		733		1%
Basic earnings per share attributable to TDS shareholders				$	0.17	$	0.01	$	0.16		>100%

Diluted weighted average shares outstanding					109,672		108,693		979		1%
Diluted earnings per share attributable to TDS shareholders				$	0.16	$	0.01	$	0.15		>100%

(1) Consists of Non-Reportable Segment, corporate operations and intercompany eliminations between U.S. Cellular, TDS Telecom, the Non-Reportable Segment and corporate operations.

N/M – Percentage change not meaningful

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

ASSETS


		March 31,		December 31,
		2014		2013
Current assets
	Cash and cash equivalents	$	872,910	$	830,014
	Short-term investments		40,056		50,104
	Accounts receivable from customers and others		615,009		731,114
	Inventory, net		224,904		244,560
	Net deferred income tax asset		106,077		106,077
	Prepaid expenses		89,344		87,920
	Income taxes receivable		5,679		2,397
	Other current assets		35,154		35,151
			1,989,133		2,087,337

Assets held for sale			—		16,027

Investments
	Licenses		1,448,598		1,423,779
	Goodwill		836,843		836,843
	Franchise rights		123,668		123,668
	Other intangible assets, net		66,439		71,454
	Investments in unconsolidated entities		326,279		301,772
	Other investments		611		641
			2,802,438		2,758,157

Property, plant and equipment, net
	U.S. Cellular		2,776,220		2,856,520
	TDS Telecom		967,847		984,634
	Other		35,066		36,990
			3,779,133		3,878,144

Other assets and deferred charges			178,599		164,482

Total assets		$	8,749,303	$	8,904,147

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

LIABILITIES AND EQUITY


				March 31,		December 31,
				2014		2013
Current liabilities
		Current portion of long-term debt		$	1,415	$	1,646
		Accounts payable			414,015		496,069
		Customer deposits and deferred revenues			287,999		289,445
		Accrued interest			15,757		6,673
		Accrued taxes			72,761		70,518
		Accrued compensation			65,486		115,031
		Other current liabilities			167,746		212,374
					1,025,179		1,191,756

Deferred liabilities and credits
		Net deferred income tax liability			847,850		862,975
		Other deferred liabilities and credits			477,305		458,709

Long-term debt					1,720,031		1,720,074

Noncontrolling interests with redemption features					543		536

Equity
	TDS shareholders' equity
		Series A Common and Common Shares, par value $.01			1,327		1,327
		Capital in excess of par value			2,313,682		2,308,807
		Treasury shares, at cost			(722,658)		(721,354)
		Accumulated other comprehensive loss			(938)		(569)
		Retained earnings			2,533,298		2,529,626
			Total TDS shareholders' equity		4,124,711		4,117,837

	Preferred shares				824		824
	Noncontrolling interests				552,860		551,436

		Total equity			4,678,395		4,670,097

Total liabilities and equity				$	8,749,303	$	8,904,147

Balance Sheet Highlights
March 31, 2014
(Unaudited, dollars in thousands)


		U.S.		TDS		TDS Corporate		Intercompany		TDS
		Cellular		Telecom		& Other		Eliminations		Consolidated
Cash and cash equivalents		$	398,541	$	84,120	$	390,249	$	―	$	872,910
Affiliated cash investments			―		444,181		―		(444,181)		―
Short-term investments			40,056		―		―		―		40,056
		$	438,597	$	528,301	$	390,249	$	(444,181)	$	912,966

Licenses, goodwill and other intangible assets		$	1,813,469	$	792,606	$	(130,527)	$	―	$	2,475,548
Investment in unconsolidated entities			289,842		3,807		39,771		(7,141)		326,279
Long-term and other investments			―		611		―		―		611
		$	2,103,311	$	797,024	$	(90,756)	$	(7,141)	$	2,802,438


Property, plant and equipment, net		$	2,776,220	$	967,847	$	35,066	$	―	$	3,779,133

Long-term debt:
	Current portion	$	166	$	73	$	1,176	$	―	$	1,415
	Non-current portion		878,127		1,420		840,484		―		1,720,031
		$	878,293	$	1,493	$	841,660	$	―	$	1,721,446

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, 2014 and December 31, 2013.

		March 31,		December 31,
		2014		2013

Cash and cash equivalents		$	872,910	$	830,014

Amounts included in short-term investments (1) (2)
	U.S. Treasury Notes		40,056		50,104

Total cash and cash equivalents and investments		$	912,966	$	880,118

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

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

Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
Three Months Ended March 31,
(Unaudited, dollars in thousands)
				2014		2013
Cash flows from operating activities
	Net income			$	20,294	$	6,989
		Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
			Depreciation, amortization and accretion		224,919		242,077
			Bad debts expense		21,559		17,874
			Stock-based compensation expense		6,759		7,585
			Deferred income taxes, net		(14,510)		3,009
			Equity in earnings of unconsolidated entities		(37,327)		(27,089)
			Distributions from unconsolidated entities		12,820		8,089
			(Gain) loss on asset disposals, net		2,430		5,616
			(Gain) loss on sale of business and other exit costs, net		(6,900)		6,931
			(Gain) loss on license sales and exchanges		(91,446)		—
			Noncash interest expense		506		497
			Other operating activities		47		256
		Changes in assets and liabilities from operations
			Accounts receivable		92,949		34,038
			Inventory		19,656		16,860
			Accounts payable		(53,403)		(3,203)
			Customer deposits and deferred revenues		(1,447)		7,904
			Accrued taxes		(1,634)		5,309
			Accrued interest		9,136		9,279
			Other assets and liabilities		(99,471)		(95,669)
					104,937		246,352

Cash flows from investing activities
	Cash used for additions to property, plant and equipment				(150,890)		(176,318)
	Cash paid for acquisitions and licenses				(8,254)		(14,150)
	Cash received from divestitures				103,042		—
	Cash received for investments				10,000		—
	Other investing activities				1,623		6,364
					(44,479)		(184,104)

Cash flows from financing activities
	Repayment of long-term debt				(392)		(328)
	TDS Common Shares reissued for benefit plans, net of tax payments				(50)		140
	U.S. Cellular Common Shares reissued for benefit plans, net of tax payments				316		123
	Repurchase of TDS Common Shares				(3,342)		—
	Repurchase of U.S. Cellular Common Shares				(2,000)		(18,425)
	Dividends paid to TDS shareholders				(14,582)		(13,792)
	Distributions to noncontrolling interests				(346)		(2,396)
	Other financing activities				2,834		(1,351)
					(17,562)		(36,029)

Net increase in cash and cash equivalents					42,896		26,219
Cash and cash equivalents
	Beginning of period				830,014		740,481
	End of period			$	872,910	$	766,700

TDS Telecom Highlights
Three Months Ended March 31,
(Unaudited, dollars in thousands)

							Change
			2014		2013		Amount		Percent
Wireline
Operating revenues
	Residential		$	72,505	$	73,004	$	(499)	(1%)
	Commercial			57,980		57,125		855	1%
	Wholesale			46,448		50,549		(4,101)	(8%)
		Total service revenues		176,933		180,678		(3,745)	(2%)
	Equipment sales			553		897		(344)	(38%)
				177,486		181,575		(4,089)	(2%)
Operating expenses
	Cost of services			64,400		66,439		(2,039)	(3%)
	Cost of equipment sold			483		1,010		(527)	(52%)
	Selling, general and administrative expenses			46,520		57,380		(10,860)	(19%)
	Depreciation, amortization and accretion			42,736		44,023		(1,287)	(3%)
	Loss on asset disposals, net			245		163		82	50%
				154,384		169,015		(14,631)	(9%)

	Operating income		$	23,102	$	12,560	$	10,542	84%

Cable
Operating revenues
	Residential		$	18,253	$	—	$	18,253	N/M
	Commercial			4,250		—		4,250	N/M
				22,503		—		22,503	N/M
Operating expenses
	Cost of services			10,955		—		10,955	N/M
	Selling, general and administrative expenses			6,378		—		6,378	N/M
	Depreciation, amortization and accretion			4,361		—		4,361	N/M
	Loss on asset disposals, net			65		—		65	N/M
				21,759		—		21,759	N/M

	Operating income		$	744	$	—	$	744	N/M

HMS
Operating revenues
	Service revenues		$	27,376	$	22,000	$	5,376	24%
	Equipment sales			35,732		13,564		22,168	>100%
				63,108		35,564		27,544	77%
Operating expenses
	Cost of services			16,946		13,602		3,344	25%
	Cost of equipment sold			30,467		11,212		19,255	>100%
	Selling, general and administrative expenses			14,835		9,921		4,914	50%
	Depreciation, amortization and accretion			6,678		5,468		1,210	22%
	Loss on asset disposals, net			34		30		4	13%
				68,960		40,233		28,727	71%

	Operating loss		$	(5,852)	$	(4,669)	$	(1,183)	(25%)

Intercompany revenues			$	(681)	$	(78)	$	(603)	>(100)%
Intercompany expenses				(681)		(78)		(603)	>(100)%

Total TDS Telecom operating income			$	17,994	$	7,891	$	10,103	>100%

Telephone and Data Systems, Inc.
Financial Measures and Reconciliations
(Unaudited, dollars in thousands)

			TDS Consolidated
Three Months Ended March 31,			2014		2013

	Cash flows from operating activities		$	104,937	$	246,352
	Deduct:
	Cash used for additions to property, plant, and equipment			150,890		176,318
		Free cash flow (1)	$	(45,953)	$	70,034

(1) Free cash flow is defined as Cash flows from operating activities less Cash used for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after Cash used for additions to property, plant and equipment.