2016 Estimated Results

U.S. Cellular

TDS Telecom

TDS(2)

Current

Previous

Current

Previous

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,100

Unchanged

$1,130-$1,180

Unchanged

$5,040-$5,290

Unchanged

Operating cash flow (1)

$525-$650

Unchanged

$270-$310

Unchanged

$800-$965

Unchanged

Adjusted EBITDA (1)

$725-$850

Unchanged

$270-$310

Unchanged

$1,000-$1,165

Unchanged

Capital expenditures (Approximately)

$

500

Unchanged

$

180

Unchanged

$

695

Unchanged

2016 Estimated Results

U.S. Cellular

TDS Telecom

TDS(2)

(Dollars in millions)

Net income (loss) (GAAP)

N/A

N/A

N/A

Add back:

Income tax expense (benefit)

N/A

N/A

N/A

Income (loss) before income taxes (GAAP)

$

(5)-120

$

40-80

$

(25)-140

Add back:

Interest expense

110

–

165

610

230

850

EBITDA (Non-GAAP)

$

715-840

$

270-310

$

990-1,155

Add back:

–

–

–

(10)

–

(10)

(Gain) loss on asset disposals, net

20

–

20

Adjusted EBITDA (Non-GAAP) (1)

$

725-850

$

270-310

$

1,000-1,165

Deduct:

140

–

140

Interest and dividend income

60

–

60

Operating cash flow (Non-GAAP) (1)

$

525-650

$

270-310

$

800-965

Actual Results

Six Months Ended June 30, 2016

Year ended December 31, 2015

U.S. Cellular

TDS

Telecom

TDS (2)

U.S. Cellular*

TDS

Telecom

TDS (2)*

(Dollars in millions)

Net income (GAAP)

$

37

$

25

$

42

$

247

$

46

$

263

Add back:

Income tax expense

23

16

31

156

35

172

$

60

$

41

$

73

$

404

$

81

$

435

Add back:

Interest expense

56

1

85

86

1

142

307

112

422

606

228

844

EBITDA (Non-GAAP)

$

423

$

154

$

580

$

1,096

$

310

$

1,421

Add back:

–

–

–

(114)

(10)

(136)

(9)

–

(9)

(147)

–

(147)

(Gain) loss on asset disposals, net

10

2

12

16

6

22

Adjusted EBITDA (Non-GAAP) (1)

$

424

$

156

$

583

$

852

$

306

$

1,160

Deduct:

72

–

72

140

–

140

Interest and dividend income

27

2

29

37

2

39

Operating cash flow (Non-GAAP) (1)(3)

$

325

$

155

$

482

$

675

$

304

$

981

* Includes $58 million of revenue related to termination of the rewards points program.

Note: Totals may not foot due to rounding differences.

(1)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above. Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above. Adjusted EBITDA and Operating cash flow are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to Net incomes, as indicators of cash flows or as measure of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed most appropriate. Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before incomes taxes.

(2)

The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments, all of which are not presented above.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to operating income (GAAP) for June 30, 2016 actual results can be found on the company's website at investors.tdsinc.com.

Repurchase Period

# Shares

Cost (in millions)

2016 (year-to-date through June 30, 2016)

111,700

$

3

2015 (full year)

–

$

–

Total

111,700

$

3

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2016

3/31/2016

12/31/2015

9/30/2015

6/30/2015

Retail Connections

Postpaid

Total at end of period

4,490,000

4,454,000

4,409,000

4,341,000

4,324,000

Gross additions

197,000

215,000

240,000

200,000

191,000

Feature phones

8,000

9,000

10,000

14,000

15,000

Smartphones

107,000

124,000

132,000

119,000

115,000

Connected devices

82,000

82,000

98,000

67,000

61,000

Net additions (losses)

36,000

45,000

68,000

17,000

17,000

Feature phones

(21,000)

(25,000)

(25,000)

(28,000)

(26,000)

Smartphones

8,000

20,000

23,000

6,000

7,000

Connected devices

49,000

50,000

70,000

39,000

36,000

ARPU (1)(8)

$

47.37

$

48.13

$

51.46

$

58.12

$

53.62

ABPU (Non-GAAP)*(2)(8)

$

56.09

$

56.06

$

58.57

$

63.88

$

58.06

ARPA (3)(8)

$

124.91

$

125.36

$

131.96

$

147.00

$

133.85

ABPA (Non-GAAP)*(4)(8)

$

147.90

$

145.99

$

150.19

$

161.57

$

144.94

Churn rate (5)

1.20%

1.28%

1.31%

1.41%

1.34%

Handsets

1.10%

1.18%

1.23%

1.33%

1.26%

Connected devices

1.84%

2.01%

1.95%

2.20%

2.13%

Smartphone penetration (6)

77%

75%

74%

72%

69%

Prepaid

Total at end of period

413,000

399,000

387,000

380,000

368,000

Gross additions

73,000

75,000

69,000

71,000

65,000

Net additions (losses)

14,000

12,000

7,000

12,000

8,000

ARPU (1)

$

34.58

$

35.51

$

35.54

$

35.64

$

35.98

Churn rate (5)

4.86%

5.37%

5.40%

5.24%

5.22%

Total connections at end of period (9)

4,973,000

4,926,000

4,876,000

4,807,000

4,779,000

91%

92%

91%

87%

87%

Market penetration at end of period

Consolidated operating population

31,994,000

31,994,000

31,967,000

31,814,000

31,814,000

Consolidated operating penetration (7)

16%

15%

15%

15%

15%

Capital expenditures (millions)

$

93

$

79

$

198

$

135

$

134

Total cell sites in service

6,324

6,306

6,297

6,246

6,223

Owned towers

3,988

3,989

3,978

3,957

3,940

*

See Non-GAAP reconciliation at end.

(1)

Average Revenue Per User ("ARPU") - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:

▪

Postpaid ARPU consists of total postpaid service revenues and postpaid connections.

▪

Prepaid ARPU consists of total prepaid service revenues and prepaid connections.

(2)

Average Billings Per User ("ABPU") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.

(3)

Average Revenue Per Account ("ARPA") - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

(4)

Average Billings Per Account ("ABPA") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.

(5)

Churn metrics represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

(6)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset connections.

(7)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

(8)

The quarter ended September 30, 2015 results include the recognition of $58 million in revenue due to the termination of the rewards program.

(9)

Includes reseller and other connections.

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

6/30/2016

3/31/2016

12/31/2015

9/30/2015

6/30/2015

TDS Telecom

Wireline

Residential connections

Voice (1)

316,800

318,400

319,800

325,900

329,000

Broadband (2)

232,200

229,100

228,500

231,600

231,200

IPTV (3)

41,200

38,300

34,400

30,300

27,900

Wireline residential connections

590,200

585,800

582,700

587,800

588,100

Total residential revenue per connection (4)

$

43.67

$

43.28

$

41.24

$

42.83

$

42.10

Commercial connections

Voice (1)

164,000

167,400

171,500

176,700

181,800

Broadband (2)

21,900

22,000

22,400

23,000

23,700

managedIP (5)

149,000

148,500

147,100

145,900

145,100

Wireline commercial connections

334,900

337,900

341,000

345,600

350,600

Total Wireline connections

925,100

923,700

923,700

933,400

938,700

Cable

Cable Connections

Video (6)

102,900

104,600

106,800

108,300

109,100

Broadband (7)

125,700

121,700

117,100

114,600

112,300

Voice (8)

58,900

58,100

56,400

54,000

51,500

Cable connections

287,600

284,400

280,300

276,900

272,900

Numbers may not foot due to rounding.

(1)

The individual circuits connecting a customer to Wireline's central office facilities.

(2)

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

(3)

The number of Wireline customers provided video services using IP networking technology.

(4)

Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of total Wireline residential connections and by the number of months in the period.

(5)

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

(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)

Billable number of lines into a building for high-speed data services.

(8)

Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (millions)

Quarter Ended

6/30/2016

3/31/2016

12/31/2015

9/30/2015

6/30/2015

Wireline

$

27

$

27

$

50

$

38

$

32

Cable

17

13

15

13

12

HMS

2

2

8

5

9

$

46

$

42

$

73

$

56

$

53

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended June 30,

2015

2016 vs. 2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

U.S. Cellular

$

980

$

976

$

4

-

TDS Telecom

300

295

5

2%

All Other (1)

3

5

(2)

(40)%

1,283

1,276

7

1%

Operating expenses

U.S. Cellular

812

814

(2)

-

Depreciation, amortization and accretion

154

151

3

2%

(Gain) loss on asset disposals, net

5

5

–

(12)%

(Gain) loss on sale of business and other exit costs, net

–

(2)

2

N/M

(Gain) loss on license sales and exchanges, net

(9)

–

(9)

>(100)%

962

968

(6)

(1)%

TDS Telecom

221

216

4

2%

Depreciation, amortization and accretion

54

57

(3)

(6)%

(Gain) loss on asset disposals, net

1

(1)

2

>100%

(Gain) loss on sale of business and other exit costs, net

–

(3)

3

>100%

275

269

6

2%

All Other (1)

Expenses excluding depreciation and amortization

3

4

(1)

(49)%

Depreciation and amortization

2

3

(1)

(52)%

(Gain) loss on asset disposals, net

–

1

(1)

>100%

(Gain) loss on sale of business and other exit costs, net (2)

–

(1)

1

100%

5

7

(2)

(45)%

Total operating expenses

1,242

1,244

(2)

-

Operating income (loss)

U.S. Cellular

18

8

10

>100%

TDS Telecom

24

26

(1)

(5)%

All Other (1)

(1)

(2)

–

61%

41

32

9

28%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

36

35

1

3%

Interest and dividend income

15

10

5

52%

Interest expense

(43)

(34)

(9)

(26)%

Other, net

1

1

–

>(100)%

Total investment and other income

9

12

(3)

(25)%

Income before income taxes

50

44

6

14%

Income tax expense

18

18

–

4%

Net income

32

26

6

20%

4

3

1

18%

Net income attributable to TDS shareholders

28

23

5

21%

TDS Preferred dividend requirement

–

–

–

-

Net income available to common shareholders

$

28

$

23

$

5

21%

Basic weighted average shares outstanding

109

108

1

1%

Basic earnings per share attributable to TDS shareholders

$

0.25

$

0.21

$

0.04

19%

Diluted weighted average shares outstanding

111

110

1

1%

Diluted earnings per share attributable to TDS shareholders

$

0.25

$

0.21

$

0.04

19%

(1)

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Six Months Ended June 30,

2016

2015

2016 vs. 2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

U.S. Cellular

$

1,938

$

1,941

$

(3)

-

TDS Telecom

581

575

6

1%

All Other (1)

7

12

(5)

(45)%

2,526

2,528

(2)

-

Operating expenses

U.S. Cellular

1,613

1,610

3

-

Depreciation, amortization and accretion

307

298

9

3%

(Gain) loss on asset disposals, net

10

10

–

2%

(Gain) loss on sale of business and other exit costs, net

–

(113)

113

100%

(Gain) loss on license sales and exchanges, net

(9)

(123)

114

93%

1,921

1,682

239

14%

TDS Telecom

426

417

10

2%

Depreciation, amortization and accretion

112

114

(2)

(2)%

(Gain) loss on asset disposals, net

2

–

2

>100%

(Gain) loss on sale of business and other exit costs, net

–

(3)

3

>100%

540

528

12

2%

All Other (1)

Expenses excluding depreciation and amortization

5

10

(5)

(54)%

Depreciation and amortization

3

6

(3)

(40)%

(Gain) loss on sale of business and other exit costs, net (2)

–

(13)

13

100%

8

3

5

>100%

Total operating expenses

2,469

2,213

256

12%

Operating income (loss)

U.S. Cellular (3)

17

259

(242)

(93)%

TDS Telecom

41

47

(6)

(12)%

All Other (1)

(1)

9

(10)

>(100)%

57

315

(258)

(82)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

72

70

2

2%

Interest and dividend income

29

19

10

58%

Interest expense

(85)

(68)

(17)

(25)%

Total investment and other income

16

21

(5)

(24)%

Income before income taxes

73

336

(263)

(78)%

Income tax expense

31

134

(103)

(77)%

Net income

42

202

(160)

(79)%

6

33

(27)

(82)%

Net income attributable to TDS shareholders

36

169

(133)

(79)%

TDS Preferred dividend requirement

–

–

–

-

Net income available to common shareholders

$

36

$

169

$

(133)

(79)%

Basic weighted average shares outstanding

109

108

1

1%

Basic earnings per share attributable to TDS shareholders

$

0.33

$

1.56

$

(1.23)

(79)%

Diluted weighted average shares outstanding

111

109

2

1%

Diluted earnings per share attributable to TDS shareholders

$

0.32

$

1.53

$

(1.21)

(79)%

(1)

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

(2)

Compared to U.S. Cellular, TDS recognized an incremental gain of $12 million on the tower sale as a result of a lower basis in the assets disposed in 2015.

(3)

Year-over-year comparisons are affected by gains of $252 million from sales and exchanges of businesses and licenses in 2015.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended June 30,

2016

2015

(Dollars in millions)

Cash flows from operating activities

Net income

$

42

$

202

Add (deduct) adjustments to reconcile net income to net cash flows from operating activities

Depreciation, amortization and accretion

422

418

Bad debts expense

46

55

Stock-based compensation expense

18

18

Deferred income taxes, net

8

(41)

Equity in earnings of unconsolidated entities

(72)

(70)

Distributions from unconsolidated entities

30

27

(Gain) loss on asset disposals, net

12

10

(Gain) loss on sale of business and other exit costs, net

–

(129)

(Gain) loss on license sales and exchanges, net

(9)

(123)

Noncash interest expense

2

1

Other operating activities

(3)

–

Changes in assets and liabilities from operations

Accounts receivable

(6)

(18)

Equipment installment plans receivable

(94)

(65)

Inventory

(26)

127

Accounts payable

32

30

Customer deposits and deferred revenues

(18)

(7)

Accrued taxes

76

191

Accrued interest

(1)

–

Other assets and liabilities

(59)

(88)

Net cash provided by operating activities

400

538

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(281)

(359)

Cash paid for acquisitions and licenses

(46)

(281)

Cash received from divestitures and exchanges

17

292

Federal Communications Commission deposit

(143)

–

Other investing activities

1

2

Net cash used in investing activities

(452)

(346)

Cash flows from financing activities

Repayment of long-term debt

(6)

–

Issuance of long-term debt

2

–

TDS Common Shares reissued for benefit plans, net of tax payments

–

10

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

3

(2)

Repurchase of TDS Common Shares

(3)

–

Repurchase of U.S. Cellular Common Shares

(2)

(2)

Dividends paid to TDS shareholders

(32)

(31)

Payment of debt issuance costs

(4)

(3)

Distributions to noncontrolling interests

(1)

(6)

Other financing activities

9

2

Net cash provided by financing activities

(34)

(32)

Net increase (decrease) in cash and cash equivalents

(86)

160

Cash and cash equivalents

Beginning of period

985

472

End of period

$

899

$

632

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30,

December 31,

2016

2015

(Dollars in millions)

Current assets

Cash and cash equivalents

$

899

$

985

Accounts receivable from customers and others, net

824

803

Inventory, net

184

158

Prepaid expenses

121

112

Income taxes receivable

6

70

Other current assets

31

30

Total current assets

2,065

2,158

Assets held for sale

23

–

Licenses

1,864

1,844

Goodwill

766

766

Franchise rights

244

244

Other intangible assets, net

39

47

Investments in unconsolidated entities

446

402

Property, plant and equipment, net

3,613

3,764

Other assets and deferred charges

366

197

Total assets

$

9,426

$

9,422

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30,

December 31,

2016

2015

(Dollars in millions)

Current liabilities

Current portion of long-term debt

$

14

$

14

Accounts payable

362

349

Customer deposits and deferred revenues

269

288

Accrued interest

11

12

Accrued taxes

50

41

Accrued compensation

96

113

Other current liabilities

96

127

Total current liabilities

898

944

Deferred liabilities and credits

Deferred income tax liability, net

908

900

Other deferred liabilities and credits

447

433

Long-term debt

2,436

2,440

Noncontrolling interests with redemption features

1

1

Equity

TDS shareholders' equity

Series A Common and Common Shares, par value $.01

1

1

Capital in excess of par value

2,363

2,365

Treasury shares, at cost

(717)

(727)

Accumulated other comprehensive income (loss)

–

–

Retained earnings

2,487

2,487

Total TDS shareholders' equity

4,134

4,126

Preferred shares

1

1

Noncontrolling interests