10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-2669023
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

30 North LaSalle Street, Chicago, Illinois 60602

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (312) 630-1900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý   No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý   No ¨

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at June 30, 2004
Common Shares, $.01 par value Series A Common Shares, $.01 par value	50,798,907 Shares 6,422,616 Shares

TELEPHONE AND DATA SYSTEMS, INC.

2nd QUARTER REPORT ON FORM 10-Q

INDEX

	Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2004 and 2003	3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003	4
Consolidated Balance Sheets -
June 30, 2004 and December 31, 2003	5-6
Notes to Consolidated Financial Statements	7-26
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition	27-29
Six Months Ended June 30, 2004 and 2003	30-31
U.S. Cellular Operations	32-40
TDS Telecom Operations	41-43
Three Months Ended June 30, 2004 and 2003	43-46
Recent Accounting Pronouncements	47-48
Financial Resources	49-50
Liquidity and Capital Resources	50-55
Application of Critical Accounting Policies and Estimates	56-60
Certain Relationships and Related Transactions	60
Safe Harbor Cautionary Statement	61-62
Item 3. Quantitative and Qualitative Disclosures About Market Risk	63-64
Item 4. Controls and Procedures	65
Part II. Other Information
Item 1. Legal Proceedings	66
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities	66
Item 4. Submission of Matters to a Vote of Security-Holders	67-68
Item 6. Exhibits and Reports on Form 8-K	68
Signatures	69

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004			2003 As Restated
	(Dollars in thousands, except per share amounts)
OPERATING REVENUES	$	934,588		$	857,414		$	1,805,100		$	1,672,692
OPERATING EXPENSES
Cost of services and products (exclusive of
Depreciation, amortization and accretion expense
shown below)		317,230			285,406			628,623			571,682
Selling, general and administrative expense		343,058			331,484			673,701			651,967
Depreciation, amortization and accretion expense		164,411			144,902			319,863			296,129
Loss on impairment of intangible assets		—			49,595			—			49,595
(Gain) loss on assets held for sale		(582	)		3,500			(725	)		25,061
Total Operating Expenses		824,117			814,887			1,621,462			1,594,434
OPERATING INCOME		110,471			42,527			183,638			78,258
INVESTMENT AND OTHER INCOME (EXPENSE)
Investment income		18,532			13,517			33,162			26,267
Interest and dividend income		5,246			6,069			8,142			10,397
Loss on investments		(1,830	)		(5,000	)		(1,830	)		(8,500	)
Interest (expense)		(48,422	)		(43,996	)		(95,243	)		(87,353	)
Minority interest in income of subsidiary trust		—			(6,202	)		—			(12,405	)
Other income (expense), net		(2,147	)		(7,097	)		(2,674	)		(5,938	)
Total Investment and Other Income (Expense)		(28,621	)		(42,709	)		(58,443	)		(77,532	)
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST		81,850			(182	)		125,195			726
Income tax expense		31,277			4,033			51,382			8,618
INCOME (LOSS) BEFORE MINORITY INTEREST		50,573			(4,215	)		73,813			(7,892	)
Minority Share of Income		(9,179	)		(940	)		(12,687	)		(1,308	)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE		41,394			(5,155	)		61,126			(9,200	)
Cumulative effect of accounting change, net of tax
and minority interest		—			—			—			(11,789	)
NET INCOME (LOSS)		41,394			(5,155	)		61,126			(20,989	)
Preferred Dividend Requirement		(50	)		(104	)		(101	)		(209	)
NET INCOME (LOSS) AVAILABLE TO COMMON	$	41,344		$	(5,259	)	$	61,025		$	(21,198	)
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING (000s)		57,270			57,474			57,219			58,034
BASIC EARNINGS PER SHARE (Note 9)
Income (Loss) Before Cumulative Effect of
Accounting Change	$	0.72		$	(0.09	)	$	1.07		$	(0.17	)
Cumulative Effect of Accounting Change		—			—			—			(0.20	)
Net income (loss) available to common	$	0.72		$	(0.09	)	$	1.07		$	(0.37	)
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING (000s)		57,579			57,474			57,471			58,034
DILUTED EARNINGS PER SHARE (Note 9)
Income (Loss) Before Cumulative Effect of
Accounting Change	$	0.72		$	(0.09	)	$	1.06		$	(0.17	)
Cumulative Effect of Accounting Change		—			—			—			(0.20	)
Net income (loss) available to common	$	0.72		$	(0.09	)	$	1.06		$	(0.37	)
DIVIDENDS PER SHARE	$	0.165		$	0.155		$	0.33		$	0.31

The accompanying notes to consolidated financial statements are an integral part of these statements.

3

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	61,126		$	(20,989	)
Add (Deduct) adjustments to reconcile income (loss) to net cash
provided by operating activities
Depreciation, amortization and accretion		319,863			296,129
Deferred income taxes		41,847			2,736
Investment income		(33,162	)		(26,267	)
Minority share of income		12,687			1,308
Cumulative effect of accounting change		—			11,789
Loss on impairment of intangible assets		—			49,595
(Gain) loss on assets held for sale		(725	)		25,061
Loss on investments		1,830			8,500
Noncash interest expense		14,225			13,195
Other noncash expense		8,395			14,566
Changes in assets and liabilities
Change in accounts receivable		(26,736	)		81,118
Change in materials and supplies		24,942			(32,395	)
Change in accounts payable		(89,580	)		(82,135	)
Change in customer deposits and deferred revenues		9,457			13,137
Change in accrued taxes		8,053			(8,678	)
Change in other assets and liabilities		(26,724	)		(25,648	)
		325,498			321,022
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(325,115	)		(360,924	)
Cash received from sale of assets		96,932			—
Acquisitions, net of cash acquired		(40,367	)		(1,244	)
Distributions from unconsolidated entities		7,484			17,884
Investments in and advances to unconsolidated entities		(1,137	)		(1,465	)
Other investing activities		(3,969	)		(145	)
		(266,172	)		(345,894	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable		270,000			143,560
Issuance of long-term debt		412,676			—
Repayments of notes payable		(270,000	)		—
Repayments of long-term debt		(10,574	)		(14,549	)
Prepayment of long-term notes		—			(40,680	)
Repurchase of TDS Common shares		(20,440	)		(56,522	)
Treasury shares reissued		20,252			2,497
Dividends paid		(19,001	)		(18,184	)
Other financing activities		1,555			(544	)
		384,468			15,578
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		443,794			(9,294	)
CASH AND CASH EQUIVALENTS -
Beginning of period		937,651			1,298,936
End of period	$	1,381,445		$	1,289,642

The accompanying notes to consolidated financial statements are an integral part of these statements.

4

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

Unaudited

	June 30, 2004		December 31, 2003
	(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents	$	1,381,445	$	937,651
Accounts receivable
Due from customers, less allowance of $24,574
and $18,908, respectively		307,275		282,313
Other, principally connecting companies, less
allowance of $6,973 and $6,419, respectively		131,847		127,358
Materials and supplies, at average cost		62,276		87,270
Other current assets		76,709		70,354
		1,959,552		1,504,946
INVESTMENTS
Marketable equity securities		2,652,113		2,772,410
Wireless license costs		1,192,772		1,189,326
Wireless license rights		42,037		42,037
Goodwill		890,935		887,937
Customer lists, net of accumulated amortization of $28,945
and $22,206, respectively		30,600		24,448
Investments in unconsolidated entities		234,167		214,885
Notes receivable, less valuation allowance of $55,144
and $55,144, respectively		5,275		6,476
Other investments		17,049		15,439
		5,064,948		5,152,958
PROPERTY, PLANT AND EQUIPMENT, NET
U.S. Cellular		2,309,182		2,271,254
TDS Telecom		1,059,681		1,079,732
		3,368,863		3,350,986
OTHER ASSETS AND DEFERRED CHARGES		94,256		83,925
ASSETS OF OPERATIONS HELD FOR SALE		—		100,523
TOTAL ASSETS	$	10,487,619	$	10,193,338

The accompanying notes to consolidated financial statements are an integral part of these statements.

5

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

Unaudited

	June 30, 2004			December 31, 2003
	(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt	$	436,091		$	23,712
Accounts payable		266,908			361,010
Customer deposits and deferred revenues		118,160			108,372
Accrued interest		33,179			31,884
Accrued taxes		50,363			44,889
Accrued compensation		55,461			69,290
Other current liabilities		58,003			57,788
		1,018,165			696,945
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability		1,329,399			1,285,024
Derivative liability		587,574			712,252
Asset retirement obligations		128,815			124,501
Other		117,483			119,076
		2,163,271			2,240,853
LONG-TERM DEBT
Long-term debt, excluding current portion		2,000,757			1,994,913
Prepaid forward contracts		1,681,111			1,672,762
		3,681,868			3,667,675
LIABILITIES OF OPERATIONS HELD FOR SALE		—			2,427
MINORITY INTEREST IN SUBSIDIARIES		490,797			502,702
PREFERRED SHARES		3,864			3,864
COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $.01 per share; authorized
100,000,000 shares; issued 56,346,000
and 56,282,000 shares, respectively		563			563
Series A Common Shares, par value $.01 per share; authorized
25,000,000 shares; issued and outstanding 6,423,000
and 6,440,000 shares; respectively		64			64
Capital in excess of par value		1,827,309			1,843,468
Treasury Shares, at cost, 5,547,000 and 5,688,000
shares, respectively		(472,158	)		(493,714	)
Accumulated other comprehensive income		300,080			296,820
Retained earnings		1,473,796			1,431,671
		3,129,654			3,078,872
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,487,619		$	10,193,338

The accompanying notes to consolidated financial statements are an integral part of these statements.

6

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accounting policies of Telephone and Data Systems, Inc. (“TDS”) conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of TDS and its majority-owned subsidiaries, including TDS’s 82.1%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”), and its 100%-owned wireline telephone subsidiary, TDS Telecommunications Corporation (“TDS Telecom”), and wireless partnerships in which TDS has a majority general partnership interest or a controlling financial interest. In addition, as of January 1, 2004, the consolidated financial statements include all entities where TDS has a variable interest that will absorb a majority of the entity’s expected losses. All material intercompany accounts and transactions have been eliminated.

The consolidated financial statements included herein have been prepared by TDS, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although TDS believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’s latest annual report on Form 10-K, as amended.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items unless otherwise disclosed) necessary to present fairly the financial position as of June 30, 2004, and the results of operations for the three and six months ended June 30, 2004 and 2003 and the cash flows for the six months ended June 30, 2004 and 2003. The results of operations for the three and six months ended June 30, 2004, are not necessarily indicative of the results to be expected for the full year.

2. Restatements and Reclassifications

Wireless License Costs and Goodwill Restatements

On May 14, 2004, TDS restated its 2003 and 2002 financial statements relating to the implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” which was adopted on January 1, 2002. Prior to January 1, 2002, TDS allocated the excess of purchase price of wireless properties over tangible assets and liabilities acquired to wireless license costs and goodwill. At that time, the accounting treatment for TDS’s wireless licenses and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

Based upon a subsequent review of goodwill, TDS restated the allocation of $138.9 million of purchase price recorded as goodwill to wireless license costs as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of wireless license costs by a corresponding $90.7 million. Following these adjustments, TDS reperformed the impairment tests for its wireless license costs as of January 1, 2002, and recorded an impairment loss of $20.9 million, before an income tax benefit of $8.2 million and minority interest of $2.3 million. This impairment was recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

In the first quarter of 2003, TDS had recorded a Loss on assets held for sale related to the pending disposition of certain wireless properties. The wireless license costs upon which the impairment was recorded in the first quarter of 2002 included the wireless license costs of these properties. As a result, a portion of the originally recognized Loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, Loss on assets held for sale in 2003 has been reduced by $1.9 million, before an income tax benefit of $0.8 million and minority interest of $0.2 million.

7

In addition, as a result of the restatement discussed above, TDS also reperformed the annual impairment test for its wireless license costs for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before an income tax benefit of $19.6 million and minority interest of $5.4 million in the second quarter of 2003.

Retention Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the current period presentation. Prior to the fourth quarter of 2003, costs for equipment sold by U.S. Cellular to retain current customers were included in selling, general and administrative expense. These costs were partially offset by equipment sales revenues received from these customers. In the fourth quarter of 2003, TDS changed its policy for classifying retention costs and reclassified U.S. Cellular equipment sales revenue and cost of equipment sold related to the retention of current customers out of selling, general and administrative expense and into operating revenues and cost of services and products, respectively, for each period presented. These reclassifications have been reflected in the three and six months ended June 30, 2003. These reclassifications increased operating revenues for the three and six months ended June 30, 2003 by $6.1 million and $14.0 million, respectively, and increased cost of services and products by $22.2 million and $46.1 million, respectively, from the amounts originally reported. Selling, general and administrative expense was reduced by $16.1 and $32.1 million, respectively, from the amounts originally reported in the results for the three and six months ended June 30, 2003 to reflect the amounts reclassified to operating revenues and cost of services and products. These reclassifications did not have any impact on income from operations, net income, earnings per share, financial position or cash flows of TDS for the three and six months ended June 30, 2003.

A summary of the changes to the affected captions on the statements of operations for the three and six months ended June 30, 2003 related to the above reclassifications and restatements are included below:

8

	Three Months Ended June 30, 2003
(Dollars in thousands, except per share amounts)				Effects of 2003 Changes
Statement of Operations:	As Previously Reported (1)			Wireless License Costs and Goodwill Restatements			Retention Reclass- ifications			As Restated
Operating Revenues (2)	$	851,287		$	—		$	6,127		$	857,414
Operating Expenses
Cost of services and products (2)		263,188			—			22,218			285,406
Selling, general and administrative expense (2)		347,575			—			(16,091	)		331,484
Depreciation, amortization and accretion expense		144,902			—			—			144,902
Loss on impairment of intangible assets		—			49,595			—			49,595
(Gain) Loss on assets held for sale		3,500			—			—			3,500
		759,165			49,595			6,127			814,887
Operating Income		92,122			(49,595	)		—			42,527
Income (loss) before income taxes and
minority interest		49,413			(49,595	)		—			(182	)
Income tax expense (benefit)		23,623			(19,590	)		—			4,033
Minority share of income		(6,294	)		5,354			—			(940	)
Income (loss) before cumulative effect
of accounting change		19,496			(24,651	)		—			(5,155	)
Cumulative effect of accounting change		—			—			—			—
Net income (loss)	$	19,496		$	(24,651	)	$	—		$	(5,155	)
Weighted Average Shares Outstanding (000s)		57,474			—			—			57,474
Basic Earnings (Loss) per Share
Income (loss) before cumulative effect
of accounting change	$	0.34		$	(0.43	)	$	—		$	(0.09	)
Cumulative effect of accounting change		—			—			—			—
Net income (loss)	$	0.34		$	(0.43	)	$	—		$	(0.09	)
Diluted Earnings (Loss) per Share
Income (loss) before cumulative effect
of accounting change	$	0.34		$	(0.43	)	$	—		$	(0.09	)
Cumulative effect of accounting change		—			—			—			—
Net income (loss)	$	0.34		$	(0.43	)	$	—		$	(0.09	)

(1) Amounts as previously reported in amendment No. 2 to the June 30, 2003 Quarterly Report on Form 10-Q filed March 10, 2004.

(2) Prior to the fourth quarter of 2003, TDS included costs for equipment sold to retain current U.S. Cellular customers in selling, general and administrative expense, partially offset by equipment sales revenues received from these customers. In the fourth quarter of 2003, TDS changed its policy for classifying retention costs and has reclassified the equipment sales revenues and cost of equipment sold related to the retention of current U.S. Cellular customers out of selling, general and administrative expense into operating revenues and cost of services and products, respectively. This change was reflected retrospectively in each of the first three quarters of 2003.

9

	Six Months Ended June 30, 2003
(Dollars in thousands, except per share amounts)				Effects of 2003 Changes
Statement of Operations:	As Previously Reported (1)			Wireless License Costs and Goodwill Restatements			Retention Reclass- ifications			As Restated
Operating Revenues (2)	$	1,658,705		$	--		$	13,987		$	1,672,692
Operating Expenses
Cost of services and products (2)		525,586			--			46,096			571,682
Selling, general and administrative expense (2)		684,076			--			(32,109	)		651,967
Depreciation, amortization and accretion expense		296,129			--			--			296,129
Loss on impairment of intangible assets		--			49,595			--			49,595
(Gain) Loss on assets held for sale (3)		27,000			(1,939	)		--			25,061
		1,532,791			47,656			13,987			1,594,434
Operating Income		125,914			(47,656	)		--			78,258
Income (loss) before income taxes and
minority interest		48,382			(47,656	)		--			726
Income tax expense (benefit) (3)		27,447			(18,829	)		--			8,618
Minority share of income (3)		(6,451	)		5,143			--			(1,308	)
Income (loss) before cumulative effect
of accounting change		14,484			(23,684	)		--			(9,200	)
Cumulative effect of accounting change		(11,789	)		--			--			(11,789	)
Net income (loss)	$	2,695		$	(23,684	)	$	--		$	(20,989	)
Weighted Average Shares Outstanding (000s)		58,034			--			--			58,034
Basic Earnings (Loss) per Share
Income (loss) before cumulative effect
of accounting change	$	0.24		$	(0.41	)	$	--		$	(0.17	)
Cumulative effect of accounting change		(0.20	)		--			--			(0.20	)
Net income (loss)	$	0.04		$	(0.41	)	$	--		$	(0.37	)
Diluted Earnings (Loss) per Share
Income (loss) before cumulative effect
of accounting change	$	0.24		$	(0.41	)	$	--		$	(0.17	)
Cumulative effect of accounting change		(0.20	)		--			--			(0.20	)
Net income (loss)	$	0.04		$	(0.41	)	$	--		$	(0.37	)

(1) Amounts as previously reported in amendment No. 2 to the June 30, 2003 Quarterly Report on Form 10-Q filed March 10, 2004.

(2) Prior to the fourth quarter of 2003, TDS included costs for equipment sold to retain current U.S. Cellular customers in selling, general and administrative expense, partially offset by equipment sales revenues received from these customers. In the fourth quarter of 2003, TDS changed its policy for classifying retention costs and has reclassified the equipment sales revenues and cost of equipment sold related to the retention of current U.S. Cellular customers out of selling, general and administrative expense into operating revenues and cost of services and products, respectively. This change was reflected retrospectively in each of the first three quarters of 2003.

(3) The reductions to the (Gain) Loss on assets held for sale and related income tax expense and minority interest are the result of impairment losses recorded on wireless license costs in 2002.

3. Summary of Significant Accounting Policies

Variable Interest Entities

TDS accounts for variable interest entities in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN 46R”). This interpretation modifies the requirements for consolidation of investments previously contained in Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” Under FIN 46R, certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered variable interest entities and are potentially subject to consolidation by an investor other than the investor with the majority equity interest. The adoption of FIN 46R in January 2004 resulted in the inclusion of one additional wireless market in TDS’s consolidated operations. The operations of such additional market did not have a material impact on TDS’s financial position or results of operations.

10

Other Postretirement Benefits

TDS sponsors two contributory defined benefit postretirement plans that cover most employees of TDS Corporate, TDS Telecom and the subsidiaries of TDS Telecom. One plan provides medical benefits and the other plan provides life insurance benefits.

Net periodic benefit costs for the defined benefit postretirement plans include the following components:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Service Cost	$	591		$	419		$	1,181		$	838
Interest on accumulated benefit obligation		665			620			1,330			1,240
Expected return on plan assets		(337	)		(299	)		(674	)		(599	)
Amortization of:
Prior service cost		(179	)		(32	)		(357	)		(64	)
Net loss (gain)		237			123			475			247
Net postretirement cost	$	977		$	831		$	1,955		$	1,662

TDS has contributed $6.9 million to the postretirement plan assets during 2004. A contribution of $0.4 million was made to plan assets on March 31, 2004. An additional contribution of $6.5 million was made on April 1, 2004.

Pension Plan

TDS sponsors a qualified noncontributory defined contribution pension plan. The plan provides benefits for the employees of TDS Corporate, TDS Telecom and U.S. Cellular. Under this plan, pension benefits and costs are calculated separately for each participant and are funded currently. Pension costs were $3.0 million and $6.0 million for the three and six months ended June 30, 2004, respectively, and were $3.1 million and $5.7 million for the three and six months ended June 30, 2003, respectively.

TDS also sponsors an unfunded non-qualified deferred supplemental executive retirement plan to supplement the benefits under the qualified plan to offset the reduction of benefits caused by the limitation on annual employee compensation under the tax laws.

Stock-Based Compensation

TDS accounts for stock options, stock appreciation rights and employee stock purchase plans under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” as allowed by SFAS No. 123, “Accounting for Stock-Based Compensation.”

No compensation costs have been recognized for stock options in 2004 because, under TDS’s stock option plans, the option exercise price for each grant is equal to the quoted stock price at the grant date. During 2003, TDS recorded compensation cost of $0.3 million related to certain options granted with exercise prices that were less than the market price on the grant date. This expense was recognized during the fourth quarter of 2003.

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No compensation costs have been recognized for employee stock purchase plans because the purchase price is not less than 85 percent of the fair market value of the stock at the purchase date. Had compensation cost for all plans been determined consistent with SFAS No. 123, TDS’s net income (loss) available to common and earnings per share would have been reduced to the following pro forma amounts:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004			2003 As Restated
	(Dollars in thousands, except per share amounts)
Net Income (Loss) Available to Common
As Reported	$	41,344		$	(5,259	)	$	61,025		$	(21,198	)
Pro Forma Expense		(6,054	)		(2,580	)		(8,602	)		(4,389	)
Pro Forma Net Income (Loss) Available to Common	$	35,290		$	(7,839	)	$	52,423		$	(25,587	)
Basic Earnings per Share
As Reported	$	0.72		$	(0.09	)	$	1.07		$	(0.37	)
Pro Forma Expense per Share		(0.10	)		(0.05	)		(0.15	)		(0.07	)
Pro Forma Basic Earnings per Share	$	0.62		$	(0.14	)	$	0.92		$	(0.44	)
Diluted Earnings per Share
As Reported	$	0.72		$	(0.09	)	$	1.06		$	(0.37	)
Pro Forma Expense per Share		(0.11	)		(0.05	)		(0.15	)		(0.07	)
Pro Forma Diluted Earnings per Share	$	0.61		$	(0.14	)	$	0.91		$	(0.44	)

Recent Accounting Pronouncements

Mandatorily Redeemable Noncontrolling Interests

Under SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” certain minority interests in consolidated entities with finite lives may meet the standard’s definition of a mandatorily redeemable financial instrument and thus require reclassification as liabilities and remeasurement at the estimated amount of cash that would be due and payable to settle such minority interests under the applicable entity’s organization agreement assuming an orderly liquidation of the finite-lived entity, net of estimated liquidation costs (the “settlement value”). TDS’s consolidated financial statements include such minority interests that meet the standard’s definition of mandatorily redeemable financial instruments. These mandatorily redeemable minority interests represent interests held by third parties in consolidated partnerships and limited liability companies (“LLCs”), where the terms of the underlying partnership or LLC agreement provide for a defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be extinguished and the remaining net proceeds are to be distributed to the minority interest holders and TDS in accordance with the respective partnership and LLC agreements. The termination dates of TDS’s mandatorily redeemable minority interests range from 2042 to 2100.

On November 7, 2003, the FASB issued FASB Staff Position (“FSP”) No. FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150.” The FSP indefinitely deferred the classification and measurement provisions of SFAS No. 150 related to the mandatorily redeemable minority interests associated with finite-lived subsidiaries, but retained the related disclosure provisions. The settlement value of TDS’s mandatorily redeemable minority interests is estimated to be $91.6 million at June 30, 2004. This represents the estimated amount of cash that would be due and payable to settle minority interests assuming an orderly liquidation of the finite-lived consolidated partnerships and LLCs on June 30, 2004, net of estimated liquidation costs. This amount is being disclosed pursuant to the requirements of FSP FAS 150-3; TDS has no current plans or intentions to liquidate any of the related partnerships or LLCs prior to their scheduled termination dates. The corresponding carrying value of the minority interests in finite-lived consolidated partnerships and LLCs at June 30, 2004 is $27.3 million, and is included in the balance sheet caption Minority interest in subsidiaries. The excess of the aggregate settlement value over the aggregate carrying value of the mandatorily redeemable minority interests of $64.3 million is primarily due to the unrecognized appreciation of the minority interest holders’ share of the underlying net assets in the consolidated partnerships and LLCs. Neither the minority interest holders’ share, nor TDS’s share, of the appreciation of the underlying net assets of these subsidiaries is reflected in the consolidated financial statements. The estimate of settlement value was based on certain factors and assumptions. Changes in those factors and assumptions could result in a materially larger or smaller settlement amount.

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The FASB plans to reconsider certain implementation issues and perhaps the classification or measurement guidance for mandatorily redeemable minority interests during the deferral period. The outcome of their deliberations cannot be determined at this point. Accordingly, it is possible that the FASB could require the recognition and measurement of mandatorily redeemable minority interests at their settlement value at a later date.

Health Care Benefits

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted. The Act expands Medicare coverage, primarily by adding a prescription drug benefit for Medicare-eligible participants starting in 2006. The Act provides employers currently sponsoring prescription drug programs for Medicare-eligible participants with a range of options for coordinating with the new government-sponsored program to potentially reduce employers’ costs. These options include supplementing the government program on a secondary payor basis or accepting a direct subsidy from the government to support a portion of the cost of the employer’s program.

Pursuant to guidance from the FASB under FSP FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” TDS has chosen to defer recognition of the potential effects of the Act. Therefore, the retiree health obligations and costs reported in these financial statements do not yet reflect any potential impact of the Act. The FASB published guidance on the accounting for the government subsidy in FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” that is effective beginning July 1, 2004. The implementation of this guidance could require TDS to change previously reported information.

In the months ahead, TDS intends to review its retiree health care strategy in light of the Act. As part of that review, TDS may consider amending its retiree health program to coordinate with the new Medicare prescription drug program or to receive the direct subsidy from the government. As a result, TDS anticipates that its retiree health obligations and costs could be reduced if such amendments are adopted.

Earnings per Share

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share.” EITF 03-6 clarifies what constitutes a participating security and provides further guidance in applying the two-class method of calculating earnings per share. The consensuses reached by the Task Force on EITF Issue No. 03-6 were ratified by the FASB on March 31, 2004, and are effective for reporting periods beginning after March 31, 2004. TDS has reviewed this Issue and concluded that it has no participating securities as defined by EITF Issue No. 03-6.

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4. Income Taxes

Net income (loss) available to common shareholders includes Loss on investments, Loss on impairment of intangible assets and (Gain) loss on assets held for sale for the three and six months ended June 30, 2004 and 2003. The 2004 effective income tax rate is lower than 2003 due to favorable settlements of state audits and the reassessment of the state audit issues as well as the refund of state tax credits. The following table summarizes the effective income tax expense (benefit) rates in each of the periods:

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Effective Tax Rate From
Operations excluding Loss on investments, Loss
on impairment of intangible assets and
(Gain) loss on assets held for sale		38.3%		43.0%		39.1%		42.8%
Loss on investments, Loss on impairment of
intangible assets, and (Gain) loss on
assets held for sale (1)		(40.7)%		(35.9)%		NM		(32.8)%
Income (Loss) before cumulative effect of
accounting changes		38.2%		NM		41.0%		NM

NM – Not Meaningful

(1) The effective tax rate in the six months ended June 30, 2004 related to the provision for Losses on investments, Loss on impairment of intangible assets and (Gain) loss on assets held for sale is not meaningful. Because of the impact on the income tax provision of the completion of the sale of assets to AT&T Wireless Services, Inc. (“AT&T Wireless”) in February 2004, it was necessary for U.S. Cellular to record a tax provision of $2.5 million at the time of this sale. However, book pretax income in the six months ended June 30, 2004 reflected a $725,000 increase attributable to an adjustment on assets held for sale related to working capital items.

5. Loss on Impairment of Intangible Assets

Loss on impairment of intangible assets totaled $49.6 million in 2003. As discussed previously, TDS restated 2003 and 2002 financial statements relating to the implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In connection with this restatement, TDS reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before an income tax benefit of $19.6 million and minority interest of $5.4 million.

The 2004 annual impairment tests for investments in licenses and goodwill were performed in the second quarter of 2004. Other than a license impairment loss recorded as a Loss on investments related to a non-operating market, no impairment losses resulted from the 2004 annual impairment tests. See Note 7 – Loss on Investments for a discussion of this license impairment loss.

6. (Gain) Loss on Assets Held for Sale

TDS recorded an estimated Loss on assets held for sale of $22.0 million in the fourth quarter of 2003 related to the sale of U.S. Cellular’s wireless properties in southern Texas to AT&T Wireless. In the six months ended June 30, 2004, TDS reduced the loss by $725,000 for a total loss of $21.3 million. The loss represents the difference between the book value of the markets sold to AT&T Wireless and the cash received in the transaction when it was completed.

TDS reported a Loss on assets held for sale of $25.1 million in the six months ended June 30, 2003 representing the difference between the carrying value of the Georgia and Florida wireless markets U.S. Cellular transferred to AT&T Wireless and the fair value of the assets received in the exchange transaction. The fair value of the assets to be received was determined using an independent valuation. This exchange transaction was completed on August 1, 2003.

See Note 19 – Acquisitions, Divestitures and Exchanges for further information on both of U.S. Cellular’s transactions with AT&T Wireless.

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7. Loss on Investments

TDS reported a Loss on investments of $1.8 million in the second quarter of 2004. The loss was recorded to reflect an impairment in the carrying value of a license held in a non-operational market in Florida that remained with U.S. Cellular after the exchange with AT&T Wireless was completed. TDS had reported a Loss on investments of $3.5 million in the second quarter of 2003 for an impairment in the carrying value of the same license in a non-operating market in Florida.

TDS also reported an impairment loss of $5.0 million in the second quarter of 2003 on a cellular market investment held by TDS Telecom in conjunction with its annual license cost and goodwill impairment testing.

8. Cumulative Effect of Accounting Change

Effective January 1, 2003, TDS adopted SFAS No.143, “Accounting for Asset Retirement Obligations” and recorded the initial liability for legal obligations associated with asset retirements. The cumulative effect of the implementation of this accounting standard on periods prior to 2003 was recorded in the first quarter of 2003, decreasing net income by $11.8 million, net of tax and minority interest, or $0.20 per basic and diluted share.

9. Earnings per Share

Basic earnings per share is computed by dividing net income available to common by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using net income available to common and weighted average common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and the potential conversion of preferred stock to common shares. The diluted loss per share calculations for the three and six months ended June 30, 2003 exclude the effect of the potentially dilutive securities because their inclusion would be anti-dilutive in each period.

The amounts used in computing earnings per share from operations and the effect on income and the weighted average number of Common and Series A Common Shares of dilutive potential common stock are as follows.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004			2003 As Restated
	(Dollars in thousands)
Basic Earnings per Share:
Income (Loss) Before Cumulative Effect
of Accounting Change	$	41,394		$	(5,155	)	$	61,126		$	(9,200	)
Preferred Dividend requirement		(50	)		(104	)		(101	)		(209	)
Income (Loss) Available to Common		41,344			(5,259	)		61,025			(9,409	)
Cumulative Effect of Accounting Change		—			—			—			(11,789	)
Net Income (Loss) Available to Common used in
Basic Earnings per Share	$	41,344		$	(5,259	)	$	61,025		$	(21,198	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004			2003 As Restated
	(Dollars in thousands)
Diluted Earnings per Share:
Income (Loss) from Operations Available to Common
used in Basic Earnings per Share	$	41,344		$	(5,259	)	$	61,025		$	(9,409	)
Reduction in Preferred Dividends if Preferred Shares
Converted into Common Shares		50			—			—			—
Minority Income Adjustment (1)		(163	)		(51	)		(225	)		(49	)
Income (Loss) from Operations Available to Common		41,231			(5,310	)		60,800			(9,458	)
Cumulative Effect of Accounting Change		—			—			—			(11,789	)
Net Income (Loss) Available to Common used in
Diluted Earnings per Share	$	41,231		$	(5,310	)	$	60,800		$	(21,247	)

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	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003 As Restated		2004		2003 As Restated
	(Shares in thousands)
Weighted Average Number of Common Shares used
in Basic Earnings per Share		57,270		57,474		57,219		58,034
Effects of Dilutive Securities:
Stock Options (2)		235		—		252		—
Conversion of Preferred Shares (3)		74		—		—		—
Weighted Average Number of Common Shares used
in Diluted Earnings per Share		57,579		57,474		57,471		58,034

	Three Months Ended June 30,					Six Months Ended June 30,
	2004		2003 As Restated			2004		2003 As Restated
Basic Earnings per Share:
Income (Loss) Before Cumulative Effect of
Accounting Change	$	0.72	$	(0.09	)	$	1.07	$	(0.17	)
Cumulative Effect of Accounting Change		—		—			—		(0.20	)
	$	0.72	$	(0.09	)	$	1.07	$	(0.37	)
Diluted Earnings per Share:
Income (Loss) Before Cumulative Effect of
Accounting Change	$	0.72	$	(0.09	)	$	1.06	$	(0.17	)
Cumulative Effect of Accounting Change		—		—			—		(0.20	)
	$	0.72	$	(0.09	)	$	1.06	$	(0.37	)

(1) The minority income adjustment reflects the additional minority share of U.S. Cellular’s income computed as if all of U.S. Cellular’s issuable securities were outstanding.

(2) Stock options convertible into 683,281 Common Shares in the three and six months ended June 30, 2004 were not included in computing Diluted Earnings per Share because their effects were antidilutive. Stock options convertible into 1,816,675 Common Shares in the three and six months ended June 30, 2003 were not included in computing Diluted Earnings per Share because their effects were antidilutive.

(3) Preferred shares convertible into 74,016 Common Shares in the six months ended June 30, 2004 were not included in computing Diluted Earnings per Share because their effects were antidilutive. Preferred shares convertible into 226,767 and 227,083 Common Shares in the three and six months ended June 30, 2003 were not included in computing Diluted Earnings per Share because their effects were antidilutive.

10. Marketable Equity Securities

TDS and its subsidiaries hold a substantial amount of marketable equity securities that are publicly traded and can have volatile movements in share prices. TDS and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, trades or reorganizations of other assets. The investment in Deutsche Telekom AG (“Deutsche Telekom”) resulted from TDS’s disposition of its over 80%-owned personal communication services operating subsidiary, Aerial Communications, Inc., to VoiceStream Wireless Corporation (“VoiceStream”) in exchange for stock of VoiceStream, which was then acquired by Deutsche Telekom in exchange for Deutsche Telekom stock. The investment in Vodafone Group Plc (“Vodafone”) resulted from certain dispositions of non-strategic cellular investments to or settlements with AirTouch Communications Inc. (“AirTouch”), in exchange for stock of AirTouch, which was then acquired by Vodafone whereby TDS and its subsidiaries received American Depositary Receipts representing Vodafone stock. The investment in Rural Cellular Corporation (“Rural Cellular”) is the result of a consolidation of several cellular partnerships in which TDS subsidiaries held interests in Rural Cellular, and the distribution of Rural Cellular stock in exchange for these interests. The investment in VeriSign, Inc. (“VeriSign”) is the result of the acquisition by VeriSign of Illuminet, Inc., a telecommunication entity in which several TDS subsidiaries held interests.

The market values of the marketable equity securities may fall below the accounting cost basis of such securities. If management determines the decline in value of the marketable equity securities to be “other than temporary,” the unrealized loss included in Other comprehensive income is recognized and recorded as a loss in the Statement of Operations.

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TDS and its subsidiaries have entered into a number of forward contracts related to the marketable equity securities that they hold. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities while retaining a share of gains from increases in the market prices of such securities. The downside risk is hedged at or above the accounting cost basis thereby eliminating the risk of an other than temporary loss being recorded on these contracted securities.

Information regarding TDS’s marketable equity securities is summarized as follows:

	June 30, 2004			December 31, 2003
	(Dollars in thousands)
Marketable Equity Securities
Deutsche Telekom AG - 131,461,861 Ordinary Shares	$	2,312,414		$	2,403,123
Vodafone Group Plc - 12,945,915 American Depositary Receipts		286,105			324,166
VeriSign, Inc. - 2,361,333 Common Shares		46,991			38,490
Rural Cellular Corporation - 719,396 equivalent Common Shares		6,381			5,719
Other		222			912
Aggregate fair value		2,652,113			2,772,410
Accounting cost basis		1,543,936			1,543,932
Gross unrealized holding gains		1,108,177			1,228,478
Deferred income tax (expense)		(432,647	)		(479,683	)
Unrealized holding gains, net of tax		675,530			748,795
Derivative instruments, net of tax		(371,637	)		(447,319	)
Equity method unrealized gains		262			126
Minority share of unrealized holding gains		(4,075	)		(4,782	)
Accumulated other comprehensive income	$	300,080		$	296,820

11. Goodwill

TDS has substantial amounts of goodwill as a result of the acquisition of wireless licenses and markets, and the acquisition of operating telephone companies. The changes in goodwill for the six months ended June 30, 2004 and 2003, were as follows. TDS Telecom’s incumbent local exchange carriers are designated as “ILEC” and its competitive local exchange carrier is designated as “CLEC” in the table.

				TDS Telecom
(Dollars in thousands)	U.S. Cellular			ILEC			CLEC		Other(1)			Total
Beginning Balance December 31, 2003	$	430,256		$	397,341		$	29,440	$	30,900		$	887,937
Acquisitions		3,649			—			—		—			3,649
Other Adjustments		(651	)		—			—		—			(651	)
Ending Balance June 30, 2004	$	433,254		$	397,341		$	29,440	$	30,900		$	890,935
As Restated
Beginning Balance December 31, 2002	$	504,744		$	397,482		$	29,440	$	35,900		$	967,566
Impairment Loss		—			—			—		(5,000	)		(5,000	)
Allocation to Assets of Operations
Held for Sale		(69,961	)		—			—		—			(69,961	)
Other Adjustments		(2,308	)		(455	)		—		—			(2,763	)
Ending Balance June 30, 2003	$	432,475		$	397,027		$	29,440	$	30,900		$	889,842

(1) Other consists of goodwill related to an investment in a cellular market owned by an ILEC subsidiary.

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12. Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in wireless and wireline entities in which TDS holds a minority interest. These investments are accounted for using either the equity or cost method.

Significant investments in TDS’s unconsolidated entities include the following:

	June 30, 2004		June 30, 2003
Los Angeles SMSA Limited Partnership		5.5%		5.5%
Raleigh-Durham MSA Limited Partnership		8.0%		8.0%
Midwest Wireless Communications, LLC		15.7%		15.7%
North Carolina RSA 1 Partnership		50.0%		50.0%
Oklahoma City SMSA Limited Partnership		14.6%		14.6%

Based primarily on data furnished to TDS by third parties, the following summarizes the combined results of operations of all wireless and wireline entities in which TDS's investments are accounted for by the equity method:

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004		2003
	(Dollars in thousands)
Results of operations
Revenues	$	811,000		$	592,000	$	1,460,000	$	1,165,000
Operating expenses		561,000			427,000		1,038,000		868,000
Operating income		250,000			165,000		422,000		297,000
Other income (expense), net		(3,000	)		2,000		1,000		4,000
Net Income	$	247,000		$	167,000	$	423,000	$	301,000

13. Customer Lists

The customer lists, intangible assets from the acquisition of wireless properties, are being amortized based on average customer retention periods using the declining balance method. The acquisition of certain minority interests in the first quarter of 2004 added $12.9 million to the gross balance at June 30, 2004. Amortization expense was $3.7 million and $6.7 million for the three and six months ended June 30, 2004, respectively, and was $4.5 and $9.0 million for the three and six months ended June 30, 2003, respectively. Amortization expense for the remainder of 2004 and for the years 2005-2008 is expected to be $5.7 million, $8.3 million, $5.4 million, $3.6 million and $2.4 million, respectively.

14. Property, Plant and Equipment

In the first quarter of 2004, U.S. Cellular adjusted the useful lives of Time Division Multiple Access (“TDMA”) radio equipment, switch software and antenna equipment. TDMA radio equipment lives were adjusted to be fully depreciated by the end of 2008, which is the latest date the wireless industry will be required by law to support analog service. U.S. Cellular currently uses TDMA radio equipment to support analog service, and expects to have its digital radio network fully migrated to Code Division Multiple Access (“CDMA”) 1XRTT or some future generation of CDMA technology by that time. The useful lives for certain switch software were reduced to one year from three years and antenna equipment lives were reduced from eight years to seven years in order to better align the useful lives with the actual length of time the assets are expected to be in use. These changes increased depreciation by $2.5 million and $9.9 million for the three and six months ended June 30, 2004, respectively, and is estimated to increase depreciation by $14.9 million for the full year 2004. The change in useful lives reduced net income by $1.2 million, or $0.02 per share for the three months ended June 30, 2004, and $4.9 million, or $0.09 per share for the six months ended June 30, 2004.

In the second quarter of 2004, certain U.S. Cellular TDMA digital radio equipment consigned to a third party for future sale was written down by $6.3 million prior to its consignment, increasing depreciation expense by that amount. This writedown was necessary to reduce the book value of the assets to be sold to their estimated proceeds from disposition.

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In preparation for the implementation of a fixed asset management and tracking software system, including a bar code asset identification system, U.S. Cellular is conducting a physical inventory review of its cell site fixed assets. U.S. Cellular has commenced the cell site fixed asset inventory review and expects to complete the inventory in the fourth quarter of 2004. Based on the results of the review through June 30, 2004, U.S. Cellular estimates that the review, when completed, will result in a write-off of certain assets with a net book value of approximately $4.0 million, and charged $4.0 million to depreciation expense for the estimated write-off in the second quarter. To the extent the final results differ from the $4.0 million already charged to expense, an adjustment would be required.

15. Revolving Credit Facilities and Forward Contracts

TDS has a $600 million revolving credit facility for general corporate purposes. At June 30, 2004, this credit facility had $596.8 million available for use, net of $3.2 million of outstanding letters of credit. This credit facility expires in January 2007. Borrowings bear interest at the London InterBank Offered Rate (“LIBOR”) plus a contractual spread based on TDS’s credit rating. The contractual spread was 30 basis points as of June 30, 2004 (for a rate of 1.67% based on the one month LIBOR rate at June 30, 2004).

TDS also has $75 million of additional bank lines of credit for general corporate purposes, all of which was unused at June 30, 2004. These line of credit agreements expire in less than one year and provide for borrowings at negotiated rates up to the prime rate (4.0% at June 30, 2004 and subsequently increased to 4.25% as of July 1, 2004).

U.S. Cellular has a $700 million revolving credit facility available for general corporate purposes. At June 30, 2004, this credit facility had $699.8 million available for use, net of outstanding letters of credit of $0.2 million. This credit facility expires in June 2007. Borrowings bear interest at the LIBOR rate plus a margin percentage, based on U.S. Cellular’s credit rating, which was 55 basis points as of June 30, 2004 (for a rate of 1.92% based on the one month LIBOR rate at June 30, 2004).

Subsidiaries of TDS and U.S. Cellular have entered into a number of variable prepaid forward contracts (“forward contracts”) related to the marketable equity securities that they hold. The forward contracts mature from May 2007 to August 2008 and, at TDS’s and U.S. Cellular’s option, may be settled in shares of the respective security or cash.

On May 14, 2004, TDS filed a Form 10-K/A to restate its financial statements for the years ended December 31, 2003 and 2002 and for the interim periods for such years. The restatements resulted in defaults under the revolving credit agreements and certain of the forward contracts with one counterparty. TDS and U.S. Cellular had not failed to make any scheduled payments under such revolving credit agreements or forward contracts. TDS and U.S. Cellular received waivers from the lenders associated with the revolving credit agreements and from the counterparty to such forward contracts, under which the lenders and the counterparty agreed to waive any defaults that may have occurred as a result of the restatements.

16. Asset Retirement Obligation

U.S. Cellular is subject to asset retirement obligations associated primarily with its cell sites, retail sites and office locations. Legal obligations include obligations to remediate leased land on which U.S. Cellular’s cell sites and switching offices are located. U.S. Cellular is also required to return leased retail store premises and office space to their pre-existing conditions. U.S. Cellular determined that it had an obligation to remove long-lived assets in its cell sites, retail sites and office locations as described by SFAS No. 143, “Accounting for Asset Retirement Obligations,” and has recorded a liability and related asset retirement obligation accretion expense. The asset retirement obligation calculated in accordance with the provisions of SFAS No. 143 at December 31, 2003 and at June 30, 2004 was $64.5 million and $66.3 million, respectively.

TDS Telecom’s incumbent local exchange carriers have recorded an asset retirement obligation in accordance with the requirements of SFAS No. 143 and a regulatory liability for the costs of removal that state public utility commissions have required to be recorded for regulatory accounting purposes which are in excess of the amounts required to be recorded in accordance with SFAS No. 143. These amounts combined make up the asset retirement obligation amounts shown on the balance sheet. The regulatory liability included in asset retirement obligation at December 31, 2003 and at June 30, 2004 was $28.2 million and $29.9 million, respectively. The asset retirement obligation calculated in accordance with the provisions of SFAS No. 143 at December 31, 2003 and at June 30, 2004 was $31.8 million and $32.6 million, respectively.

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TDS Telecom’s competitive local exchange carrier adopted SFAS No. 143 effective January 1, 2003. TDS Telecom has determined that its competitive local exchange carrier does not have a material legal obligation to remove long-lived assets as described by SFAS 143.

The table below summarizes the changes in asset retirement obligations during the six months ended June 30, 2004.

	U.S. Cellular			TDS Telecom			TDS Consolidated
	(Dollars in thousands)
Beginning Balance - December 31, 2003	$	64,501		$	60,000		$	124,501
Additional liabilities accrued		1,013			3,147			4,160
Accretion expense		2,436			—			2,436
Costs of removal incurred in 2004		—			(647	)		(647	)
Disposition of assets (1)		(1,635	)		—			(1,635	)
Ending Balance - June 30, 2004	$	66,315		$	62,500		$	128,815

(1) This change in the asset retirement obligation relates to those obligations which were associated with the properties sold to AT&T Wireless in February 2004 and are no longer obligations of U.S. Cellular.

17. Long-Term Debt

On May 25, 2004, U.S. Cellular filed with the SEC a shelf registration statement on Form S-3 to register the issuance from time to time of up to $500 million of senior debt securities. This registration statement became effective on June 2, 2004.

As of June 17, 2004, U.S. Cellular issued $330 million in aggregate principal amount of unsecured 7.5% senior notes due June 15, 2034 under this registration statement. Interest on the notes is paid quarterly. U.S. Cellular may redeem the notes, in whole or in part, at any time on and after June 17, 2009, at redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. The net proceeds from this offering, after deducting underwriting discounts, were approximately $319.6 million.

Also, on June 28, 2004, U.S. Cellular issued $100 million in aggregate principal amount of unsecured 6.7% senior notes due December 15, 2033 priced to yield 7.21% to maturity under this registration statement. The net proceeds from this offering, after deducting underwriting discounts, were approximately $92.9 million. This is a further issuance of U.S. Cellular’s 6.7% notes that were issued on December 8, 2003 in the aggregate principal amount of $444 million.

On June 24, 2004, U.S. Cellular issued redemption notices to holders of U.S. Cellular’s subordinated 6% zero coupon convertible debentures (also known as Liquid Yield Option Notes) and on June 28, 2004 issued redemption notices to holders of U.S. Cellular’s 7.25% senior notes. Consequently, $162.4 million of Liquid Yield Option Notes and $250 million of 7.25% senior notes were reclassified to Current portion of long-term debt on the Balance Sheet.

The total net proceeds from the 7.5% and 6.7% senior note offerings, after deducting underwriting discounts, were approximately $412.5 million. Of this amount, $163.3 million was used to redeem U.S. Cellular’s Liquid Yield Option Notes, on July 26, 2004 at accreted value. The balance of the net proceeds, together with borrowings under the revolving credit agreement, is expected to be used to redeem all $250 million of U.S. Cellular’s 7.25% senior notes as of August 16, 2004. No gain or loss is expected to be recognized as a result of such redemptions. However, U.S. Cellular expects to charge $3.6 million of deferred debt expenses to the Statement of Operations related to the redemption of long-term debt.

18. Common Share Repurchase Program

The Board of Directors of TDS has authorized the repurchase of TDS Common Shares. In 2003, the Board of Directors authorized the repurchase of up to 3.0 million Common Shares through February 2006. TDS may use repurchased shares to fund acquisitions and for other corporate purposes.

In the six months ended June 30, 2004, TDS repurchased 214,800 Common Shares under this authorization for an aggregate of $14.9 million, representing an average per share price of $69.16 including commissions. As of June 30, 2004, shares remaining available for repurchase under this authorization totaled 824,300.

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In the six months ended June 30, 2003, TDS repurchased 1.4 million Common Shares under this authorization for an aggregate of $56.5 million, representing an average per share price of $40.99, including commissions.

19. Acquisitions, Divestitures and Exchanges

2004 Activity

On February 18, 2004, U.S. Cellular completed the sale of certain of its wireless properties in southern Texas to AT&T Wireless for $96.9 million in cash, including a working capital adjustment. The U.S. Cellular markets sold to AT&T Wireless included wireless assets and customers in six 25 megahertz cellular markets. An aggregate loss of $21.3 million (including a $22.0 million estimate of the Loss on assets held for sale in the fourth quarter of 2003 and a $725,000 reduction of the loss in the six months ended June 30, 2004) was recorded as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets sold to AT&T Wireless and the cash received in the transaction.

Prior to the close of the AT&T Wireless sale, TDS reflected the assets and liabilities to be transferred to AT&T Wireless as assets and liabilities of operations held for sale in accordance with SFAS No. 144. The results of operations of the markets sold to AT&T Wireless were included in results of operations through February 17, 2004.

In addition, in 2004 U.S. Cellular purchased certain minority interests in several wireless markets in which it already owned a controlling interest for $40.4 million in cash. These acquisitions increased wireless license costs, goodwill and customer lists by $2.7 million, $3.6 million and $12.9 million, respectively.

2003 Activity

On August 1, 2003, U.S. Cellular completed the transfer of wireless assets and customers in ten 25 megahertz markets in Florida and Georgia to AT&T Wireless pursuant to an agreement entered into in March 2003. In return, U.S. Cellular received the following a) rights to acquire controlling interests in 36 personal communication service licenses contiguous to and that overlap existing U.S. Cellular properties in 13 states in the Midwest and the Northeast; b) approximately $34 million in cash; and c) minority interests in six markets in which it previously owned a controlling interest. In accordance with the agreement, U.S. Cellular has deferred the assignment and development of 21 licenses for a period of up to five years from the closing date. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with service requirements of the Federal Communications Commission (“FCC”). The value of these licenses is recorded as Wireless license rights on the Balance Sheet.

The acquisition of the licenses in the exchange was accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular to AT&T Wireless was accounted for as a sale. An estimated loss of $25.1 million was recorded in the six months ended June 30, 2003 as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets transferred to AT&T Wireless and the fair value of the consideration received or to be received in the transaction.

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20. Accumulated Other Comprehensive Income

The cumulative balance of unrealized gains (losses) on securities and derivative instruments and related income tax effects included in Accumulated other comprehensive income are as follows.

	Six Months Ended June 30,
	2004			2003
	(Dollars in thousands)
Balance, beginning of period	$	296,820		$	191,704
Marketable Equity Securities
Add (Deduct):
Unrealized (losses) on marketable equity securities		(120,300	)		356,906
Income tax (expense) benefit		47,036			(139,338	)
		(73,264	)		217,568
Unrealized gains (losses) of equity method companies		135			(489	)
Minority share of unrealized (gains) losses		3,260			(1,828	)
Net unrealized (losses)		(69,869	)		215,251
Deduct (Add):
Recognized (losses) on marketable equity securities		—			(168	)
Income tax benefit		—			62
		—			(106	)
Minority share of recognized losses		—			21
Net recognized (losses) from marketable equity securities
included in net income		—			(85	)
		(69,869	)		215,336
Derivative Instruments
Unrealized gains on derivative instruments		124,206			(240,733	)
Income tax (expense) benefit		(48,523	)		93,864
		75,683			(146,869	)
Minority share of unrealized (gains) losses on derivative
instruments		(2,554	)		735
		73,129			(146,134	)
Net change in unrealized gains (losses) included in
comprehensive income (loss)		3,260			69,202
Balance, end of period	$	300,080		$	260,906

	Six Months Ended June 30,
	2004			2003
	(Dollars in thousands)
Accumulated Unrealized Gains (Losses) on Derivative Instruments
Balance, beginning of period	$	(441,300	)	$	(49,584	)
Add (Deduct):
Unrealized gains (losses) on derivative instruments		124,206			(240,733	)
Income tax (expense) benefit		(48,523	)		93,864
Minority share of unrealized (gains) losses on derivative instruments		(2,554	)		735
Balance, end of period	$	(368,171	)	$	(195,718	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004		2003 As Restated
	(Dollars in thousands)
Comprehensive Income (Loss)
Net Income (loss)	$	41,394		$	(5,155	)	$	61,126	$	(20,989	)
Net change in unrealized gains (losses)
on securities and derivative instruments		(25,715	)		68,141			3,260		69,202
	$	15,679		$	62,986		$	64,386	$	48,213

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21. Business Segment Information

Financial data for TDS’s business segments for each of the three and six month periods ended or at June 30, 2004 and 2003 are as follows. TDS Telecom’s incumbent local exchange carriers are designated as “ILEC” in the table and its competitive local exchange carrier is designated as “CLEC”.

Three Months Ended or at   June 30, 2004				TDS Telecom
(Dollars in thousands)	U.S. Cellular			ILEC		CLEC			All Other(1)			Total
Operating revenues	$	712,225		$	163,517	$	59,781		$	(935	)	$	934,588
Cost of services and products		255,069			39,184		23,514			(537	)		317,230
Selling, general and administrative
expense		269,619			43,037		30,800			(398	)		343,058
Operating income before depreciation,
amortization and accretion (2)		187,537			81,296		5,467			—			274,300
Depreciation, amortization and
accretion expense		122,249			32,425		9,737			—			164,411
(Gain) loss on assets held for sale		(582	)		—		—			—			(582	)
Operating income (loss)		65,870			48,871		(4,270	)		—			110,471
Significant noncash items:
Investment income		18,361			175		—			(4	)		18,532
Loss on investments		(1,830	)		—		—			—			(1,830	)
Marketable equity securities		229,712			—		—			2,422,401			2,652,113
Investment in unconsolidated entities		189,463			19,955		—			24,749			234,167
Total assets		5,232,843			1,841,235		235,824			3,177,717			10,487,619
Capital expenditures	$	162,579		$	26,961	$	8,596		$	1,353		$	199,489

Three Months Ended or at   June 30, 2003  As Restated			TDS Telecom
(Dollars in thousands)	U.S. Cellular		ILEC		CLEC			All Other(1)			Total
Operating revenues	$	645,937	$	159,805	$	52,479		$	(807	)	$	857,414
Cost of services and products		226,612		39,834		19,220			(260	)		285,406
Selling, general and administrative
expense		258,095		44,616		29,320			(547	)		331,484
Operating income before depreciation,
amortization and accretion, loss on
impairment of intangible assets and
loss on assets held for sale (2)		161,230		75,355		3,939			—			240,524
Depreciation, amortization and
accretion expense		104,694		32,121		8,087			—			144,902
Loss on impairment of intangible assets		49,595		—		—			—			49,595
Loss on assets held for sale		3,500		—		—			—			3,500
Operating income (loss)		3,441		43,234		(4,148	)		—			42,527
Significant noncash items:
Investment income		13,484		169		—			(136	)		13,517
Loss on investments		—		—		—			(5,000	)		(5,000	)
Marketable equity securities		202,879		—		—			2,097,354			2,300,233
Investment in unconsolidated entities		171,214		19,069		—			24,838			215,121
Total assets		4,841,141		1,876,373		233,526			3,090,725			10,041,765
Capital expenditures	$	163,076	$	29,288	$	5,504		$	1,672		$	199,540

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Six Months Ended or at   June 30, 2004				TDS Telecom
(Dollars in thousands)	U.S. Cellular			ILEC		CLEC			All Other(1)			Total
Operating revenues	$	1,369,875		$	322,636	$	114,517		$	(1,928	)	$	1,805,100
Cost of services and products		512,480			73,701		43,561			(1,119	)		628,623
Selling, general and administrative
expense		527,825			86,448		60,237			(809	)		673,701
Operating income before depreciation,
amortization and accretion (2)		329,570			162,487		10,719			—			502,776
Depreciation, amortization and
accretion expense		236,143			64,972		18,748			—			319,863
(Gain) loss on assets held for sale		(725	)		—		—			—			(725	)
Operating income (loss)		94,152			97,515		(8,029	)		—			183,638
Significant noncash items:
Investment income		32,648			350		—			164			33,162
Loss on investments		(1,830	)		—		—			—			(1,830	)
Marketable equity securities		229,712			—		—			2,422,401			2,652,113
Investment in unconsolidated entities		189,463			19,955		—			24,749			234,167
Total assets		5,232,843			1,841,235		235,824			3,177,717			10,487,619
Capital expenditures	$	263,114		$	44,577	$	15,052		$	2,372		$	325,115

Six Months Ended or at   June 30, 2003  As Restated				TDS Telecom
(Dollars in thousands)	U.S. Cellular			ILEC		CLEC			All Other(1)			Total
Operating revenues	$	1,249,711		$	319,402	$	104,918		$	(1,339	)	$	1,672,692
Cost of services and products		453,220			77,979		41,003			(520	)		571,682
Selling, general and administrative
expense		508,447			87,033		57,306			(819	)		651,967
Operating income before depreciation,
amortization and accretion, loss on
impairment of intangible assets and
loss on assets held for sale (2)		288,044			154,390		6,609			—			449,043
Depreciation, amortization and
accretion expense		214,271			65,740		16,118			—			296,129
Loss on impairment of intangible assets		49,595			—		—			—			49,595
Loss on assets held for sale		25,061			—		—			—			25,061
Operating income (loss)		(883	)		88,650		(9,509	)		—			78,258
Cumulative effect of accounting change,
net of tax and minority interest		(14,346	)		—		—			2,557			(11,789	)
Significant noncash items:
Investment income		25,862			339		—			66			26,267
Loss on investments		(3,500	)		—		—			(5,000	)		(8,500	)
Marketable equity securities		202,879			—		—			2,097,354			2,300,233
Investment in unconsolidated entities		171,214			19,069		—			24,838			215,121
Total assets		4,841,141			1,876,373		233,526			3,090,725			10,041,765
Capital expenditures	$	304,002		$	44,700	$	9,209		$	3,013		$	360,924

(1) Consists of the TDS Corporate operations, TDS Telecom intercompany revenue and expense eliminations, TDS Corporate and TDS Telecom marketable equity securities and all other businesses not included in the U.S. Cellular or TDS Telecom segments.

(2) Operating income before depreciation, amortization and accretion and Operating income before depreciation, amortization and accretion, loss on impairment of intangible assets and Loss on assets held for sale are measures of profit and loss used by the chief operating decision maker to review the operating performance of each reportable business segment and is reported above in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.”

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	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003 As Restated			2004			2003 As Restated
	(Dollars in thousands)
Total operating income from
reportable segments	$	110,471		$	42,527		$	183,638		$	78,258
Investment and other income and expense		(28,621	)		(42,709	)		(58,443	)		(77,532	)
Income (loss) before income taxes and
minority interest	$	81,850		$	(182	)	$	125,195		$	726

22. Commitments and Contingencies

Indemnifications

TDS enters into agreements in the normal course of business that provide for indemnification of counterparties. These include certain asset sales and financings with other parties. The terms of the indemnifications vary by agreement. The events or circumstances that would require TDS to perform under these indemnities are transaction specific; however, these agreements may require TDS to indemnify the counterparty for costs and losses incurred from litigation or claims arising from the underlying transaction. TDS is unable to estimate the maximum potential liability for these types of indemnifications as the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, TDS has not made any significant indemnification payments under such agreements.

Legal Proceedings

TDS is involved in legal proceedings before the FCC and various state and federal courts from time to time. Management does not believe that any of such proceedings will have a materially adverse impact on the financial position, results of operations or cash flows of TDS.

23. Subsequent Events

Redemption of Liquid Yield Option Notes

U.S. Cellular’s issued a notice of redemption on June 24, 2004 and all of the Liquid Yield Option Notes were redeemed at the accreted value of $163.3 million on July 26, 2004. U.S. Cellular’s Liquid Yield Option Notes were convertible, at the option of their holders, at any time prior to the close of business on the redemption date, into Common Shares at a conversion rate of 9.475 Common Shares per $1,000 of Notes. Upon conversion, U.S. Cellular had the option to deliver to holders either Common Shares or cash equal to the market value of the Common Shares into which the Liquid Yield Option Notes were convertible.

Sale of Wireless Properties

On August 4, 2004, TDS announced that U.S. Cellular and TDS Telecom had entered into definitive agreements with ALLTEL Communications, Inc. ("ALLTEL") to sell certain wireless properties. TDS subsidiaries will sell three consolidated properties and six minority interests to ALLTEL for $143 million in cash, including repayment of debt and working capital that is subject to adjustment at closing. The transactions are subject to regulatory approvals. The closing of the transactions is expected to occur in the fourth quarter of 2004.

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The following table summarizes the recorded value of the assets and liabilities of the properties that TDS subsidiaries will be transferring:

	June 30, 2004
	(Dollars in thousands)
Current assets	$	11,980
Property, plant and equipment, net		30,770
Licenses		258
Goodwill		39,157
Investment in unconsolidated entities		21,815
Other		1,044
Total assets		105,024
Current liabilities		3,713
Deferred credits		489
Total liabilities		4,202
Net assets to be transferred	$	100,822

TDS expects to record a gain related to these transactions for the excess of the cash received over the book value of the net assets given up, subject to a working capital adjustment. As a result of signing the definitive agreements for these transactions, TDS will reclassify the net assets of the properties to be transferred as assets held for sale in the third quarter of 2004.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES

Telephone and Data Systems, Inc. (“TDS”- AMEX symbol: TDS) is a diversified telecommunications company providing high-quality telecommunications services to approximately 5.8 million wireless telephone customers and wireline telephone equivalent access lines. TDS conducts substantially all of its wireless telephone operations through its 82.1%-owned subsidiary, United States Cellular Corporation (“U.S. Cellular”) and its incumbent local exchange carrier and competitive local exchange carrier wireline telephone operations through its wholly owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”).

The following discussion and analysis should be read in conjunction with TDS’s interim consolidated financial statements and footnotes included herein, and with TDS’s audited consolidated financial statements and footnotes and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in TDS’s Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

RESTATEMENTS AND RECLASSIFICATIONS

Wireless License Costs and Goodwill Restatements

On May 14, 2004 TDS restated its 2003 and 2002 financial statements relating to the implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” which was adopted on January 1, 2002. Prior to January 1, 2002, TDS allocated the excess of purchase price of wireless properties over tangible assets and liabilities acquired to wireless license costs and goodwill. At that time, the accounting treatment for the TDS’s wireless licenses and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

Based upon a subsequent review of goodwill, TDS restated the allocation of $138.9 million of purchase price recorded as goodwill to wireless license costs as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of wireless license costs by a corresponding $90.7 million. Following these adjustments, TDS reperformed the impairment tests for its wireless license costs as of January 1, 2002, and recorded an impairment loss of $20.9 million, before an income tax benefit of $8.2 million and minority interest of $2.3 million. This impairment was recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

In the first quarter of 2003, TDS had recorded a Loss on assets held for sale related to the pending disposition of certain wireless properties. The wireless license costs upon which the impairment was recorded in the first quarter of 2002 included the wireless license costs of these properties. As a result, a portion of the originally recognized Loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, Loss on assets held for sale in 2003 has been reduced by $1.9 million, before an income tax benefit of $0.8 million and minority interest of $0.2 million.

In addition, as a result of the restatement discussed above, TDS also reperformed the annual impairment test for its wireless license costs for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before an income tax benefit of $19.6 million and minority interest of $5.4 million in the second quarter of 2003.

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Retention Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the current period presentation. Prior to the fourth quarter of 2003, costs for equipment sold by U.S. Cellular to retain current customers were included in selling, general and administrative expense. These costs were partially offset by equipment sales revenues received from these customers. In the fourth quarter of 2003, TDS changed its policy for classifying retention costs and reclassified U.S. Cellular equipment sales revenue and cost of equipment sold related to the retention of current customers out of selling, general and administrative expense and into operating revenues and cost of services and products, respectively, for each period presented. These reclassifications have been reflected in the three and six months ended June 30, 2003. These reclassifications increased operating revenues for the three and six months ended June 30, 2003 by $6.1 million and $14.0 million, respectively, and increased cost of services and products by $22.2 million and $46.1 million, respectively, from the amounts originally reported. Selling, general and administrative expense was reduced by $16.1 million and $32.1 million, respectively, from the amounts originally reported in the results for the three and six months ended June 30, 2003 to reflect the amounts reclassified to operating revenues and cost of services and products. These reclassifications did not have any impact on income from operations, net income, earnings per share, financial position or cash flows of TDS for the three and six months ended June 30, 2003.

OVERVIEW

The following is a summary of certain selected information from the complete management discussion that follows the overview and does not contain all of the information that may be important. You should carefully read this entire management discussion and analysis and not rely solely on the overview.

Results of Operations

U.S. Cellular — U.S. Cellular positions itself as a regional operator, focusing its efforts on providing wireless service to customers in the geographic areas where it has licenses to provide such service. U.S. Cellular differentiates itself from its competitors through a customer satisfaction strategy, reflecting broad product distribution, a customer service focus and a high-quality wireless network.

U.S. Cellular’s business development strategy is to operate controlling interests in wireless licenses in areas adjacent to or in proximity to its other wireless licenses, thereby building contiguous operating market areas. U.S. Cellular’s operating strategy is to strengthen the geographic areas where it can continue to build long-term operating synergies and to exit those areas where it does not have opportunities to build such synergies. In addition to the recent transactions disclosed in TDS’s Annual Report on Form 10-K for the year ended December 31, 2003, as amended, on February 18, 2004, U.S. Cellular completed the sale of certain of its wireless properties in southern Texas to AT&T Wireless Services, Inc. for $96.9 million in cash, including a working capital adjustment.

U.S. Cellular’s operating income in the six months ended June 30, 2004 increased $95.1 million to $94.2 million from an operating loss of $883,000 in 2003. The operating income (loss) margins (as a percent of service revenues) were 7.3% in 2004 and less than (1%) in 2003. U.S. Cellular’s 2003 operating loss and operating loss margin were significantly affected by the Loss on assets held for sale and Loss on impairment of intangible assets. Although operating income and margins improved in 2004, TDS expects that there will be pressure on U.S. Cellular operating income and margins in the next few years related to the following factors:

• costs of customer acquisition and retention;
• competition;
• increased customer use of its services;
• launching service in new areas; and
• continued enhancements to its wireless networks.

The effects of these factors are expected to be mitigated to some extent by the following factors:

• reduced outbound roaming costs per minute; and
• expansion of revenues from data-related services.

See “U.S. Cellular Operations.”

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TDS Telecom — TDS Telecom provides high-quality telecommunication services, including full-service local exchange service, long distance telephone service and Internet access, to rural, suburban and selected small urban area communities. TDS Telecom’s business plan is designed to leverage TDS Telecom’s strength as an incumbent local exchange carrier into a full-service telecommunications company that includes competitive local exchange carrier operations. TDS Telecom is focused on achieving three central strategic objectives: growth, market leadership, and profitability. TDS Telecom’s strategy includes gaining additional market share and deepening penetration of vertical services within established markets. The strategy places primary emphasis on small and medium-sized commercial customers and on residential customers.

Both incumbent local exchange carriers and competitive local exchange carriers are faced with significant challenges, including the industry declines in long distance minutes of use and use of second lines by customers, growing competition from wireless and other communications providers, lack of access to and potentially uneconomic pricing of unbundled network elements, changes in regulation and new technologies such as Voice Over Internet Protocol. These challenges could have a material adverse effect on the financial condition, results of operations and cash flows of TDS Telecom.

TDS Telecom’s operating income in the six months ended June 30, 2004 increased $10.4 million to $89.5 million from $79.1 million in 2003. The operating income margins were 20.5% in 2004 and 18.7% in 2003. Despite the challenges faced in the industry, TDS Telecom was able to increase equivalent access lines in 2004 primarily through the increase in penetration of existing markets by its competitive local exchange operations. The incumbent local exchange carrier operations increased revenues $3.2 million or 1% in 2004 and the competitive local exchange carrier operations increased revenues by $9.6 million, or 9%. TDS Telecom continues to look for ways to control costs while increasing the penetration of its competitive local exchange carrier markets.

See “TDS Telecom Operations.”

Financing Initiatives

TDS and its subsidiaries had Cash and cash equivalents totaling $1,381.4 million, $1,296.6 million of revolving credit facilities available for use and an additional $75 million of bank lines of credit as of June 30, 2004. TDS and its subsidiaries are also generating substantial internal funds from operations. Cash flows from operating activities totaled $325.5 million in the six months ended June 30, 2004. In addition, TDS and its subsidiaries may have access to public and private capital markets to help meet their long-term financing needs. TDS anticipates that it may require funding over the next few years for capital expenditures, for the development of new wireless markets at U.S. Cellular and to further its growth in all markets. Management believes that cash on hand, expected future cash flows from operations and existing sources of external financing provide substantial financial flexibility and are sufficient to permit TDS and its subsidiaries to finance their contractual obligations and anticipated capital expenditures. TDS is committed to maintaining a strong balance sheet and an investment grade rating.

As of June 17, 2004, U.S. Cellular issued $330 million in aggregate principal amount of 7.5% senior notes due 2034. The net proceeds from this offering, after deducting underwriting discounts, were approximately $319.6 million.

On June 28, 2004, U.S. Cellular issued $100 million in aggregate principal amount of 6.7% senior notes due 2033 priced to yield 7.21% to maturity. The net proceeds from this offering, after deducting underwriting discounts, were approximately $92.9 million. This is a further issuance of U.S. Cellular’s 6.7% notes that were issued on December 8, 2003 in the aggregate principal amount of $444 million.

On June 24, 2004, U.S. Cellular issued redemption notices to holders of U.S. Cellular’s subordinated 6% zero coupon convertible debentures (also known as Liquid Yield Option Notes) and on June 28, 2004 issued redemption notices to holders of U.S. Cellular’s 7.25% senior notes. Consequently, $162.4 million of Liquid Yield Option Notes and $250 million of 7.25% senior notes were reclassified to Current portion of long-term debt on the Balance Sheet.

The total net proceeds from the 7.5% and 6.7% senior note offerings, after deducting underwriting discounts, were approximately $412.5 million. Of this amount, $163.3 million was used to redeem U.S. Cellular’s Liquid Yield Option Notes, on July 26, 2004 at accreted value. The balance of the net proceeds, together with borrowings under the revolving credit agreement, is expected to be used to redeem all of U.S. Cellular’s 7.25% senior notes as of August 16, 2004.

See “Financial Resources” and “Liquidity and Capital Resources.”

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RESULTS OF OPERATIONS

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Operating Revenues increased $132.4 million, or 8%, to $1,805.1 million during the six months ended June 30, 2004 from $1,672.7 million during the six months ended June 30, 2003 primarily as a result of an 8% increase in customers and equivalent access lines served. U.S. Cellular’s operating revenues increased $120.2 million, or 10%, to $1,369.9 million in 2004 from $1,249.7 million in 2003 as customers served increased by 341,000, or 8%, since June 30, 2003, to 4,684,000. Of the 341,000 increase in customers, 540,000 were added through U.S. Cellular’s marketing channels while 199,000 net customers were subtracted as a result of acquisition and divestiture activities, primarily the divestitures to AT&T Wireless in August 2003 and February 2004. TDS Telecom operating revenues increased $12.2 million, or 3%, to $435.2 million in 2004 from $423.0 million in 2003 as equivalent access lines increased by 78,800 or 8%, since June 30, 2003 to 1,121,200, and due to $2.5 million in one-time adjustments to certain competitive local exchange carrier revenue accruals. An equivalent access line is derived by converting a high-capacity data line to an estimated equivalent number, in terms of capacity, of switched access lines.

Operating Expenses increased $27.1 million, or 2%, to $1,621.5 million in 2004 from $1,594.4 million in 2003 primarily reflecting growth in operations offset by losses recorded in 2003. U.S. Cellular’s operating expenses increased $25.1 million, or 2%, to $1,275.7 million in 2004 from $1,250.6 million in 2003 primarily reflecting costs associated with providing service to an expanding customer base. In 2003, operating expenses included a $49.6 million Loss on impairment of intangible assets and a $25.1 million Loss on assets held for sale related to the exchange of wireless properties in Georgia and Florida with AT&T Wireless in August 2003. TDS Telecom’s expenses increased $1.9 million, or less than 1%, to $345.7 million in 2004 from $343.8 million in 2003 primarily reflecting cost control measures.

Operating Income increased $105.3 million to $183.6 million in 2004 from $78.3 million in 2003. Operating margin increased to 10.2% in 2004 from 4.7% in 2003 on a consolidated basis. U.S. Cellular’s operating income increased to $94.2 million from an operating loss of $883,000 in 2003 and its operating income (loss) margin, as a percentage of service revenues, increased to 7.3% in 2004 from less than (1%) in 2003. TDS Telecom’s operating income increased $10.4 million, or 13%, to $89.5 million in 2004 from $79.1 million in 2003 and its operating margin rose to 20.5% in 2004 from 18.7% in 2003 due in part to one-time adjustments to certain competitive local exchange carrier revenue accruals that increased operating revenues and operating income by $2.5 million.

Investment and Other Income (Expense) primarily includes interest and dividend income, investment income, loss on investments and interest expense. Investment and other income (expense) totaled ($58.4) million in 2004 and ($77.5) million in 2003.

Investment income increased $6.9 million, or 26%, to $33.2 million in 2004 from $26.3 million in 2003. Investment income represents TDS’s share of income in unconsolidated entities in which TDS has a minority interest and follows the equity method of accounting. The aggregate net income of these entities increased significantly in 2004, resulting in a corresponding increase in investment income.

Interest and dividend income decreased $2.3 million, or 22%, to $8.1 million in 2004 from $10.4 million in 2003 primarily due to lower average interest rates and lower average cash balances in 2004 than 2003.

Loss on investments totaled $1.8 million in 2004 and $8.5 million in 2003. TDS recorded a $5.0 million impairment loss on a wireless investment held by TDS Telecom in the second quarter of 2003. A $3.5 million license impairment loss was recorded in the second quarter of 2003 related to a wireless investment in a non-operating market in Florida that remained with U.S. Cellular after the AT&T Wireless exchange. An additional impairment loss of $1.8 million was recorded in the second quarter of 2004 to reflect further impairment in the carrying value of this same wireless investment in Florida.

Interest (expense) increased $7.8 million, or 9%, to $95.2 million in 2004 from $87.4 million in 2003. The increase was primarily due to amounts related to the issuance of 30-year 6.7% Senior Notes ($15.4 million) by U.S. Cellular in December 2003 offset by a reduction of interest on U.S. Cellular short-term debt ($3.7 million) and on TDS Medium-term notes ($3.1 million). TDS paid down $70.5 million of Medium-term notes in June and July of 2003.

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Minority interest in income of subsidiary trust decreased $12.4 million in 2004. In September 2003, TDS redeemed all $300 million of Company-Obligated Mandatorily Redeemable Preferred Securities at par plus accrued and unpaid distributions. There was no gain or loss on this transaction.

Income Tax Expense increased $42.8 million to $51.4 million in 2004 from $8.6 million in 2003 primarily due to higher pretax income and the tax effects on the Loss on impairment of intangible assets and on the (Gain) loss on assets held for sale in 2003. Losses totaled $83.2 million ($46.8 million, net of a tax benefit of $27.2 million and minority interest of $9.2 million) in 2003. The effective tax rate was 41.0% in 2004 and was not meaningful in 2003 due to the effect of the losses. Excluding the tax on losses, the effective tax rate was 39.1% in 2004 and 42.8% in 2003. For a discussion of TDS’s effective tax rates in 2004 and 2003, see Note 4 – Income Taxes.

Minority Share of (Income) Loss includes the minority public shareholders’ share of U.S. Cellular’s net income, the minority shareholders’ or partners’ share of U.S. Cellular’s subsidiaries’ net income or loss and other minority interests. U.S. Cellular’s minority public shareholders’ share of income in 2003 was reduced by $9.2 million due to U.S. Cellular’s Loss on impairment of intangible assets, Loss on assets held for sale and Loss on investments.

	Six Months Ended June 30,
	2004			2003 As Restated			Change
	(Dollars in thousands)
Minority Share of (Income) Loss
U.S. Cellular
Minority Public Shareholders'	$	(8,452	)	$	2,708		$	(11,160	)
Minority Shareholders' or Partners'		(4,211	)		(3,988	)		(223	)
		(12,663	)		(1,280	)		(11,383	)
Other		(24	)		(28	)		4
	$	(12,687	)	$	(1,308	)	$	(11,379	)

Income (Loss) Before Cumulative Effect of Accounting Change totaled $61.1 million, or $1.06 per diluted share, in 2004 compared to $(9.2) million, or $(0.17) per diluted share, in 2003.

Cumulative Effect of Accounting Change. Effective January 1, 2003, TDS adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” and recorded the initial liability for legal obligations associated with an asset retirement. The cumulative effect of the implementation of this accounting standard on periods prior to 2003 was recorded in the first quarter of 2003, decreasing net income by $11.8 million, net of tax and minority interest, or $0.20 per basic and diluted share.

Net Income (Loss) Available to Common totaled $61.0 million, or $1.06 per diluted share, in 2004 and $(21.2) million, or $(0.37) per diluted share, in 2003.

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U.S. CELLULAR OPERATIONS

TDS provides wireless telephone service through United States Cellular Corporation (“U.S. Cellular”), an 82.1%-owned subsidiary. U.S. Cellular owns, manages and invests in cellular markets throughout the United States. Growth in the customer base is the primary reason for the growth in U.S. Cellular’s revenues and expenses. The number of customers served increased by 341,000 or 8%, since June 30, 2003, to 4,684,000 due to customer additions from its marketing channels. Of the 341,000 increase in customers, 540,000 were added through U.S. Cellular’s marketing channels while 199,000 net customers were subtracted as a result of acquisition and divestiture activities, primarily from the transactions discussed below.

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003 As Restated		2004			2003 As Restated
	(Dollars in thousands)
Operating Revenues
Retail service	$	576,541		$	511,106	$	1,116,769		$	983,414
Inbound roaming		44,516			56,840		87,015			111,446
Long-distance and other service
revenues		41,601			42,163		78,256			79,850
Service Revenues		662,658			610,109		1,282,040			1,174,710
Equipment sales		49,567			35,828		87,835			75,001
		712,225			645,937		1,369,875			1,249,711
Operating Expenses
System operations (exclusive of
depreciation included below)		144,886			147,032		282,410			284,997
Cost of equipment sold		110,183			79,580		230,070			168,223
Selling, general and administrative		269,619			258,095		527,825			508,447
Depreciation		110,314			87,463		211,754			182,363
Amortization and accretion		11,935			17,231		24,389			31,908
Loss on impairment of intangible
assets		—			49,595		—			49,595
Loss on assets held for sale		(582	)		3,500		(725	)		25,061
		646,355			642,496		1,275,723			1,250,594
Operating Income	$	65,870		$	3,441	$	94,152		$	(883	)

On August 1, 2003, U.S. Cellular completed the transfer of wireless assets and customers in ten 25 megahertz markets in Florida and Georgia to AT&T Wireless pursuant to an agreement entered into in March 2003. In exchange, U.S. Cellular received the following: a) rights to acquire controlling interests in 36 personal communication service licenses; b) approximately $34.0 million in cash; and c) minority interests in six markets in which it previously owned a controlling interest. In accordance with the agreement, U.S. Cellular has deferred the assignment and development of 21 licenses for a period of up to five years from the closing date. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with service requirements of the Federal Communications Commission (“FCC”). The value of these licenses is recorded as Wireless license rights on the Balance Sheet.

An estimated loss of $25.1 million was recorded in the six months ended June 30, 2003 as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets transferred to AT&T Wireless and the fair value of the consideration received or to be received in the transaction. The Florida and Georgia markets that were transferred to AT&T Wireless are included in consolidated operations for the three and six months ended June 30, 2003.

On February 18, 2004, U.S. Cellular completed the sale of certain of its wireless properties in southern Texas to AT&T Wireless for $96.9 million in cash, including a working capital adjustment. The U.S. Cellular markets sold to AT&T Wireless included wireless assets and customers in six 25 megahertz cellular markets. An aggregate loss of $21.3 million (including a $22.0 million estimate of the Loss on assets held for sale in the fourth quarter of 2003 and a $725,000 reduction of the loss in the six months ended June 30, 2004) was recorded as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets sold to AT&T Wireless and the cash received in the transaction. The southern Texas markets sold to AT&T Wireless are included in results of operations from January 1, 2004 through February 17, 2004.

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Operating revenues increased $120.2 million, or 10%, to $1,369.9 million in 2004 from $1,249.7 million in 2003.

Service revenues increased $107.3 million, or 9%, to $1,282.0 million in 2004 from $1,174.7 million in 2003. Service revenues primarily consist of: (i) charges for access, airtime, roaming and value-added services provided to U.S. Cellular’s retail customers (“retail service”); (ii) charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming (“inbound roaming”); and (iii) charges for long-distance calls made on U.S. Cellular’s systems. The increase was primarily due to the growing number of retail customers. Monthly service revenue per customer averaged $46.96 in the six months ended June 30, 2004, a 2% increase from an average of $46.24 in the first six months of 2003. The numerator of this calculation of average monthly revenues per customer for the six months ended June 2004 and 2003 consists of the revenue for the respective six month period divided by six. The denominator consists of the average number of customers. Average customers totaled 4,550,000 for the six months ended June 30, 2004 and 4,234,000 for the six months ended June 30, 2003.

Retail service revenues increased $133.4 million, or 14%, to $1,116.8 million in 2004 from $983.4 million in 2003. Growth in U.S. Cellular’s customer base and an increase in average monthly retail service revenue per customer were the primary reasons for the increase in retail service revenue. The number of customers increased 8% to 4,684,000 at June 30, 2004, from 4,343,000 at June 30, 2003. Of the 341,000 increase in customers, 540,000 were added through U.S. Cellular’s marketing channels while 199,000 net customers were subtracted as a result of acquisition and divestiture activities, primarily the divestitures to AT&T Wireless in August 2003 and February 2004. Average monthly retail service revenue per customer increased 6% to $40.91 in 2004 from $38.71 in 2003. The increase in average monthly retail service revenue per customer was primarily driven by the increase in minutes of use per customer and by growth in revenue from data products.

U.S. Cellular management anticipates that growth in the customer base in U.S. Cellular’s wireless markets will be slower in the future, primarily as a result of the increased competition in its markets and continued penetration of the consumer market. However, as U.S. Cellular expands its operations in Chicago and into its other recently acquired markets in future years, it anticipates adding customers and revenues in those markets.

Monthly local retail minutes of use per customer averaged 517 in 2004 and 401 in 2003. The increase in monthly local retail minutes of use was driven by U.S. Cellular’s focus on designing sales incentive programs and customer billing rate plans to stimulate overall usage. The impact on retail service revenue of this increase was partially offset by a decrease in average revenue per minute of use in 2004. The decrease in average revenue per minute of use reflects the effects of increasing competition, which has led to the inclusion of an increasing number of minutes in package pricing plans. U.S. Cellular management anticipates that U.S. Cellular’s average revenue per minute of use will continue to decline in the future, reflecting increased competition and penetration of the consumer market.

Inbound roaming revenues decreased $24.4 million, or 22%, to $87.0 million in 2004 from $111.4 million in 2003. The decrease in revenue primarily related to the decrease in revenue per roaming minute of use, partially offset by an increase in roaming minutes of use. In 2004, the increase in inbound roaming minutes of use was primarily driven by the overall growth in the number of customers throughout the wireless industry and strong customer growth for carriers who use Code Division Multiple Access (“CDMA”) digital radio technology, partially offset by the loss of minutes of use from the markets transferred and sold to AT&T Wireless. Contributing to the decrease in inbound roaming revenue in 2004 was the effect of the transfer of Florida and Georgia markets to AT&T Wireless in August 2003 and the sale of southern Texas markets to AT&T Wireless in February 2004; these markets had historically provided substantial amounts of inbound roaming revenue. The decline in revenue per minute of use is primarily due to the general downward trend in negotiated rates.

U.S. Cellular management anticipates that the rate of growth in inbound roaming minutes of use will continue to slow down due to these factors:

• newer customers may roam less than existing customers, reflecting further penetration of the consumer market;
• the divestiture of U.S. Cellular's markets in Florida and Georgia in August 2003 and in southern Texas in February 2004, which have historically provided substantial inbound roaming minutes of use;
• U.S. Cellular's roaming partners may switch their business from U.S. Cellular to other operators or to their own systems; and
• as certain wireless operators convert their networks to Global System for Mobile Communication (“GSM”) digital technology, which U.S. Cellular only supports through its analog service and in some cases through its Time Division Multiple Access (“TDMA”) service, those operators may switch their business to other operators who offer GSM service.

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U.S. Cellular management also anticipates that average inbound roaming revenue per minute of use will continue to decline, reflecting the continued general downward trend in negotiated rates.

Long-distance and other revenue decreased $1.6 million, or 2%, to $78.3 million in 2004 from $79.9 million in 2003, primarily related to price reductions related to long-distance charges on roaming minutes of use as well as U.S. Cellular’s increasing use of pricing plans for its retail customers which include long-distance calling at no additional charge, partially offset by an increase in the volume of long-distance calls billed by U.S. Cellular from inbound roamers using its systems to make long-distance calls.

Equipment sales revenues increased $12.8 million, or 17%, to $87.8 million in 2004 from $75.0 million in 2003. U.S. Cellular includes in its equipment sales revenues any handsets and related accessories sold to its customers, whether the customers are new to U.S. Cellular or are current customers who are changing handsets. U.S. Cellular also sells handsets to its agents at a price approximately equal to U.S. Cellular’s cost before applying any rebates. Selling handsets to agents enables U.S. Cellular to provide better control over handset quality, set roaming preferences and pass along quantity discounts. U.S. Cellular management anticipates that it will continue to sell handsets to agents in the future, and that it will continue to provide rebates to agents who provide handsets to new and current customers. Equipment sales revenues have grown less significantly than cost of equipment sold in the six months ended June 30, 2004 due to the continued substantial discounting of handsets. This trend is occurring throughout the wireless industry.

Equipment sales revenue from handset sales to agents is recognized upon delivery of the related products to the agents, net of any anticipated agent rebates. In most cases, the agents receive a rebate from U.S. Cellular at the time these agents provide handsets to sign up new customers or retain current customers.

Customers added to U.S. Cellular’s customer base through its marketing distribution channels (“gross customer activations”), the primary driver of equipment sales revenues, increased 10% in 2004. The higher percentage increase in revenues from handset sales than in gross customer activations was driven by an increase in sales of higher priced data-enabled handsets. These handsets were offered in conjunction with the launch of U.S. Cellular’s data services products, which began in the second half of 2003.

Operating expenses increased $25.1 million, or 2%, to $1,275.7 million in 2004 from $1,250.6 million in 2003.

System operations expenses (excluding depreciation) decreased $2.6 million, or less than (1%), to $282.4 million in 2004 from $285.0 million in 2003. System operations expenses include charges from landline telecommunications service providers for U.S. Cellular’s customers’ use of their facilities, costs related to local interconnection to the landline network, charges for maintenance of U.S. Cellular’s network, long-distance charges, outbound roaming expenses and payments to third-party data product and platform developers. The decrease in system operations expenses in 2004 was due to the following factors:

• the divestitures of markets to AT&T Wireless in August 2003 and February 2004; and
• an ongoing reduction both in the per-minute cost of usage on U.S. Cellular's systems and in negotiated roaming rates.

The effects of the above factors were partially offset by the following factors:

• an 8% increase in the number of cell sites within U.S. Cellular's systems, to 4,420 in 2004 from 4,106 in 2003, as U.S. Cellular continues to expand and enhance coverage in its service areas through both acquisitions and internal growth; and
• increases in minutes of use on U.S. Cellular's systems and by its customers using other systems when roaming.

As a result of the above factors, the components of system operations expenses were affected as follows:

• expenses incurred when U.S. Cellular’s customers used other systems when roaming decreased $18.9 million;
• the cost of minutes of use on U.S. Cellular’s systems increased $12.7 million; and
• maintenance, utility and cell site expenses increased $3.6 million.

In 2004, roaming charges paid by U.S. Cellular to third parties when its customers roamed in the Chicago market declined compared to 2003. Continued integration of the Chicago market into U.S. Cellular’s operations in 2004 resulted in increased use of U.S. Cellular’s system by U.S. Cellular’s customers and a corresponding decrease in roaming by its customers on other systems in the Midwest.

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In total, U.S. Cellular management expects system operations expenses to increase over the next few years, driven by the following factors:

• increases in the number of cell sites within U.S. Cellular’s systems as it continues to add capacity and enhance quality in all markets, and continues development activities in new markets; and
• increases in minutes of use, both on U.S. Cellular's systems and by U.S. Cellular's customers on other systems when roaming.

These factors are expected to be partially offset by anticipated decreases in the per-minute cost of usage both on U.S. Cellular’s systems and on other carriers’ networks. As the Chicago area has historically been U.S. Cellular’s customers’ most popular roaming destination, U.S. Cellular management anticipates that the continued integration of the Chicago market and other recently launched markets into its operations will result in a further increase in minutes of use by U.S. Cellular’s customers on its systems and a corresponding decrease in minutes of use by its customers on other systems, resulting in a lower overall increase in minutes of use by U.S. Cellular’s customers on other systems. Such a shift in minutes of use should reduce U.S. Cellular’s per-minute cost of usage in the future, to the extent that its customers use its systems rather than other carriers’ networks. Additionally, U.S. Cellular’s acquisition and subsequent buildout of licensed areas received in the AT&T Wireless exchange transaction may shift more minutes of use to U.S. Cellular’s systems, as many of these licensed areas are major roaming destinations for U.S. Cellular’s current customers.

Cost of equipment sold increased $61.9 million, or 37%, to $230.1 million in 2004 from $168.2 million in 2003. The increase was due to the 10% increase in new customer activations as well as an increase in handsets sold to customers for retention purposes. Retention costs have increased as U.S. Cellular continued to focus on retaining customers by offering existing customers new handsets similar to those offered to new customers as the expiration dates of customers’ service contracts approached. In addition, the overall cost per handset increased in the first six months of 2004 as more customers purchased higher priced data-enabled handsets.

Selling, general and administrative expenses increased $19.4 million, or 4%, to $527.8 million in 2004 from $508.4 million in 2003. Selling, general and administrative expenses primarily consist of salaries, commissions and expenses of field sales and retail personnel and offices; agent commissions and related expenses; corporate marketing, merchandise management and telesales department salaries and expenses; advertising; and public relations expenses. Selling, general and administrative expenses also include the costs of operating U.S. Cellular’s customer care centers, the costs of serving customers and the majority of U.S. Cellular’s corporate expenses.

The increase in selling, general and administrative expenses in the first six months of 2004 is primarily due to the following factors:

• an $11.7 million increase in expenses related to payments into the federal universal service fund, based on an increase in rates due to changes in the FCC regulations as of April 2003, substantially all of which is offset by increases in retail service revenue for amounts passed through to customers; and
• a $9.1 million increase in advertising costs, primarily related to the marketing of the U.S. Cellular brand in the Chicago market and other recently launched or soon to be launched markets, and the marketing of U.S. Cellular’s data-related wireless services, which were launched in the second half of 2003.

The increase was also attributable to the rise in salaries and other employee-related expenses associated with acquiring, serving and retaining customers, primarily as a result of the increase in U.S. Cellular’s customer base.

These increases were partially offset by a $23.2 million decrease in billing-related expenses, primarily due to the expenses incurred in 2003 related to the maintenance of the Chicago market’s billing system and the transition to the system used in U.S. Cellular’s other operations in July 2003.

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Sales and marketing cost per gross customer activation increased 4% to $381 in 2004 from $367 in 2003, primarily due to increased handset subsidies. Sales and marketing cost per gross customer activation is not calculable using financial information derived directly from the statement of operations. The definition of sales and marketing cost per gross customer activation that U.S. Cellular uses as a measure of the cost to acquire additional customers through its marketing distribution channels may not be comparable to similarly titled measures that are reported by other companies. Below is a summary of sales and marketing cost per gross customer activation for each period:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands, except per customer amounts)
Components of cost:
Selling, general and administrative expenses related to the
acquisition of new customers (1)	$	225,642		$	207,469
Cost of equipment sold to new customers (2)		161,973			122,127
Less equipment sales revenue from new customers (3)		(97,186	)		(74,652	)
Total costs	$	290,429		$	254,944
Gross customer activations (000s) (4)		762			695
Sales and marketing cost per gross customer activation	$	381		$	367

(1) Selling, general and administrative expenses related to the acquisition of new customers is reconciled to total selling, general and administrative expenses as follows:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Selling, general and administrative expenses, as reported	$	527,825		$	508,447
Less expenses related to serving and retaining customers		(302,183	)		(300,978	)
Selling, general and administrative expenses related to
the acquisition of new customers	$	225,642		$	207,469

(2) Cost of equipment sold, excluding amounts related to the retention of existing customers is reconciled to cost of equipment sold as follows:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Cost of equipment sold as reported	$	230,070		$	168,223
Less cost of equipment sold related to the retention of
existing customers		(68,097	)		(46,096	)
Cost of equipment sold to new customers	$	161,973		$	122,127

(3) Equipment sales revenue, excluding amounts related to the retention of existing customers is reconciled to equipment sales revenues as follows:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Equipment sales revenue as reported	$	87,835		$	75,001
Less equipment sales revenues related to the retention of
existing customers, excluding agent rebates *		(12,927	)		(13,986	)
Add agent rebate reductions of equipment sales revenues
related to the retention of existing customers		22,278			13,637
Equipment sales revenues for new customers	$	97,186		$	74,652

* In 2003, equipment sales revenues related to retaining current customers were recorded in selling, general and administrative expenses as a reduction of the cost of equipment sold to retain current customers. In order to conform the operating results for 2003 for which these revenues were recorded in selling, general and administrative expenses to the current period presentation, U.S. Cellular reclassified revenues related to the sales of equipment to existing customers as equipment sales revenues.

(4) Gross customer activations represent customers added to U.S. Cellular’s customer base through its marketing distribution channels during the respective periods presented.

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Monthly general and administrative expenses per customer, including the net costs related to the renewal or upgrade of service contracts of existing U.S. Cellular customers (“net customer retention costs”), increased 2% to $13.91 in 2004 from $13.65 in 2003. U.S. Cellular management uses this measurement to assess the cost of serving and retaining its customers on a per unit basis.

This measurement is reconciled to total selling, general and administrative expenses as follows:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands, except per customer amounts)
Components of cost(1)
Selling, general and administrative expenses as reported	$	527,825		$	508,447
Less selling, general and administrative expenses
related to the acquisition of new customers		(225,642	)		(207,469	)
Add cost of equipment sold related to the
retention of existing customers		68,097			46,096
Less equipment sales revenues related to the
retention of existing customers, excluding agent rebates		(12,927	)		(13,986	)
Add agent rebate reductions of equipment sales
revenues related to the retention of existing customers		22,278			13,637
Net cost of serving and retaining customers	$	379,631		$	346,725
Divided by average customers during period (000s) (2)		4,550			4,234
Divided by six months in each period		6			6
Average monthly general and administrative expenses
per customer	$	13.91		$	13.65

(1) These components were previously identified in the table which calculates sales and marketing cost per customer activation and related footnotes.

(2) Average customers for the six month periods were previously defined in the discussion of operating revenues.

Depreciation expense increased $29.4 million, or 16%, to $211.8 million in 2004 from $182.4 million in 2003. The increase primarily reflects rising average fixed asset balances, which increased 13% in 2004, as well as a change in the useful lives of certain asset categories, which increased depreciation expense $9.9 million in 2004. Also, certain Time Division Multiple Access (“TDMA”) digital radio equipment consigned to a third party for future sale was written down by $6.3 million prior to its consignment, increasing depreciation expense by that amount. This writedown was necessary to reduce the book value of the assets to be sold to their estimated proceeds from disposition. Increased fixed asset balances in 2004 resulted from the following factors:

• the addition of 684 new cell sites since June 30, 2003 (excluding the net divestiture of 370 sites, primarily as a result of the sale and transfer of properties to AT&T Wireless), which were built to improve coverage and capacity in U.S. Cellular’s markets, both in currently served areas as well as in areas where U.S. Cellular is preparing to launch commercial service; and
• the addition of digital radio channels to U.S. Cellular’s network to accommodate increased usage.

In preparation for the implementation of a fixed asset management and tracking software system, including a bar code asset identification system, U.S. Cellular is conducting a physical inventory review of its cell site fixed assets. U.S. Cellular has commenced the cell site fixed asset inventory review and expects to complete the inventory in the fourth quarter of 2004. Based on the results of the review through June 30, 2004, U.S. Cellular estimates that the review, when completed, will result in a write-off of certain assets with a net book value of approximately $4.0 million, and charged $4.0 million to depreciation expense for the estimated write-off in the second quarter. To the extent the final results differ from the $4.0 million already charged to expense, an adjustment would be required.

In 2003, $5 million of depreciation expense was recorded related to the writeoff of certain assets.

See “Financial Resources” and “Liquidity and Capital Resources” for further discussions of U.S. Cellular’s capital expenditures.

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Amortization and accretion expense decreased $7.5 million, or 24%, to $24.4 million in 2004 from $31.9 million in 2003, primarily representing decreased amortization related to the customer list intangible assets acquired in the Chicago market transaction during 2002. These customer list assets are amortized using the declining balance method, based on average customer retention periods of each customer list. Therefore, decreasing amounts of amortization expense will be recorded in each 12-month period following the establishment of each customer list asset. Amortization and accretion expense includes $2.4 million of accretion related to the asset retirement obligation in 2004, and $2.1 million in 2003.

Loss on impairment of intangible assets totaled $49.6 million in 2003. As discussed previously, U.S. Cellular restated 2003 and 2002 financial statements related to the implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In connection with this restatement, U.S. Cellular reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before an income tax benefit of $19.6 million.

The 2004 annual impairment tests for investments in licenses and goodwill were performed in the second quarter of 2004. Other than a license impairment loss recorded as a Loss on investments related to a non-operating market, no impairment losses resulted from the 2004 annual impairment tests.

(Gain) loss on assets held for sale totaled ($725,000) in 2004 and a loss of $25.1 million in 2003.

The amount recorded in 2004 was a reduction of a $22.0 million estimated loss recorded in the fourth quarter 2003 on the sale of U.S. Cellular markets in southern Texas to AT&T Wireless on February 17, 2004. The result was an aggregate loss of $21.3 million, representing the difference between the carrying value of the markets sold and the cash received in the transaction. The southern Texas markets sold to AT&T Wireless were included in consolidated operations from January 1, 2004 through February 17, 2004.

The $25.1 million loss in 2003 represents the difference between the fair value, as determined by an independent valuation, of the assets U.S. Cellular expected to receive in the AT&T Wireless exchange transaction which was completed in August 2003, and the recorded value of the assets it expected to transfer to AT&T Wireless.

Operating income (loss) totaled income of $94.2 million in 2004 and a loss of $883,000 in 2003. The operating income (loss) margins (as a percent of service revenues) were 7.3% in 2004 and less than (1%) in 2003. The increase in operating income and operating income margin in 2004 reflects the following:

• the Loss on impairment of intangible assets in 2003;
• the Loss on assets held for sale recorded in 2003 related to the asset exchange transaction with AT&T Wireless;
• increased service revenues, driven by growth in the number of customers served by U.S. Cellular's systems and an increase in average monthly revenue per customer;
• a decline in amortization and accretion expense, primarily due to the reduction in the amortization of the customer list asset related to the Chicago market; and
• a slight decline in system operations expense, primarily driven by the effects of the divestitures of markets to AT&T Wireless in 2003 and 2004 and an ongoing reduction both in the per-minute cost of usage on U.S. Cellular’s systems and in negotiated roaming rates; these factors were mostly offset by the effects of increases in minutes of use.

These factors were partially offset by the following:

• increased equipment subsidies, primarily due to the increase in the number of handsets sold related to the renewal or upgrade of service contracts of existing U.S. Cellular customers and the increased subsidy per handset; and
• increased depreciation expense, primarily driven by an increase in average fixed assets related to ongoing improvements to U.S. Cellular’s wireless network and a change in the useful lives of certain fixed assets.

U.S. Cellular expects most of the above factors, except for those related to Loss on impairment of intangible assets and (Gain) loss on assets held for sale, to continue to have an effect on operating income and operating margins for the next several quarters. Any changes in the above factors, as well as the effects of other drivers of U.S. Cellular’s operating results, may cause operating income and operating margins to fluctuate over the next several quarters.

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U.S. Cellular plans to incur additional expenses during the remainder of 2004 as it competes in its established markets and in recently launched markets. Additionally, U.S. Cellular plans to build out its network into other as yet unserved portions of its licensed areas, and will begin sales and marketing operations in those areas in the second half of 2004 and in subsequent years. U.S. Cellular launched its brand of data-related wireless services in many of its markets in the second half of 2003, and expects to incur expenses related to its continued marketing of data-related wireless services in the next few years.

As a result, depending on the timing and effectiveness of these initiatives, U.S. Cellular anticipates that its operating income will range from $150 million to $190 million for the full year of 2004, including $500 million of anticipated depreciation, amortization and accretion expenses, compared to $119 million of operating income in 2003.

U.S. Cellular anticipates that service revenues will total approximately $2.6 billion for the full year of 2004, compared to service revenues of $2.4 billion in 2003. The anticipated service revenue growth in 2004 reflects the effects of the sale of properties to AT&T Wireless in February 2004, the markets transferred to AT&T Wireless in the exchange transaction completed in August 2003, the continued growth in U.S. Cellular’s customer base and the continued marketing of data-related wireless services in its markets.

Depending on the timing and effectiveness of its marketing efforts, U.S. Cellular anticipates that net customer activations from its marketing channels will total 560,000 to 610,000 for the full year of 2004. However, U.S. Cellular management anticipates that average monthly service revenue per customer will decrease slightly, as retail service revenue per minute of use and inbound roaming revenue per minute of use decline.

U.S. Cellular anticipates that its net costs associated with customer growth, service and retention, initiation of new services, launches in new markets and fixed asset additions will continue to grow. U.S. Cellular anticipates that its net customer retention costs will increase in the future as competitive pressures continue and as per unit handset costs increase. In addition, U.S. Cellular will continue to migrate its customer base to a single digital technology platform and certain customers will require new handsets, further increasing net customer retention costs in the future.

U.S. Cellular management believes there exists a seasonality in both service revenues, which tend to increase more slowly in the first and fourth quarters, and operating expenses, which tend to be higher in the fourth quarter due to increased marketing activities and customer growth, which may cause operating income to vary from quarter to quarter. U.S. Cellular management anticipates that the impact of such seasonality will decrease in the future, particularly as it relates to operating expenses, as the proportion of full year customer activations derived from fourth quarter holiday sales is expected to decline to reflect ongoing, rather than seasonal, promotions of U.S. Cellular’s products.

Effects of Competition on Operating Income

U.S. Cellular competes directly with several wireless communications services providers, including enhanced specialized mobile radio service providers, in each of its markets. In general, there are between five and seven competitors in each wireless market in which U.S. Cellular provides service. U.S. Cellular generally competes against each of the six near-nationwide wireless companies: Verizon Wireless, Sprint PCS (and affiliates), Cingular Wireless, AT&T Wireless, T-Mobile and Nextel. However, not all six competitors operate in all markets where U.S. Cellular does business. U.S. Cellular believes that these competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than it does. In addition, Cingular Wireless has agreed to acquire AT&T Wireless, which will increase this competitor’s financial, technical, marketing, sales, purchasing and distribution resources.

The use of national advertising and promotional programs by such national wireless operators may be a source of additional competitive and pricing pressures in all U.S. Cellular markets, even if those operators may not provide service in a particular market. U.S. Cellular provides wireless services comparable to the national competitors, but the other wireless companies operate in a wider geographic area and are able to offer no- or low-cost roaming and long-distance calling packages over a wider area on their own networks than U.S. Cellular can offer on its network. If U.S. Cellular offers the same calling area as one of these competitors, it will incur roaming charges for calls made in portions of the calling area that are not part of its network.

In the Midwest, U.S. Cellular’s largest contiguous service area, it can offer larger regional service packages without incurring significant roaming charges than it is able to offer in other parts of its network. U.S. Cellular also employs a customer satisfaction strategy throughout its markets which it believes has contributed to a relatively low customer churn rate.

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Some of U.S. Cellular’s competitors bundle other services, such as landline telephone service and internet access, with their wireless communications services, which U.S. Cellular either does not have the ability to offer or has chosen not to offer.

In addition, U.S. Cellular competes against both larger and smaller regional wireless companies in certain areas, including ALLTEL, Western Wireless and Rural Cellular Corporation, and against resellers of wireless services. Since each of these competitors operates on systems using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers among these systems in each market is principally on the basis of quality of service, price, size of area covered, services offered and responsiveness of customer service.

Since U.S. Cellular’s competitors do not disclose their subscriber counts in specific regional service areas, market share for the competitors in each regional market cannot be accurately determined.

Effects of Wireless Number Portability on Operating Income

The FCC has adopted wireless number portability rules requiring wireless carriers to allow a customer to retain, subject to certain geographical limitations, their existing telephone number when switching from one telecommunications carrier to another. These rules became effective for all U.S. Cellular markets on or before May 24, 2004.

U.S. Cellular has been successful in facilitating number portability requests in a timely manner. The implementation of wireless number portability has not had a material effect on U.S. Cellular’ results of operations to date. However, U.S. Cellular is unable to predict the impact that the implementation of number portability will have in the future. The implementation of wireless number portability may increase churn rates for U.S. Cellular and other wireless companies, as the ability of customers to retain their wireless telephone numbers removes a significant barrier for customers who wish to change wireless carriers. However, to the extent U.S. Cellular loses customers, the effect may be offset to the extent it is able to obtain additional new customers who wish to change their service from other wireless carriers as a result of wireless number portability. The future volume of any porting requests, and the processing costs related thereto, may increase our operating costs in the future. Any of the above factors could have an adverse effect on U.S. Cellular’s competitive position, costs of obtaining new subscribers, liquidity, financial position and results of operations.

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TDS TELECOM OPERATIONS

TDS operates its wireline telephone operations through TDS Telecommunications Corporation (“TDS Telecom”), a wholly owned subsidiary. Total equivalent access lines served by TDS Telecom increased by 78,800 or 8%, since June 30, 2003 to 1,121,200. An equivalent access line is derived by converting a high-capacity data line to an estimated equivalent number, in terms of capacity, of switched access lines.

TDS Telecom’s incumbent local exchange carrier subsidiaries served 725,600 equivalent access lines at June 30, 2004, a 1% (6,800 equivalent access lines) increase from 718,800 equivalent access lines at June 30, 2003.

TDS Telecom’s competitive local exchange carrier subsidiaries served 395,600 equivalent access lines at June 30, 2004, a 22% (72,000 equivalent access lines) increase from 323,600 equivalent access lines served at June 30, 2003.

Operating income increased $10.4 million, or 13%, to $89.5 million in the six months ended June 30, 2004 from $79.1 million in 2003 reflecting improved operating results from competitive local exchange carrier operations due to one-time adjustments to certain competitive local exchange carrier revenue accruals that increased revenues and operating income by $2.5 million, savings from the early retirement program at the incumbent local exchange carriers and continued cost control throughout TDS Telecom.

TDS Telecom provided financial guidance for 2004 on February 4, 2004. The only change to this guidance is to reduce the upper and lower range of the estimate for competitive local exchange carrier operations revenue by $10 million to $20 million. Operating income guidance remains unchanged. For 2004, TDS Telecom expects modest revenue growth with revenues from the incumbent local exchange carrier operations in the range of $640 million to $650 million and revenues from the competitive local exchange carrier operations in the range of $230 million to $240 million. Operating income from the incumbent local exchange carrier is anticipated to range from $170 million to $180 million while competitive local exchange carrier operating losses are anticipated to range from $(30) million to $(20) million.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Incumbent Local Exchange Operations
Operating Revenues
Local service	$	51,219		$	49,742		$	101,646		$	98,793
Network access and long-distance		89,496			88,438			177,683			178,090
Miscellaneous		22,802			21,625			43,307			42,519
		163,517			159,805			322,636			319,402
Operating Expenses
Cost of services and products (exclusive of
depreciation and amortization
included below)		39,184			39,834			73,701			77,979
Selling, general and administrative expense		43,037			44,616			86,448			87,033
Depreciation and amortization		32,425			32,121			64,972			65,740
		114,646			116,571			225,121			230,752
Incumbent Local Exchange
Operating Income	$	48,871		$	43,234		$	97,515		$	88,650
Competitive Local Exchange Operations
Operating Revenues	$	59,781		$	52,479		$	114,517		$	104,918
Operating Expenses
Cost of services and products (exclusive of
depreciation and amortization
included below)		23,514			19,220			43,561			41,003
Selling, general and administrative expense		30,800			29,320			60,237			57,306
Depreciation and amortization		9,737			8,087			18,748			16,118
		64,051			56,627			122,546			114,427
Competitive Local Exchange
Operating (Loss)	$	(4,270	)	$	(4,148	)	$	(8,029	)	$	(9,509	)
Intercompany revenue elimination		(935	)		(807	)		(1,928	)		(1,339	)
Intercompany expense elimination		(935	)		(807	)		(1,928	)		(1,339	)
Operating Income	$	44,601		$	39,086		$	89,486		$	79,141

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Incumbent Local Exchange Carrier Operations

Operating revenues increased $3.2 million, or 1%, to $322.6 million in the six months ended June 30, 2004 from $319.4 million in 2003.

Local service revenues increased $2.8 million, or 3%, to $101.6 million in 2004 from $98.8 million in 2003. Custom calling and advanced features and other miscellaneous revenues increased $1.9 million in 2004. Internal access line growth contributed approximately $0.9 million of the increase. Network access and long distance revenues decreased $0.4 million, or less than 1%, to $177.7 million in 2004 from $178.1 million in 2003. Compensation from state and national revenue pools for recovery of expenses of providing network access decreased $2.9 million as compared to 2003. Revenues from long distance service increased $1.8 million in 2004 reflecting increased long distance customers. As of June 30, 2004, TDS Telecom incumbent local exchange operations were providing long-distance service to 280,900 customers compared to 211,900 customers in 2003. Beginning January 1, 2004, the long distance customers reflect those lines from customers who have chosen TDS Telecom as their primary interexchange carrier. Prior to that, a count of customers was used. Miscellaneous revenues from Internet, digital subscriber line and other non-regulated lines of business increased $0.8 million, or 2%, to $43.3 million in 2004 from $42.5 million in 2003. As of June 30, 2004, TDS Telecom incumbent local exchange carrier operations were providing Internet service to 112,100 customers compared to 116,700 customers in 2003 and were providing digital subscriber line service to 31,500 customers compared to 16,200 customers 2003.

Operating expenses decreased by $5.7 million, or 2%, to $225.1 million in 2004 from $230.8 million in 2003, reflecting cost control measures. Cost of services and products decreased by $4.3 million, or 6%, to $73.7 million in 2004 from $78.0 million in 2003. The decrease was driven primarily by a one-time adjustment for long distance cost of goods sold recorded in the first quarter of 2004. In addition, network operation employee expenses decreased $1.2 million in 2004. Selling, general and administrative expenses decreased $0.6 million, or 1%, to $86.4 million from $87.0 million in 2003. Depreciation and amortization expenses decreased $0.7 million, or 1%, to $65.0 million in 2004 from $65.7 million in 2003.

Operating income increased $8.8 million, or 10%, to $97.5 million in 2004 from $88.7 million in 2003 primarily due to continued expense controls. Incumbent local exchange carriers are faced with significant challenges, including growing competition from wireless and other wireline providers, changes in regulation, and new technologies such as Voice Over Internet Protocol. Despite these challenges, TDS Telecom has successfully maintained customer levels and customer satisfaction while controlling expenses.

Competitive Local Exchange Carrier Operations

Operating revenues (revenue from the provision of local and long distance telephone service) increased $9.6 million, or 9%, to $114.5 million in 2004 from $104.9 million in 2003. Retail revenues increased $15.2 million, of which $12.7 million is due to customer growth, and $2.5 million is due to one-time adjustments to certain revenue accruals. In the second quarter of 2004, TDS Telecom undertook a comprehensive review of its competitive local exchange carrier accruals and, as a result, adjusted certain unbilled revenue accruals that on a net basis resulted in an increase in competitive local exchange carrier revenues of $2.5 million. Wholesale revenues, which represent charges to carriers, decreased $5.6 million in 2004 due primarily to access rate decreases.

Operating expenses increased $8.1 million, or 7%, to $122.5 million in 2004 from $114.4 million in 2003. Cost of services and products increased $2.6 million, or 6%, to $43.6 million in 2004 from $41.0 million in 2003. Cost of services and products in 2003 included $2.3 million of one-time expense reductions relative to Regional Bell Operating Company payments for unsatisfactory service level performance. Selling, general and administrative expenses increased $2.9 million, or 5%, to $60.2 million in 2004 from $57.3 million in 2003 partially due to a $1.3 million increase in competitive local exchange carrier sales and marketing expenses associated with acquiring new customers. Depreciation and amortization expenses increased $2.6 million, or 16%, to $18.7 million in 2004 from $16.1 million in 2003 as a result of increases in fixed assets.

Operating loss decreased $1.5 million, or 16%, to $(8.0) million in 2004 from $(9.5) million in 2003. The amount of operating loss in 2004 was reduced by the $2.5 million one-time adjustments to certain revenue accruals, as discussed under Operating revenues. Excluding these one-time adjustments, the competitive local exchange carrier operating loss increased on a comparable basis due primarily to an increase in Depreciation and amortization expenses.

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Effects of Wireless Number Portability

The FCC has adopted wireless number portability rules requiring wireless carriers to allow a customer to retain, subject to certain geographical limitations, their existing telephone number when switching from one telecommunications carrier to another. Local exchange carriers in the largest 100 metropolitan statistical areas in the United States were required to be capable of facilitating wireless number portability as of November 24, 2003. On May 24, 2004, local exchange carriers outside such 100 areas were required to implement wireless number portability requirements on May 24, 2004 or within six months of the relevant request, whichever is later. However, local exchange carriers may seek waivers or extensions of these deadlines pursuant to the Communications Act and the FCC’s rules. TDS Telecom has established a schedule to implement local number portability. As of June 30, 2004, TDS Telecom has equipped 85% of its incumbent local exchange carrier physical access lines and will complete the remaining local number portability schedule by mid 2005. Through June 30, 2004, TDS Telecom has received 31 wireline to wireless port requests. TDS is unable to predict the impact that the implementation of wireless number portability will have on the business of TDS Telecom in the future.

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Operating Revenues increased $77.2 million, or 9%, to $934.6 million during the second quarter of 2004 from $857.4 million in 2003 for reasons generally the same as the first six months.

U.S. Cellular revenues increased $66.3 million, or 10%, to $712.2 million in 2004 from $645.9 million in 2003. Retail service revenue increased $65.4 million, or 13%, to $576.5 million in 2004 from $511.1 million in 2003, while inbound roaming revenue decreased $12.3 million, or 22%, to $44.5 million in 2004 from $56.8 million in 2003. Average monthly service revenue per customer was $47.79 in the second quarter of 2004 and $47.38 in 2003. Average retail service revenue per customer increased to $41.58 from $39.69. The numerator of this calculation of average monthly revenues per customer for the three months ended June 2004 and 2003 consists of the revenue for the respective three month period divided by three. The denominator consists of the average number of customers. Average customers totaled 4,622,000 for the three months ended June 30, 2004 and 4,292,000 for the three months ended June 30, 2003. Equipment sales revenue increased $13.7 million, or 38%, to $49.5 million in 2004 from $35.8 million in 2003 primarily due to a 14% increase in gross customer activations as well as an increase in handsets sold to customers for retention purposes. In addition, the overall revenue per handset increased in the second quarter of 2004 as more customers purchased higher priced data-enabled handsets.

TDS Telecom revenues increased $10.9 million, or 5%, to $222.4 million in the second quarter of 2004 from $211.5 million in 2003 primarily due to a 14% growth in competitive local exchange carrier revenues and $2.5 million in one-time adjustments to certain competitive local exchange carrier revenue accruals. In the second quarter of 2004, TDS Telecom undertook a comprehensive review of its competitive local exchange carrier accruals and, as a result, adjusted certain unbilled revenue accruals that on a net basis resulted in an increase in competitive local exchange carrier revenues of $2.5 million. Competitive local exchange carrier access line equivalents increased 22% since June 30, 2003, while digital subscriber line customers increased 77%. Incumbent local exchange carrier revenues grew 2% in the second quarter of 2004 reflecting increases in additional services. Incumbent local exchange carrier digital subscriber line customers increased 94% since June 30, 2003. TDS Telecom continues to penetrate its wireline markets with successful promotion and sales of additional lines of business.

Operating Expenses increased $9.2 million, or 1%, to $824.1 million during the second quarter of 2004 from $814.9 million in 2003 for reasons generally the same as the first six months.

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U.S. Cellular expenses increased $3.9 million, or 1%, to $646.4 million in 2004 from $642.5 million in 2003. Cost of equipment sold increased $30.6 million, or 38%, to $110.2 million in 2004 from $79.6 million in 2003. The increase was due to the 14% increase in gross customer activations in 2004 as well as an increase in handsets sold to customers for retention purposes. In addition, the overall cost per handset increased in the second quarter of 2004 as more customers purchased higher priced data enabled handsets. Selling, general and administrative expenses increased $11.5 million, or 4%, to $269.6 million in 2004 from $258.1 million in 2003. Sales and marketing cost per gross customer addition increased to $392 in the second quarter of 2004 from $378 in 2003, primarily due to increased handset subsidies. Below is a summary of sales and marketing cost per gross customer activation for each period.

	Three Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands, except per customer amounts)
Components of cost:
Selling, general and administrative expenses related to the
acquisition of new customers (1)	$	115,184		$	98,548
Cost of equipment sold to new customers (2)		78,516			57,362
Less equipment sales revenue from new customers (3)		(50,724	)		(35,475	)
Total costs	$	142,976		$	120,435
Gross customer activations (000s) (4)		365			319
Sales and marketing cost per gross customer activation	$	392		$	378

(1) Selling, general and administrative expenses related to the acquisition of new customers is reconciled to total selling, general and administrative expenses as follows:

	Three Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Selling, general and administrative expenses, as reported	$	269,619		$	258,095
Less expenses related to serving and retaining customers		(154,435	)		(159,547	)
Selling, general and administrative expenses related to
the acquisition of new customers	$	115,184		$	98,548

(2) Cost of equipment sold, excluding amounts related to the retention of existing customers is reconciled to cost of equipment sold as follows:

	Three Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Cost of equipment sold as reported	$	110,183		$	79,580
Less cost of equipment sold related to the retention of
existing customers		(31,667	)		(22,218	)
Cost of equipment sold to new customers	$	78,516		$	57,362

(4) Equipment sales revenue, excluding amounts related to the retention of existing customers is reconciled to equipment sales revenues as follows:

	Three Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Equipment sales revenue as reported	$	49,567		$	35,828
Less equipment sales revenues related to the retention of
existing customers, excluding agent rebates *		(6,879	)		(6,127	)
Add agent rebate reductions of equipment sales revenues
related to the retention of existing customers		8,036			5,774
Equipment sales revenues for new customers	$	50,724		$	35,475

* In 2003, equipment sales revenues related to retaining current customers were recorded in selling, general and administrative expenses as a reduction of the cost of equipment sold to retain current customers. In order to conform the operating results for 2003 for which these revenues were recorded in selling, general and administrative expenses to the current period presentation, U.S. Cellular reclassified revenues related to the sales of equipment to existing customers as equipment sales revenues.

(4) Gross customer activations represent customers added to U.S. Cellular’s customer base through its marketing distribution channels during the respective periods presented.

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Monthly general and administrative expenses per customer, including the net costs related to the renewal or upgrade of service contracts of existing U.S. Cellular customers (“net customer retention costs”), decreased 4% to $13.50 in 2004 from $14.09 in 2003. This measurement is reconciled to total selling, general and administrative expenses as follows:

	Three Months Ended June 30,
	2004			2003 As Restated
Components of cost (1)	(Dollars in thousands, except per customer amounts)
Selling, general and administrative
expenses as reported	$	269,619		$	258,095
Less selling, general and administrative expenses
related to the acquisition of new customers		(115,184	)		(98,548	)
Add cost of equipment sold related to the
retention of existing customers		31,667			22,218
Less equipment sales revenues related to the
retention of existing customers, excluding agent rebates		(6,879	)		(6,127	)
Add agent rebate reductions of equipment sales
revenues related to the retention of existing customers		8,036			5,774
Net cost of serving and retaining customers	$	187,259		$	181,412
Divided by average customers during period (000s) (2)		4,622			4,292
Divided by three months in each period		3			3
Average monthly general and administrative expenses
per customer	$	13.50		$	14.09

(1) These components were previously identified in the table which calculates sales and marketing cost per customer activation and related footnotes.

(2) Average customers for the three month periods were previously defined in the discussion of operating revenues.

Depreciation expense increased $22.8 million, or 26%, to $110.3 million in 2004 from $87.5 million in 2003 for reasons generally the same as for the first six months of 2004. In the second quarter of 2004, certain U.S. Cellular TDMA digital radio equipment consigned to a third party for future sale was written down by $6.3 million prior to its consignment, increasing depreciation expense by that amount. This writedown was necessary to reduce the book value of the assets to be sold to their estimated proceeds from disposition.

In preparation for the implementation of a fixed asset management and tracking software system, including a bar code asset identification system, U.S. Cellular is conducting a physical inventory review of its cell site fixed assets. U.S. Cellular has commenced the cell site fixed asset inventory review and expects to complete the inventory in the fourth quarter of 2004. Based on the results of the review through June 30, 2004, U.S. Cellular estimates that the review, when completed, will result in a write-off of certain assets with a net book value of approximately $4.0 million, and charged $4.0 million to depreciation expense for the estimated write-off in the second quarter. To the extent the final results differ from the $4.0 million already charged to expense, an adjustment would be required.

Amortization and accretion expense decreased $5.3 million, or 31%, to $11.9 million in 2004 from $17.2 million in 2003.

In 2004, U.S. Cellular’s operating expenses included a $582,000 reduction of Loss on assets held for sale previously recorded on the sale of wireless properties in southern Texas to AT&T Wireless in February 2004. In 2003, operating expenses included $3.5 million of additional Loss on assets held for sale related to the exchange of wireless properties in Georgia and Florida with AT&T Wireless in August 2003. As discussed previously, U.S. Cellular restated 2003 and 2002 financial statements related to the implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In connection with this restatement, U.S. Cellular reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before an income tax benefit of $19.6 million.

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TDS Telecom expenses increased $5.4 million, or 3%, to $177.8 million in 2004 from $172.4 million in 2003. Expenses from competitive local exchange carrier operations increased $7.4 million in 2004. As stated previously, expenses reflect the increase in the customer base. Incumbent local exchange carrier operation expenses decreased $1.9 million.

Operating Income increased $68.0 million to $110.5 million in the three months ending June 30, 2004 from $42.5 million in 2003. U.S. Cellular’s operating income increased $62.5 million while TDS Telecom’s operating income increased $5.5 million. The increase in U.S. Cellular’s operating income is primarily due to the $49.6 million Loss on impairment of intangible assets recorded in 2003 as discussed previously. The increase at TDS Telecom primarily reflects reduced expenses of the incumbent local exchange carriers and one-time adjustments to certain competitive local exchange carrier revenue accruals which increased operating revenue and operating income by $2.5 million.

Investment and Other Income (Expense) totaled $(28.6) million in 2004 and $(42.7) million in 2003.

Investment income increased $5.0 million, or 37%, to $18.5 million in 2004 from $13.5 million in 2003. Investment income represents TDS’s share of income in unconsolidated entities in which TDS has a minority interest and follows the equity method of accounting. The aggregate net income of these entities increased significantly in 2004, resulting in a corresponding increase in investment income.

Loss on investments totaled $1.8 million in 2004 reflecting an impairment in the carrying value of a U.S. Cellular investment in a non-operational market in Florida. In 2003, a $5.0 million impairment loss was recorded on a wireless investment held by TDS Telecom.

Interest (expense) increased $4.4 million, or 10%, to $48.4 million in 2004 from $44.0 million in 2003 for reasons generally the same as for the first six months.

Minority Interest in Income of Subsidiary Trust decreased $6.2 million in 2004. In September 2003, TDS redeemed all $300 million of Company-Obligated Mandatorily Redeemable Preferred Securities at par plus accrued and unpaid distributions. There was no gain or loss on this transaction.

Income Tax Expense increased $27.3 million to $31.3 million in 2004 from $4.0 million in 2003. The effective tax (benefit) rate excluding Loss on impairment, (Gain) loss on assets held for sale and Loss on investments was 38.3% in 2004 and 43.0% in 2003. For an analysis of TDS’s effective tax rates in the second quarter of 2004 and 2003, see Note 4 — Income Taxes.

Minority Share of (Income) Loss totaled $(9.2) million in 2004 compared to $(0.9) million in the second quarter of 2003. U.S. Cellular’s minority public shareholders’ share of income in 2003 was reduced by $5.8 million due to U.S. Cellular’s Loss on impairment of intangible assets and (Gain) loss on assets held for sale.

		Three Months Ended June 30,
		2004			2003 As Restated			Change
		(Dollars in thousands)
Minority Share of (Income) Loss
U.S. Cellular
Minority Public Shareholders'	$	(6,802	)	$	305		$	(7,107	)
Minority Shareholders' or Partners'		(2,349	)		(1,214	)		(1,135	)
		(9,151	)		(909	)		(8,242	)
Other		(28	)		(31	)		3
	$	(9,179	)	$	(940	)	$	(8,239	)

Net Income (Loss) Available to Common totaled $41.3 million, or $0.72 per diluted share, in 2004, compared to $(5.3) million, or $(0.09) per diluted share, in 2003.

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RECENT ACCOUNTING PRONOUNCEMENTS

Mandatorily Redeemable Noncontrolling Interests

Under SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” certain minority interests in consolidated entities with finite lives may meet the standard’s definition of a mandatorily redeemable financial instrument and thus require reclassification as liabilities and remeasurement at the estimated amount of cash that would be due and payable to settle such minority interests under the applicable entity’s organization agreement assuming an orderly liquidation of the finite-lived entity, net of estimated liquidation costs (the “settlement value”). TDS’s consolidated financial statements include such minority interests that meet the standard’s definition of mandatorily redeemable financial instruments. These mandatorily redeemable minority interests represent interests held by third parties in consolidated partnerships and limited liability companies (“LLCs”), where the terms of the underlying partnership or LLC agreement provide for a defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be extinguished and the remaining net proceeds are to be distributed to the minority interest holders and TDS in accordance with the respective partnership and LLC agreements. The termination dates of TDS’s mandatorily redeemable minority interests range from 2042 to 2100.

On November 7, 2003, the FASB issued FASB Staff Position (“FSP”) No. FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150.” The FSP indefinitely deferred the classification and measurement provisions of SFAS No. 150 related to the mandatorily redeemable minority interests associated with finite-lived subsidiaries, but retained the related disclosure provisions. The settlement value of TDS’s mandatorily redeemable minority interests is estimated to be $91.6 million at June 30, 2004. This represents the estimated amount of cash that would be due and payable to settle minority interests assuming an orderly liquidation of the finite-lived consolidated partnerships and LLCs on June 30, 2004, net of estimated liquidation costs. This amount is being disclosed pursuant to the requirements of FSP FAS 150-3; TDS has no current plans or intentions to liquidate any of the related partnerships or LLCs prior to their scheduled termination dates. The corresponding carrying value of the minority interests in finite-lived consolidated partnerships and LLCs at June 30, 2004 is $27.3 million, and is included in the balance sheet caption Minority interest in subsidiaries. The excess of the aggregate settlement value over the aggregate carrying value of the mandatorily redeemable minority interests of $64.3 million is primarily due to the unrecognized appreciation of the minority interest holders’ share of the underlying net assets in the consolidated partnerships and LLCs. Neither the minority interest holders’ share, nor TDS’s share, of the appreciation of the underlying net assets of these subsidiaries is reflected in the consolidated financial statements. The estimate of settlement value was based on certain factors and assumptions. Changes in those factors and assumptions could result in a materially larger or smaller settlement amount.

The FASB plans to reconsider certain implementation issues and perhaps the classification or measurement guidance for mandatorily redeemable minority interests during the deferral period. The outcome of their deliberations cannot be determined at this point. Accordingly, it is possible that the FASB could require the recognition and measurement of mandatorily redeemable minority interests at their settlement value at a later date.

Health Care Benefits

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was enacted. The Act expands Medicare, primarily by adding a prescription drug benefit for Medicare-eligible participants starting in 2006. The Act provides employers currently sponsoring prescription drug programs for Medicare-eligible participants with a range of options for coordinating with the new government-sponsored program to potentially reduce program cost. These options include supplementing the government program on a secondary payor basis or accepting a direct subsidy from the government to support a portion of the cost of the employer’s program.

Pursuant to guidance from the FASB under FSP FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” TDS has chosen to defer recognition of the potential effects of the Act. Therefore, the retiree health obligations and costs reported in these financial statements do not yet reflect any potential impact of the Act. The FASB published guidance on the accounting for the government subsidy in FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” that is effective beginning July 1, 2004. The implementation of this guidance could require TDS to change previously reported information.

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In the months ahead, TDS intends to review its retiree health care strategy in light of the Act. As part of that review, TDS may consider amending its retiree health program to coordinate with the new Medicare prescription drug program or to receive the direct subsidy from the government. As a result, TDS anticipates that its retiree health obligations and costs could be reduced if such amendments are adopted.

Earnings per Share

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share.” EITF 03-6 clarifies what constitutes a participating security and provides further guidance in applying the two-class method of calculating earnings per share. The consensuses reached by the Task Force on EITF Issue No. 03-6 were ratified by the FASB on March 31, 2004, and are effective for reporting periods beginning after March 31, 2004. TDS has reviewed this Issue and concluded that it has no participating securities as defined by EITF Issue No. 03-6.

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FINANCIAL RESOURCES

The following table provides a summary of TDS’s cash flow activities in the six months ended June 30, 2004 and 2003:

	Six Months Ended June 30,
	2004			2003
	(Dollars in thousands)
Cash flows from (used in)
Operating activities	$	325,498		$	321,022
Investing activities		(266,172	)		(345,894	)
Financing activities		384,468			15,578
Net increase in cash and
cash equivalents	$	443,794		$	(9,294	)

Cash Flows from Operating Activities
TDS generates substantial internal funds from the operations of U.S. Cellular and TDS Telecom. Cash flows from operating activities totaled $325.5 million in the six months ended June 30, 2004 compared to $321.0 million in 2003.

The following table is a summary of the components of cash flows from operating activities:

	Six Months Ended June 30,
	2004			2003 As Restated
	(Dollars in thousands)
Net income (loss)	$	61,126		$	(20,989	)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities		364,960			396,612
		426,086			375,623
Changes in assets and liabilities		(100,588	)		(54,601	)
	$	325,498		$	321,022

Changes in working capital and other assets and liabilities required $100.6 million in 2004 and $54.6 million in 2003 reflecting timing differences in the payment of accounts payable, the receipt of accounts receivable, the change in accrued taxes and materials and supplies balances.

Cash Flows from Investing Activities
TDS makes substantial investments each year to acquire, construct, operate and upgrade modern high-quality communications networks and facilities as a basis for creating long-term value for shareowners. In recent years, rapid changes in technology and new opportunities have required substantial investments in revenue enhancing and cost reducing upgrades to TDS’s networks. Cash flows used for investing activities required $266.2 million in the first six months of 2004 compared to $345.9 million 2003.

Cash expenditures for capital additions required $325.1 million in the six months ended June 30, 2004 and $360.9 million in 2003. The primary purpose of TDS’s construction and expansion expenditures is to provide for significant customer growth, to upgrade service, and to take advantage of service-enhancing and cost-reducing technological developments in order to maintain competitive services. U.S. Cellular’s capital additions totaled $263.1 million in 2004 and $304.0 million in 2003 representing expenditures to construct cell sites, to replace retired assets, to improve business systems and to migrate to a single digital equipment platform — CDMA. TDS Telecom capital expenditures for its local telephone operations totaled $44.6 million in 2004 and $44.7 million in 2003 representing expenditures for switch modernization and outside plant facilities to maintain and enhance the quality of service and offer new revenue opportunities. TDS Telecom’s capital expenditures for competitive local exchange operations totaled $15.1 million in 2004 and $9.2 million in 2003 for switching and other network facilities. Corporate capital expenditures totaled $2.3 million in 2004 and $3.0 million in 2003.

The sale of wireless properties in southern Texas to AT&T Wireless provided $96.9 million in 2004 including working capital adjustments. Acquisitions of certain minority wireless interests in 2004 required $40.4 million. Distributions from unconsolidated investments provided $7.5 million in 2004 and $17.9 million in 2003.

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Cash Flows from Financing Activities
Cash flows from financing activities provided $384.5 million in the six months ended June 30, and $15.6 million in 2003. Short term debt borrowings, net of repayments, provided $143.6 million in 2003. Issuances of long-term debt by U.S. Cellular provided $412.5 million in 2004. In 2003, U.S. Cellular repurchased and cancelled the remaining $45.2 million of 9% Series A Notes from PrimeCo for $40.7 million. The repurchase was financed using short-term debt. Cash received from short term borrowings on revolving lines of credit provided $270.0 million in 2004. Repayments of short term borrowings required $270.0 million, primarily paid with cash received from the U.S. Cellular long-term debt issuances. Cash received from long-term debt issuances was temporarily used to reduce short-term debt pending the redemption of long-term debt. See Liquidity and Capital Resources – Long-term Financing below. Treasury shares reissued for stock options exercised in 2004 provided $20.3 million and $2.5 million in 2003. Dividends paid on TDS Common and Preferred Shares, required $19.0 million in 2004 and $18.2 million in 2003.

During the six months ended June 30, 2004, cash required for the repurchase of TDS Common Shares totaled $14.9 million including commissions. An additional $5.6 million was paid in January 2004 to settle repurchases that occurred at the end of December 2003. In total, TDS repurchased 214,800 Common Shares for an average price of $69.16 per share including commissions.

During the six months ended June 30, 2003, cash required for the repurchase of TDS Common Shares totaled $56.5 million. In total, TDS repurchased 1,378,900 Common Shares for an average price of $40.99 per share including commissions.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that internal cash flow, existing cash and cash equivalents, and funds available from line of credit arrangements provide sufficient financial resources to finance its near-term capital, business development and expansion expenditures. TDS and its subsidiaries may have access to public and private capital markets to help meet their long-term financing needs. TDS and its subsidiaries anticipate accessing public and private capital markets to issue debt and equity securities when and if capital requirements, financial market conditions and other factors warrant.

However, the availability of financial resources is dependent on economic events, business developments, technological changes, financial conditions or other factors, many of which are not in TDS’s control. If at any time financing is not available on terms acceptable to TDS, TDS might be required to reduce its business development and capital expenditure plans, which could have a materially adverse effect on its business and financial condition. TDS does not believe that any circumstances that could materially adversely affect TDS’s liquidity or capital resources are currently reasonably likely to occur, but it cannot provide assurances that such circumstances will not occur or that they will not occur rapidly. Economic downturns, changes in financial markets or other factors could rapidly change the availability of TDS’s liquidity and capital resources. Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development, acquisition and share repurchase programs.

TDS is generating substantial internal funds from the operations of U.S. Cellular and TDS Telecom. Cash flows from operating activities totaled $325.5 million in the first six months of 2004 compared to $321.0 million in 2003. TDS and its subsidiaries had cash and cash equivalents totaling $1,381.4 million at June 30, 2004.

Revolving Credit Facilities

TDS and its subsidiaries had $1,296.6 million of revolving credit facilities available for general corporate purposes as well as an additional $75 million in bank lines of credit as of June 30, 2004.

TDS has a $600 million revolving credit facility for general corporate purposes. At June 30, 2004, this credit facility had $596.8 million available for use, net of $3.2 million of outstanding letters of credit. This credit facility expires in January 2007. Borrowings bear interest at the London InterBank Offered Rate (“LIBOR”) plus a contractual spread based on TDS’s credit rating. The contractual spread was 30 basis points as of June 30, 2004 (for a rate of 1.67% based on the one month LIBOR rate at June 30, 2004).

TDS also has $75 million of additional bank lines of credit for general corporate purposes, all of which was unused at June 30, 2004. These line of credit agreements expire in less than one year and provide for borrowings at negotiated rates up to the prime rate (4.0% at June 30, 2004 and subsequently increased to 4.25% as of July 1, 2004).

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U.S. Cellular has a $700 million revolving credit facility for general corporate purposes. At June 30, 2004, this credit facility had $699.8 million available for use, net of outstanding letters of credit of $0.2 million. This credit facility expires in June 2007. Borrowings bear interest at the LIBOR rate plus a margin percentage, based on U.S. Cellular’s credit rating, which was 55 basis points as of June 30, 2004 (for a rate of 1.92% based on the one month LIBOR rate at June 30, 2004).

TDS’s and U.S. Cellular’s interest costs would increase if their credit rating goes down which would increase their cost of financing, but their credit facilities would not cease to be available solely as a result of a decline in their credit rating. A downgrade in TDS’s or U.S. Cellular’s credit ratings could adversely affect their ability to renew existing, or obtain access to new, credit facilities in the future. Certain of TDS’s and U.S. Cellular’s credit facilities would accelerate in the event of a change in control.

The continued availability of the revolving credit facilities requires TDS and U.S. Cellular to comply with certain negative and affirmative covenants, maintain certain financial ratios and provide representation on certain matters at the time of each borrowing. On May 14, 2004, TDS filed a Form 10-K/A to restate its financial statements for the years ended December 31, 2003 and 2002 and for the interim periods for such years. The restatements resulted in defaults under a revolving credit agreement between TDS and certain lenders and under a revolving credit agreement between U.S. Cellular and certain lenders. TDS and U.S. Cellular did not fail to make any scheduled payment of principal or interest under such revolving credit agreements. TDS and U.S. Cellular received waivers from the lenders under which the lenders agreed to waive any defaults that may have occurred as a result of the restatements. As of the date of filing of this Form 10-Q, TDS and U.S. Cellular are in compliance with all covenants and other requirements set forth in revolving credit agreements.

Long-term Financing

As of the date of filing of this Form 10-Q, TDS and subsidiaries are in compliance with all covenants and other requirements set forth in long-term debt indentures. TDS does not have any rating downgrade triggers that would accelerate the maturity dates of its long-term debt. However, a downgrade in TDS’s credit rating could adversely affect its ability to refinance existing, or obtain access to new, long-term debt in the future.

On May 25, 2004, U.S. Cellular filed with the SEC a shelf registration statement on Form S-3 to register the issuance from time to time of up to $500 million of senior debt securities. This registration statement became effective on June 2, 2004.

As of June 17, 2004, U.S. Cellular issued $330 million in aggregate principal amount of unsecured 7.5% senior notes due June 15, 2034 under this registration statement. The net proceeds from this offering, after deducting underwriting discounts, were approximately $319.6 million.

Also, on June 28, 2004, U.S. Cellular issued $100 million in aggregate principal amount of unsecured 6.7% senior notes due December 15, 2033 priced to yield 7.21% to maturity under this registration statement. The net proceeds from this offering, after deducting underwriting discounts, were approximately $92.9 million. This is a further issuance of U.S. Cellular’s 6.7% notes that were issued on December 8, 2003 in the aggregate principal amount of $444 million.

On June 24, 2004, U.S. Cellular issued redemption notices to holders of U.S. Cellular’s Liquid Yield Option Notes and on June 28, 2004 issued redemption notices to holders of U.S. Cellular’s 7.25% senior notes. Consequently, $162.4 million of Liquid Yield Option Notes and $250 million of 7.25% senior notes were reclassified to Current portion of long-term debt on the Balance Sheet.

The total net proceeds from the 7.5% and 6.7% senior note offerings, after deducting underwriting discounts, were approximately $412.5 million. Of this amount, $163.3 million was used to redeem U.S. Cellular’s Liquid Yield Option Notes on July 26, 2004 at accreted value. The balance of the net proceeds, together with borrowings under the revolving credit agreement, is expected to be used to redeem all of U.S. Cellular’s 7.25% senior notes as of August 16, 2004. No gain or loss is expected to be recognized as a result of such redemptions. However, U.S. Cellular expects to charge $3.6 million of deferred debt expenses to the Statement of Operations related to the redemption of long-term debt.

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Marketable Equity Securities and Forward Contracts

TDS and its subsidiaries hold a substantial amount of marketable equity securities that are publicly traded and can have volatile share prices. TDS and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, trades or reorganizations of other assets. The investment in Deutsche Telekom AG (“Deutsche Telekom”) resulted from TDS’s disposition of its over 80%-owned personal communications services operating subsidiary, Aerial Communications, Inc., to VoiceStream Wireless Corporation (“VoiceStream”) in exchange for stock of VoiceStream, which was then acquired by Deutsche Telekom in exchange for Deutsche Telekom stock. The investment in Vodafone Group Plc (“Vodafone”) resulted from certain dispositions of non-strategic cellular investments to or settlements with AirTouch Communications, Inc. (“AirTouch”) in exchange for stock of AirTouch, which was then acquired by Vodafone whereby TDS and its subsidiaries received American Depository Receipts representing Vodafone stock. The investment in Rural Cellular Corporation (“Rural Cellular”) is the result of a consolidation of several cellular partnerships in which TDS subsidiaries held interests into Rural Cellular, and the distribution of Rural Cellular stock in exchange for these interests. The investment in VeriSign, Inc. (“VeriSign”) is the result of the acquisition by VeriSign of Illuminet, Inc., a telecommunications entity in which several TDS subsidiaries held interests. A contributing factor in TDS’s decision not to dispose of the investments is that their tax basis is significantly lower when compared to current stock prices, and therefore would trigger a substantial taxable gain upon disposition.

Subsidiaries of TDS and U.S. Cellular have entered into a number of variable prepaid forward contracts (“forward contracts”) with counterparties related to the marketable equity securities that they hold. The forward contracts mature from May 2007 to August 2008 and, at TDS’s and U.S. Cellular’s option, may be settled in shares of the respective securities or cash. TDS and U.S. Cellular have provided guarantees to the counterparties which provide assurance that all principal and interest amounts will be paid upon settlement of the contracts by their subsidiaries. If shares are delivered in the settlement of the forward contract, TDS and U.S. Cellular would incur a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized through maturity. Deferred taxes have been provided for the difference between the book basis and the tax basis of the marketable equity securities and are included in deferred tax liabilities on the balance sheet. As of June 30, 2004, such deferred tax liabilities totaled $989.2 million.

TDS and U.S. Cellular are required to comply with certain covenants under the forward contracts. On May 14, 2004, TDS filed a Form 10-K/A to restate its financial statements for the years ended December 31, 2003 and 2002 and for the interim periods for such years. The restatements resulted in defaults under certain of the forward contracts with one counterparty. TDS and U.S. Cellular did not fail to make any scheduled payments under any of the forward contracts. TDS and U.S. Cellular received waivers from the counterparty to such forward contracts, as required, under which the counterparty agreed to waive any defaults that may have occurred as a result of the restatements.

As of the date of filing of this Form 10-Q, TDS and U.S. Cellular are in compliance with all covenants and other requirements set forth in the forward contracts.

Capital Expenditures

U.S. Cellular’s anticipated capital expenditures for 2004 primarily reflect U.S. Cellular’s plans for construction, system expansion, the buildout of certain of its licensed areas and additional expenditures related to its plans to migrate to a single digital equipment platform. U.S. Cellular plans to finance its construction program using internally generated cash and short-term and long-term financing. U.S. Cellular’s estimated capital spending for 2004 is $655 million to $695 million. U.S. Cellular’s capital expenditures for the six months ended June 30, 2004 totaled $263.1 million.

U.S. Cellular’s 2004 capital expenditures will primarily address the following needs:

• Expand and enhance U.S. Cellular's coverage in its service areas.
• Provide additional capacity to accommodate increased network usage by current customers.
• Build out certain licensed areas acquired in 2001, 2002 and 2003.
• Complete U.S. Cellular’s migration toward making a common digital equipment platform, CDMA, available to customers from a mixture of CDMA and TDMA.
• Enhance U.S. Cellular's retail store network and office systems.

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U.S. Cellular’s overlay of existing technologies with CDMA is largely completed, and when the project is fully completed in 2004 it anticipates total expenditures related to the project to be no more than $300 million. U.S. Cellular will utilize CDMA technology in building out the licenses it has acquired and expects to acquire in the future from AT&T Wireless.

U.S. Cellular expects capital expenditures related to the buildout of the licensed areas it acquired in 2001 through 2003, including those in the AT&T Wireless exchange transaction, to be substantial. U.S. Cellular plans to build networks to serve these licensed areas and launch commercial service in these areas over the next several years. Approximately $100 million of the estimated capital spending for 2004 is allocated to the buildout of certain of these licenses, and U.S. Cellular expects a significant portion of its capital spending over the next few years to be related to the buildout of its wireless licensed areas.

TDS Telecom’s estimated capital spending for 2004 approximates $150 million. The incumbent local telephone companies are expected to spend approximately $105 million to provide for normal growth and to upgrade plant and equipment to provide enhanced services. The competitive local exchange companies are expected to spend approximately $45 million to build switching and other network facilities to meet the needs of a growing customer base. TDS Telecom’s incumbent local exchange carriers capital expenditures totaled $44.6 million and the competitive local exchange carriers capital expenditures totaled $15.1 million for the six months ended June 30, 2004. TDS Telecom plans to finance its construction program using primarily internally generated cash.

In July 2004, TDS Telecom was granted a franchise to provide cable television services to the residents of the Town of Farragut, Tennessee. Under the terms of the franchise agreement, TDS has 36 months to complete the buildout of the system and to begin providing service to customers. As a pilot project, TDS expects to begin providing service to some residents of Farragut during the summer of 2005. The capital spending guidance provided above does not include the impact of this buildout. TDS Telecom is currently developing the detailed plans and related required capital for this project.

Acquisitions, Exchanges and Divestitures

TDS assesses its holdings on an ongoing basis in order to maximize the benefits derived from its operations. TDS reviews attractive opportunities to acquire additional telecommunications companies and wireless spectrum, which add value to the business.

2004 Activity

On February 18, 2004, U.S. Cellular completed the sale of certain of its wireless properties in southern Texas to AT&T Wireless for $96.9 million in cash, including a working capital adjustment. The U.S. Cellular markets sold to AT&T Wireless included wireless assets and customers in six 25 megahertz cellular markets. An aggregate loss of $21.3 million (including a $22.0 million estimate of the Loss on assets held for sale in the fourth quarter of 2003 and a $725,000 reduction of the loss in the six months ended June 30, 2004) was recorded as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets sold to AT&T Wireless and the cash received in the transaction.

In addition, in 2004 U.S. Cellular purchased certain minority interests in several wireless markets in which it already owned a controlling interest for $40.4 million in cash. These acquisitions increased investment in licenses, goodwill and customer lists by $2.7 million, $3.6 million and $12.9 million, respectively.

Subsequent Event

On August 4, 2004, TDS announced that U.S. Cellular and TDS Telecom had entered into definitive agreements with ALLTEL Coommunications, Inc. ("ALLTEL") to sell certain wireless properties. TDS subsidiaries will sell three consolidated properties and six minority interests to ALLTEL for $143 million in cash, including repayment of debt and working capital that is subject to adjustment at closing. The transactions are subject to regulatory approvals. The closing of the transactions is expected to occur in the fourth quarter of 2004.

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The following table summarizes the recorded value of the assets and liabilities of the properties that TDS subsidiaries will be transferring:

	June 30, 2004
	(Dollars in thousands)
Current assets	$	11,980
Property, plant and equipment, net		30,770
Licenses		258
Goodwill		39,157
Investment in unconsolidated entities		21,815
Other		1,044
Total assets		105,024
Current liabilities		3,713
Deferred credits		489
Total liabilities		4,202
Net assets to be transferred	$	100,822

TDS expects to record a gain related to these transactions for the excess of the cash received over the book value of the net assets given up, subject to a working capital adjustment. As a result of signing the definitive agreements for these transactions, TDS will reclassify the net assets of the properties to be transferred as assets held for sale in the third quarter of 2004.

2003 Activity

On August 1, 2003, U.S. Cellular completed the transfer of wireless assets and customers in ten 25 megahertz markets in Florida and Georgia to AT&T Wireless pursuant to an agreement entered into in March 2003. In return, U.S. Cellular received the following: a) rights to acquire controlling interests in 36 personal communication service licenses contiguous to and that overlap existing U.S. Cellular properties in 13 states in the Midwest and the Northeast; b) approximately $34 million in cash; and c) minority interests in six markets in which it previously owned a controlling interest. In accordance with the agreement, U.S. Cellular has deferred the assignment and development of 21 licenses for a period of up to five years from the closing date. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with service requirements of the Federal Communications Commission (“FCC”). The value of these licenses is recorded as Wireless license rights on the Balance Sheet.

The acquisition of the licenses in the exchange was accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular to AT&T Wireless was accounted for as a sale. An estimated loss of $25.1 million was recorded in the six months ended June 30, 2003 as a Loss on assets held for sale (included in operating expenses), representing the difference between the carrying value of the markets transferred to AT&T Wireless and the fair value of the consideration received or to be received in the transaction.

Repurchase of Securities and Dividends

As market conditions warrant, TDS and U.S. Cellular may repurchase their common shares on the open market or at negotiated prices in private transactions. In 2003, the TDS Board of Directors authorized the repurchase of up to 3.0 million TDS Common Shares through February 2006. In the first six months of 2004 TDS repurchased 214,800 TDS Common Shares for $14.9 million including commissions. TDS has 824,300 common shares remaining available for repurchase under the authorization. Share repurchases may be made from time to time on the open market or private transactions, at prices approximating then existing market prices.

U.S. Cellular has no current plans to repurchase a significant number of its Common Shares, and it did not repurchase any Common Shares in the first six months of 2004 or 2003. U.S. Cellular’s primary repurchase program expired in December 2003. However, U.S. Cellular has an ongoing authorization to repurchase a limited amount of additional Common Shares on a quarterly basis, primarily for use in employee benefit plans.

TDS paid total dividends on its common and preferred stock of $19.0 million in the first six months of 2004 and $18.2 million in 2003. TDS has no current plans to change its policy of paying dividends. TDS paid quarterly dividends per share of $.165 in 2004 and $.155 in 2003.

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Contractual Obligations

Except as described below, there has been no material change in the resources required for scheduled repayment of contractual obligations from the table of Contractual Obligations included in Management’s Discussion and Analysis of Results of Operations and Financial Condition included in TDS’s Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

Subsequent to December 31, 2003, U.S. Cellular issued $330 million in aggregate principal amount of unsecured 7.5% senior notes due 2034 and an additional $100 million of its unsecured 6.7% senior notes due 2033 in June 2004. The total net proceeds from these offerings, after deducting underwriting discounts, were approximately $412.5 million. Of this amount, approximately $163.3 million was used to redeem U.S. Cellular’s Liquid Yield Option Notes on July 26, 2004. The balance of the net proceeds, together with borrowings under the revolving credit agreement, is expected to be used to redeem all of U.S. Cellular’s 7.25% senior notes as of August 16, 2004.

The following table shows the increases and decreases in contractual obligations, as presented in the Annual Report on Form 10-K for the year ended December 31, 2003, as amended, as a result of the debt transactions described above:

	Payments Due by Period
(Dollars in millions)	Total			Less than 1 Year		2 - 3 Years		4 - 5 Years			More than 5 Years
Long-Term Debt Offerings:
7.5% senior notes due 2034	$	330.0		$	—	$	—	$	—		$	330.0
6.7% senior notes due 2033		100.0			—		—		—			100.0
Total increase in long-term debt	$	430.0		$	—	$	—	$	—		$	430.0
Long-Term Debt Redemptions:
6% zero coupon convertible
redeemable debentures (1)	$	(163.3	)	$	—	$	—	$	—		$	(163.3	)
7.25% senior notes due 2007 (2)		(250.0	)		—		—		(250.0	)		—
Total redemptions of long-term debt	$	(413.3	)	$	—	$	—	$	(250.0	)	$	(163.3	)

(1) Redemption date was July 26, 2004. Amount included as current liability as of June 30, 2004.

(2) Redemption date is expected to be August 16, 2004. Amount included as current liability as of June 30, 2004.

Off Balance Sheet Arrangements

TDS has no transactions, agreements or contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that have or are reasonably likely to have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, revenues or expenses.

TDS has certain variable interests in investments in unconsolidated entities where TDS holds a minority interest. The investments in unconsolidated entities totaled $234.2 million as of June 30, 2004 and are accounted for using either the equity or cost method. TDS’s maximum loss exposure for these variable interests is limited to the aggregate carrying amount of the investments.

Indemnity Agreements

TDS enters into agreements in the normal course of business that provide for indemnification of counterparties. These include certain asset sales and financings with other parties. The term of the indemnification varies by agreement. The events or circumstances that would require TDS to perform under these indemnities are transaction specific; however these agreements may require TDS to indemnify the counterparty for costs and losses incurred from litigation or claims arising from the underlying transaction. TDS is unable to estimate the maximum potential liability for these types of indemnifications as the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, TDS has not made any significant indemnification payments under such agreements.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

TDS prepares its consolidated financial statement in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). TDS’s significant accounting policies are discussed in detail in Note 1 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimates under different assumptions or conditions.

Management believes the following critical accounting estimates reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements. TDS’s senior management has discussed the development and selection of each of the following accounting estimates and the following disclosures with the audit committee of TDS’s board of directors.

License Costs and Goodwill

TDS reported $1,192.8 million and $1,189.3 million of wireless license costs and $890.9 million and $887.9 million of goodwill, at June 30, 2004 and December 31, 2003, respectively, as a result of the acquisitions of wireless licenses and markets, and the acquisition of operating telephone companies. In addition, at the end of both periods, TDS reported $42.0 million of Wireless license rights related to the licenses that will be received when the AT&T Wireless exchange transaction is fully completed.

Wireless licenses and goodwill must be reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. TDS performs the annual impairment review on wireless licenses cost and goodwill during the second quarter. There can be no assurance that upon review at a later date material impairment charges will not be required.

The intangible asset impairment test consists of comparing the fair value of the intangible asset to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized for the difference. The goodwill impairment test is a two-step process. The first step compares the fair value of the reporting unit, as identified in accordance with SFAS No. 142, to its carrying value. If the carrying amount exceeds the fair value, the second step of the test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. To calculate the implied fair value of goodwill, an enterprise allocates the fair value of the reporting unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities of the reporting unit is the implied fair value of goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized for that difference.

The fair value of an intangible asset and reporting unit goodwill is the amount at which that asset or reporting unit could be bought or sold in a current transaction between willing parties. Therefore, quoted market prices in active markets are the best evidence of fair value and should be used when available. If quoted market prices are not available, the estimate of fair value is based on the best information available, including prices for similar assets and the use of other valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or revenue or a similar performance measure. The use of these techniques involve assumptions by management about factors that are highly uncertain including future cash flows, the appropriate discount rate, and other inputs. Different assumptions for these inputs or different valuation methodologies could create materially different results.

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U.S. Cellular tests goodwill for impairment at the level of reporting referred to as a reporting unit. Following the divestiture of its southern Texas markets, which in the aggregate represented an entire reporting unit, in February 2004, U.S. Cellular has identified six reporting units pursuant to paragraph 30 of SFAS No. 142. The six reporting units represent six geographic groupings of FCC licenses, constituting six geographic service areas. U.S. Cellular combines its FCC licenses into six units of accounting for purposes of testing the licenses for impairment pursuant to Emerging Issues Task Force Statement 02-7 “Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets” (“EITF 02-7”) and SFAS No. 142, using the same geographic groupings as its reporting units.

In 2004 and 2003, U.S. Cellular retained a third-party valuation firm to prepare valuations of each of the reporting units for purposes of goodwill impairment testing. A discounted cash flow approach was used to value each of the reporting units, using value drivers and risks specific to each individual geographic region. The cash flow estimates incorporate assumptions that market participants would use in their estimates of fair value. Key assumptions made in this process were the selection of a discount rate, estimated future cash flow levels, projected capital expenditures, and selection of terminal values.

U.S. Cellular also retained a third-party valuation firm to prepare valuations of the similar groupings of FCC licenses (units of accounting pursuant to EITF 02-7). The valuations were prepared using an excess earnings methodology, through the use of a discounted cash flow approach. This excess earnings methodology estimates the fair value of the intangible assets (FCC license units of accounting) by measuring the future cash flows of the license groups, reduced by charges for contributory assets such as working capital, trademarks, existing subscribers, fixed assets, assembled workforce and goodwill.

TDS Telecom has recorded goodwill primarily as a result of the acquisition of operating telephone companies. TDS Telecom has assigned goodwill to its incumbent local exchange carrier reporting unit ($397.3 million), its competitive local exchange carrier reporting units ($29.4 million), and a wireless investment reporting unit ($30.9 million). The incumbent local exchange carrier reporting unit was valued using a multiple of cash flow valuation technique. The competitive local exchange carrier unit was valued using a discounted cash flow analysis. The wireless investment reporting unit was also valued using a discounted cash flow analysis. However, in the event TDS Telecom receives a bona fide offer for any reporting unit, that information will be incorporated into the valuation of that unit.

In the second quarter of 2004, U.S. Cellular recorded an additional $1.8 million impairment loss on its investment in a non-operating wireless market in Florida. No other impairment losses were identified during the annual impairment testing in the second quarter of 2004.

In the first quarter of 2003, TDS recorded a $3.5 million license cost impairment loss related to U.S. Cellular’s investment in a non-operating wireless market in Florida remaining after the AT&T Wireless exchange was completed. In the second quarter of 2003, U.S. Cellular recorded an impairment loss on its wireless licenses totaling $49.6 million related to the impairment of two reporting units. Also in the second quarter of 2003, TDS recorded a $5.0 million impairment loss on goodwill related to a cellular investment held at TDS Telecom.

Asset Retirement Obligations

SFAS No. 143, “Accounting for Asset Retirement Obligations,” became effective for TDS beginning January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with an asset retirement in the period in which the obligations are incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to retire the asset and the liability recorded is recognized in the statement of operations as a gain or loss.

The calculation of the asset retirement obligation for TDS is a critical accounting estimate because changing the factors used in calculating the obligation could result in larger or smaller estimated obligations that could have a significant impact on TDS’s results of operations and financial condition. Such factors may include probabilities or likelihood of remediation, cost estimates, lease renewals and salvage values. Actual results may differ materially from estimates under different assumptions or conditions.

U.S. Cellular is subject to asset retirement obligations associated primarily with its cell sites, retail sites and office locations. Asset retirement obligations include costs to remediate leased land on which U.S. Cellular’s cell sites and switching offices are located. U.S. Cellular is also required to return lease retail store premises and office space to their pre-existing conditions.

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U.S. Cellular determined that it had an obligation to remove long-lived assets in its cell sites, retail sites and office locations as described by SFAS 143, and has recorded a $64.5 million liability at December 31, 2003 and $66.3 million at June 30, 2004.

TDS Telecom’s incumbent local telephone companies follow the provisions of SFAS No. 71, and therefore conform to the regulatory accounting principles as prescribed by the respective state public utility commissions and the FCC, and where applicable, accounting principles generally accepted in the United States of America. TDS Telecom’s incumbent local telephone carriers have recorded an asset retirement obligation in accordance with the requirements of SFAS No. 143 and a regulatory liability for the amounts of costs of removal that state public utility commissions have required to be recorded for regulatory accounting purposes which are in excess of the amounts required to be recorded in accordance with SFAS No. 143. The regulatory liability included in asset retirement obligation at December 31, 2003 and at June 30, 2004 was $28.2 million and $29.9 million, respectively. The asset retirement obligation calculated in accordance with the provisions of SFAS No. 143 at December 31, 2003 and at June 30, 2004 was $31.8 million and $32.6 million, respectively.

TDS Telecom’s competitive local telephone companies adopted SFAS No. 143 effective January 1, 2003. TDS Telecom determined that its competitive local telephone companies do not have a material legal obligation to remove long-lived assets as described by SFAS 143, and accordingly, adoption of SFAS 143 did not have a material impact on the competitive local telephone companies.

The table below summarizes the changes in asset retirement obligations during the first six months of 2004.

(Dollars in thousands)	U.S. Cellular			TDS Telecom			TDS Consolidated
Beginning Balance - December 31, 2003	$	64,501		$	60,000		$	124,501
Additional liabilities accrued		1,013			3,147			4,160
Accretion expense		2,436			—			2,436
Costs of removal incurred in 2004		—			(647	)		(647	)
Disposition of assets (1)		(1,635	)		—			(1,635	)
Ending Balance - June 30, 2004	$	66,315		$	62,500		$	128,815

(1) This change in the asset retirement obligation relates to those obligations which were associated with the properties sold to AT&T Wireless in February 2004 and are no longer obligations of U.S. Cellular.

Income Taxes

The accounting for income taxes, the amounts of income tax assets and liabilities and the related income tax provision are critical accounting estimates because such amounts are significant to TDS’s financial condition, changes in financial condition and results of operations.

The preparation of the consolidated financial statements requires TDS to calculate a provision for income taxes. This process involves estimating the actual current income tax liability together with assessing temporary differences resulting from the different treatment of items, such as depreciation expense, for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. TDS must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, establish a valuation allowance. Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. TDS’s current net deferred tax asset was $19.4 million as of June 30, 2004, representing primarily the deferred tax effects of the allowance for doubtful accounts on accounts receivable, and is included in Other current assets on the balance sheet.

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The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities as of June 30, 2004 are as follows:

	June 30, 2004
	(Dollars in thousands)
Deferred Tax Asset
Net operating loss carryforwards	$	85,823
Derivative instruments		237,723
Other		7,235
		330,781
Less valuation allowance		(66,231	)
Total Deferred Tax Asset		264,550
Deferred Tax Liability
Property, plant and equipment		352,435
Licenses		217,217
Marketable equity securities		989,211
Partnership investments		35,086
Total Deferred Tax Liability		1,593,949
Net Deferred Income Tax Liability	$	1,329,399

The valuation allowance relates to state net operating loss carry forwards and the federal net operating loss carryforwards for those subsidiaries not included in the consolidated federal income tax return since it is more likely than not a portion will expire before such carryforwards can be utilized.

The deferred income tax liability relating to marketable equity securities of $989.2 million at June 30, 2004 represents deferred income taxes calculated on the difference between the book basis and the tax basis of the marketable equity securities. Income taxes will be payable when TDS disposes of the marketable equity securities.

TDS is routinely subject to examination of its income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities. TDS periodically assesses the likelihood of adjustments to its tax liabilities resulting from these examinations to determine the adequacy of its provision for income taxes, including related interest. Management judgment is required in assessing the eventual outcome of these examinations. Changes to such assessments affect the calculation of TDS’s income tax expense. The IRS has completed audits of TDS’s federal income tax returns for tax years through 1996.

In the event of an increase in the value of tax assets or a decrease in tax liabilities, TDS would decrease the income tax expense or increase the income tax benefit by an equivalent amount. In the event of a decrease in the value of tax assets or an increase in tax liabilities, TDS would increase the income tax expense or decrease the income tax benefit by an equivalent amount.

Property, Plant and Equipment

U.S. Cellular and TDS Telecom’s competitive local exchange carrier operations provide for depreciation using the straight-line method over the estimated useful lives of the assets. TDS Telecom’s incumbent local exchange carrier operations provide for depreciation on a group basis according to depreciable rates approved by state public utility commissions. Annually, U.S. Cellular and TDS Telecom review its property, plant and equipment lives to ensure that the estimated useful lives are appropriate. The estimated useful lives of property, plant and equipment is a critical accounting estimate because changing the lives of assets can result in larger or smaller charges for depreciation expense. Factors used in determining useful lives include technology changes, regulatory requirements, obsolescence and type of use.

In the first quarter of 2004, U.S. Cellular adjusted the useful lives of TDMA radio equipment, switch software and antenna equipment. TDMA radio equipment lives were adjusted to be fully depreciated by the end of 2008, which is the latest date the wireless industry will be required by regulation to support analog service. U.S. Cellular currently uses TDMA radio equipment to support analog service, and expects to have its digital radio network fully migrated to CDMA 1XRTT or some future generation of CDMA technology by that time. The useful lives for certain switch software were reduced to one year from three years and antenna equipment lives were reduced from eight years to seven years in order to better align the useful lives with the actual length of time the assets are in use. These changes increased depreciation by $2.5 million and $9.9 million for the three and six months ended June 30, 2004, respectively, and is estimated to increase depreciation by $14.9 million for the full year 2004. The change in useful lives reduced net income by $1.2 million, or $0.02 per share, in the three months ended June 30, 2004 and by $4.9 million, or $0.09 per share, in the six months ended June 30, 2004.

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TDS Telecom did not change the useful lives of its property, plant and equipment in the six months ended June 30, 2004.

In the second quarter of 2004, certain U.S. Cellular TDMA digital radio equipment consigned to a third party for future sale was written down by $6.3 million prior to its consignment, increasing depreciation expense by that amount. This writedown was necessary to reduce the book value of the assets to be sold to their estimated proceeds from disposition.

In preparation for the implementation of a fixed asset management and tracking software system, including a bar code asset identification system, U.S. Cellular is conducting a physical inventory review of its cell site fixed assets. U.S. Cellular has commenced the cell site fixed asset inventory review and expects to complete the inventory in the fourth quarter of 2004. Based on the results of the review through June 30, 2004, U.S. Cellular estimates that the review, when completed, will result in a write-off of certain assets with a net book value of approximately $4.0 million, and charged $4.0 million to depreciation expense for the estimated write-off in the second quarter. To the extent the final results differ from the $4.0 million already charged to expense, an adjustment would be required.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following persons are partners of Sidley Austin Brown & Wood LLP, the principal law firm of TDS and its subsidiaries: Walter C.D. Carlson, a trustee and beneficiary of a voting trust that controls TDS, the non-executive chairman of the board and member of the board of directors of TDS and a director of U.S. Cellular, a subsidiary of TDS; William S. DeCarlo, the General Counsel of TDS and an Assistant Secretary of TDS and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel of U.S. Cellular and TDS Telecom and an Assistant Secretary of certain subsidiaries of TDS. Walter C.D. Carlson does not provide legal services to TDS or its subsidiaries.

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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This Management’s Discussion and Analysis of Results of Operations and Financial Condition and other sections of this Quarterly Report contain statements that are not based on historical fact, including the words “believes”, “anticipates”, “intends”, “expects”, and similar words. These statements constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include the following:

• Increases in the level of competition in the markets in which TDS operates, or wireless for wireline substitution, could adversely affect TDS’s revenues or increase its costs to compete.
  
  
• Consolidation in the wireless industry may create stronger competitors both operationally and financially which could adversely affect TDS’s revenues and increase its costs to compete.
  
  
• Advances or changes in telecommunications technology, such as Voice Over Internet Protocol, could render certain technologies used by TDS obsolete, could reduce TDS’s revenues or could increase TDS’s cost of doing business.
  
  
• Changes in the telecommunications regulatory environment, such as wireless number portability, local number portability and E-911 services, could adversely affect TDS’s financial condition or results of operations or ability to do business.
  
  
• Changes in U.S. Cellular’s enterprise value, changes in the supply or demand of the market for wireless licenses or telephone companies, adverse developments in the TDS businesses or the industries in which TDS is involved and/or other factors could require TDS to recognize impairments in the carrying value of TDS’s license costs, goodwill and/or physical assets.
  
  
• Conversions of debt, early redemptions of debt or repurchases of debt, changes in prepaid forward contracts, operating leases, purchase obligations or other factors or developments could cause the amounts reported under Contractual Obligations in TDS’s Annual Report in 10-K for the year ended December 31, 2003 to be different from the amounts presented.
  
  
• Changes in accounting standards or TDS’s accounting policies, estimates and/or in the assumptions underlying the accounting estimates, including those described under Application of Critical Accounting Policies and Estimates, could have a material effect on TDS’s financial condition, changes in financial condition and results of operations.
  
  
• Settlement, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’s financial condition, results of operations or ability to do business.
  
  
• Costs, integration problems or other factors associated with acquisitions / divestitures of properties and/or licenses could have an adverse effect on TDS’s financial condition or results of operations.
  
  
• Changes in prices, the number of customers, average revenue per unit, penetration rates, churn rates, selling expenses, net customer retention costs associated with wireless number portability and local number portability, roaming rates, access minutes of use, the mix of products and services offered or other business factors could have an adverse effect on TDS’s business operations.
  
  
• Changes in roaming partners’ rates, and the ability to provide voice and data services on other carriers’ networks could have an adverse effect on TDS’s operations.
  
  
• Changes in competitive factors with national and global wireless carriers could result in product and cost disadvantages and could have an adverse effect on TDS’s operations.
  
  
• Lack of standards and roaming agreements for wireless data products could place U.S. Cellular’s data services offerings at a disadvantage to those offered by other wireless carriers with more nationwide service territories.
  
  
• Changes in guidance or interpretations of accounting requirements, changes in industry practice or changes in management assumptions could require amendments to or restatements of disclosures or financial information included in this or prior filings with the SEC.
  
  

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• Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets, other changes in market conditions, changes in TDS’s credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.
  
  
• Changes in income tax rates, tax laws, regulations or rulings, or federal and state tax assessments could have an adverse effect on TDS’s financial condition and results of operations.
  
  
• War, conflicts, hostilities and/or terrorist attacks could have an adverse effect on TDS’s businesses.
  
  
• Changes in general economic and business conditions, both nationally and in the markets in which TDS operates, including difficulties by telecommunications companies, could have an adverse effect on TDS’s businesses.
  
  

TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Long-term Debt

TDS is subject to market risks due to fluctuations in interest rates. The majority of TDS’s debt, excluding long-term debt related to the forward contracts, is in the form of long-term, fixed-rate notes and convertible debt with original maturities ranging up to 40 years. The long-term debt related to the forward contracts consists of both variable-rate debt and fixed-rate zero coupon debt. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of such instruments. As of June 30, 2004, TDS had not entered into any significant financial derivatives to reduce its exposure to interest rate risks.

Reference is made to the disclosure under Market Risk – Long Term Debt in TDS’s Annual Report on Form 10-K for the year ended December 31, 2003, as amended, for additional information about the annual requirements of principal payments, the average interest rates, and the estimated fair values of long-term debt.

In June 2004, U.S. Cellular issued $330 million in aggregate principal amount of unsecured 7.5% senior notes due 2034 and $100 million of unsecured 6.7% senior notes due 2033 in June 2004. The total net proceeds from these offerings, after deducting underwriting discounts, were approximately $412.5 million. Of this amount, $163.3 million was used to redeem U.S. Cellular’s Liquid Yield Option Notes on July 26, 2004 at accreted value. The balance of the net proceeds, together with borrowings under the revolving credit agreement, is expected to be used to redeem all of U.S. Cellular’s 7.25% senior notes as of August 16, 2004.

The following shows the annual requirements for principal payments on such long-term debt transactions:

				Payments Due by Period
(Dollars in millions)	Total			2004			2005			2006			2007			2008			After 5 Years
Long-Term Debt Additions:
7.5% senior notes due 2034	$	330.0		$	—		$	—		$	—		$	—		$	—		$	330.0
6.7% senior notes due 2033		100.0			—			—			—			—			—			100.0
Total additional requirements	$	430.0		$	—		$	—		$	—		$	—		$	—		$	430.0
Weighted Average Interest
Rate of New Long-Term Debt		7.3	%		7.3	%		7.3	%		7.3	%		7.3	%		7.3	%		7.3	%
Long-Term Debt Redemptions:
6% zero coupon convertible
redeemable debentures (1)	$	(163.3	)	$	—		$	—		$	—		$	—		$	—		$	(163.3	)
7.25% senior notes due 2007 (2)		(250.0	)		—			—			—			(250.0	)		—			—
Total redemptions	$	(413.3	)	$	—		$	—		$	—		$	(250.0	)	$	—		$	(163.3	)
Weighted Average Interest
Rate of Redeemed Debt		(6.8	)%		(6.8	)%		(6.8	)%		(6.8	)%		(6.8	)%		(6.0	)%		(6.0	)%

(1) Redemption date was July 26, 2004. Amount included as current liability as of June 30, 2004.

(2) Redemption date is expected to be August 16, 2004. Amount included as current liability as of June 30, 2004.

Marketable Equity Securities and Derivatives

TDS maintains a portfolio of available-for-sale marketable equity securities, the majority of which are the result of sales or trades of non-strategic assets. The market value of these investments aggregated $2,652.1 million at June 30, 2004. As of June 30, 2004, the net unrealized holding gain, net of tax included in accumulated other comprehensive income totaled $668.3 million.

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Subsidiaries of TDS and U.S. Cellular have entered into forward contracts related to the marketable equity securities that they hold. TDS and U.S. Cellular have provided guarantees to the counterparties which provide assurance to the counterparties that all principal and interest amounts are paid upon settlement of the contracts by such subsidiaries. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities (“downside limit”) while retaining a share of gains from increases in the market prices of such securities (“upside potential”). The downside limit is hedged at or above the cost basis thereby eliminating the risk of an other than temporary loss being recorded on these contracted securities.

Under the terms of the forward contracts, TDS and U.S. Cellular continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature from May 2007 to August 2008 and, at TDS’s and U.S. Cellular’s option, may be settled in shares of the respective security or in cash, pursuant to formulas that “collar” the price of the shares. The collars effectively limit downside risk and upside potential on the contracted shares. The collars are typically adjusted for any changes in dividends on the contracted shares. If TDS and U.S. Cellular elect to settle in shares, they will be required to deliver the number of shares of the contracted security determined pursuant to the formula. If shares are delivered in the settlement of the forward contract, TDS and U.S. Cellular would incur a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized through maturity. If TDS and U.S. Cellular elect to settle in cash they will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula. If cash is delivered in the settlement of the forward contract, TDS and U.S. Cellular would incur a current tax liability or a deferred tax benefit, based on the difference between the amount of cash paid in the settlement and the net amount realized through maturity.

Deferred taxes have been provided for the difference between the carrying value and the income tax basis of the marketable equity securities and are included in deferred tax liabilities on the balance sheet. Such deferred tax liabilities totaled $989.2 million at June 30, 2004.

The following table summarizes certain details surrounding the contracted securities as of June 30, 2004.

			Collar (1)
Security	Shares		Downside Limit (Floor)	Upside Potential (Ceiling)	Loan Amount (000s)
VeriSign		2,361,333	$ 8.82	$ 11.46	$	20,819
Vodafone (2)		12,945,915	$ 15.07 - $16.07	$ 20.30 - $22.93		201,038
Deutsche Telekom		131,461,861	$ 10.74 - $12.41	$ 14.21 - $17.17		1,532,257
					1,754,114
Unamortized debt discount					73,003
					$	1,681,111

(1) The per share amounts represent the range of floor and ceiling prices of all securities monetized.

(2) U.S. Cellular owns 10.2 million and TDS Telecom owns 2.7 million Vodafone American Depositary Receipts.

The following analysis presents the hypothetical change in the fair value of marketable equity securities and derivative instruments at June 30, 2004, using the Black-Scholes model, assuming hypothetical price fluctuations of plus and minus 10%, 20% and 30%. The table presents hypothetical information as required by SEC rules. Such information should not be inferred to suggest that TDS has any intention of selling any marketable equity securities or canceling any derivative instruments.

($ in millions)	Valuation of investments assuming indicated decrease								June 30, 2004 Fair			Valuation of investments assuming indicated increase
		-30%		-20%			-10%			Value			+10%			+20%			+30%
Marketable Equity
Securities	$	1,856.5	$	2,121.7		$	2,386.9		$	2,652.1		$	2,917.3		$	3,182.5		$	3,447.7
Derivative
Instruments (1)	$	52.9	$	(153.7	)	$	(369.2	)	$	(587.6	)	$	(826.0	)	$	(1,065.0	)	$	(1,309.8	)

(1) Represents the fair value of the derivative instruments assuming the indicated increase or decrease in the underlying securities.

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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Based on the evaluation required by Rule 13a-15(b) under the Securities Exchange Act of 1934, the principal executive officer and principal financial officer of TDS have concluded that TDS’s disclosure controls and procedures (as defined in Rules 13a-15(e)), as of the end of the period covered by the report, are effective to ensure that the information required to be disclosed by TDS in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. The disclosure controls and procedures are designed to only provide reasonable assurance of achieving the desired control objectives.

(b) Changes in internal control over financial reporting. There was no change in TDS’s internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, TDS’s internal control over financial reporting.

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TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

TDS is involved in a number of legal proceedings before the FCC and various state and federal courts. Management does not believe that any such proceeding should have a material adverse impact on the financial position or results of operations of TDS.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

The following table provides certain information with respect to all purchases made by or on behalf of TDS, or any “affiliated purchaser” (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.

TDS PURCHASES OF COMMON SHARES (1)

Period		(a) Total Number of Common Shares Purchased		(b) Average Price Paid per Common Share		(c) Total Number of Common Shares Purchased as part of Publicly Announced Plans or Programs		(d) Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs
	April 1 - 30, 2004		—	$	—		—		998,800
	May 1 - 31, 2004		73,500		67.99		73,500		925,300
	June 1 - 30, 2004		101,000		69.74		101,000		824,300
	Total for or as of end of
	the quarter ended 6/30/04		174,500	$	69.00		174,500		824,300

(1) All of the above Common Shares were purchased under TDS’s publicly announced Common Share repurchase program.

The following is additional information with respect to TDS’s publicly announced Common Share repurchase program:

i. The date the program was announced was February 28, 2003 by press release.

ii. The share amount originally approved was 3,000,000 Common Shares (representing a reauthorization of 1,009,746 unpurchased shares under a program that was scheduled to expire in April 2003, plus 1,990,254 shares under a new authorization).

iii. The expiration date of the program is February 28, 2006.

iv. No stock repurchase program has expired during the quarter covered by this Form 10-Q.

v. TDS has not determined to terminate the foregoing stock repurchase program prior to expiration, or to cease making further purchases thereunder, during the quarter covered by this Form 10-Q.

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Item 4. Submission of Matters to a Vote of Security-Holders

At the Annual Meeting of Shareholders of TDS, held on June 29, 2004, the following number of votes were cast for the matters indicated:

1. Proposal to approve an amendment to TDS’s Restated Certificate of Incorporation to declassify the board of directors so that all directors are elected annually:

a.  Total Votes

For	Against	Abstain	Broker Non-Vote
110,193,928	354,839	41,553	—

b.  Common Share Votes

For	Against	Abstain	Broker Non-Vote
46,644,235	354,839	41,553	—

2. Election of Directors:

a.  For the election of eight Directors of the Company by the holders of Series A Common Shares and Preferred Shares:

Nominee	For	Withhold	Broker Non-Vote
James Barr III	63,494,956	54,737	—
LeRoy T. Carlson	63,549,693	—	—
LeRoy T. Carlson, Jr.	63,549,693	—	—
Letitia G.C. Carlson	63,542,132	7,561	—
Walter C.D. Carlson	63,549,693	—	—
Sandra L. Helton	63,494,956	54,737	—
Donald C. Nebergall	63,541,906	7,787	—
George W. Off	63,502,518	47,175	—

b.  For the election of four Directors of the Company by the holders of Common Shares:

Nominee	For	Withhold	Broker Non-Vote
Kevin A. Mundt	46,377,563	663,065	—
Mitchell H. Saranow	46,107,027	933,600	—
Martin L. Solomon	46,371,903	668,724	—
Herbert S. Wander	45,616,554	1,424,074	—

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3. Proposal to Approve the Company’s 2004 Long-Term Incentive Program

For	Against	Abstain	Broker Non-Vote
100,703,907	5,319,354	141,663	4,425,397

4. Proposal to Ratify the Selection of PricewaterhouseCoopers LLP as Independent Accountants for 2004:

For	Against	Abstain	Broker Non-Vote
110,094,561	443,687	52,074	—

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

Exhibit  3.1 — Certificate of Amendment to Restated Certificate of Incorporation of Telephone and Data Systems, Inc.

Exhibit 3.2 — Restated Bylaws of Telephone and Data Systems, Inc

Exhibit 12 — Statement regarding computation of ratios.

Exhibit  31.1 — Chief Executive Officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit  31.2 — Chief Financial Officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

Exhibit  32.1 — Chief Executive Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Exhibit  32.2 — Chief Financial Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Exhibit 99.1 — News Release dated August 4, 2004, announcing the sale of wireless assets to ALLTEL Corporation.

(b) Reports on Form 8-K filed during the quarter ended June 30, 2004:

TDS filed a Current Report on Form 8-K dated April 19, 2004, for the purpose of disclosing that it intended to restate 2003 and 2002 financial statements.

TDS filed a Current Report on Form 8-K dated April 28, 2004, for the purpose of filing its first quarter 2004 earnings release.

TDS filed a Current Report on Form 8-K dated May 14, 2004, for the purpose of filing a press release disclosing that it had filed restatements to financial statements for 2003 and 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TELEPHONE AND DATA SYSTEMS, INC.
(Registrant)

Date	August 5, 2004	/s/ LeRoy T. Carlson, Jr.
		LeRoy T. Carlson, Jr.
		President and Chief Executive Officer

Date	August 5, 2004	/s/ Sandra L. Helton
		Sandra L. Helton,
		Executive Vice President and
		Chief Financial Officer

Date	August 5, 2004	/s/ D. Michael Jack
		D. Michael Jack,
		Senior Vice President and Corporate Controller
		(Principal Accounting Officer)

Signature page for the TDS 2004 Second Quarter Form 10-Q

EX-3

Exhibit 3.1

CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
TELEPHONE AND DATA SYSTEMS, INC.

        TELEPHONE AND DATA SYSTEMS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

        FIRST: That the board of directors by majority vote, at a meeting duly called at which a quorum was present, adopted a resolution declaring advisable and approving an amendment to the Restated Certificate of Incorporation, which is attached hereto as ANNEX I.

        SECOND: Pursuant to Section 242 of the Delaware General Corporation Law, the adoption of the amendment attached hereto as ANNEX I was duly approved by the shareholders of the Corporation at a meeting duly held and called upon notice in accordance with Section 222 of the Delaware General Corporation Law.

        THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, Telephone and Data Systems, Inc. has caused this certificate to be signed by its President this 29th day of June, 2004.

TELEPHONE AND DATA SYSTEMS, INC.

By:	/s/ LeRoy T. Carlson, Jr.
	LeRoy T. Carlson, Jr. President and Chief Executive Officer

ANNEX I

        The Restated Certificate of Incorporation is hereby amended to restate Section A of Article VI thereof in its entirety as follows:

ARTICLE VI

A.     Number and Term of Directors. The number of directors of the Corporation shall be fixed by or pursuant to the Bylaws of the Corporation, but shall not be less than three. The term of office of each director elected at an annual meeting, or elected or appointed at any time in the period between annual meetings, shall expire at the next annual meeting of shareholders following such election or appointment. Each director elected or appointed shall serve until his successor shall be elected and qualify, or until his earlier death, resignation, removal or disqualification.

EX-3

EXHIBIT 3.2

BYLAWS¹

OF

TELEPHONE AND DATA SYSTEMS, INC.

(a Delaware corporation)

ARTICLE I

STOCKHOLDERS

        Section 1.1. Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before such meeting shall be held on the first Wednesday of May of each year, or on such other date, and at such time and place, within or without the State of Delaware, as shall be determined by resolution of the Board of Directors. If the day fixed for the annual meeting is a legal holiday, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for the annual meeting of stockholders, or at any adjournment thereof, the Board of Directors shall cause such election to be held at a meeting of stockholders to be called as soon thereafter as is convenient.

        Section 1.2. Special Meetings. Special meetings of stockholders may be called by the Board of Directors, by the Chairman of the Board or the President and shall be called by the President or the Secretary at the request in writing, stating the purpose or purposes thereof, of holders of at least fifty percent of the voting power of the capital stock of the Corporation issued and outstanding and entitled to vote thereat. Special meetings of stockholders may be held at such time and place, within or without the State of Delaware, as shall be determined by resolution of the Board of Directors or as may be specified in the call of any such special meeting. If not otherwise designated, the place of any special meeting shall be the principal office of the Corporation in the State of Illinois.

        Section 1.3. Notice of Meetings and Adjourned Meetings. Written notice of every meeting of stockholders, stating the place, date, time and purposes thereof, shall, except when otherwise required by the Restated Certificate of Incorporation of the Corporation, as it may be amended from time to time (the “Restated Certificate of Incorporation”), or the laws of the State of Delaware, be given at least 10 but not more than 60 days prior to such meeting to each stockholder of record entitled to vote thereat, in the manner set forth in Section 9.1 of these Bylaws, by or at the direction of the President or the Secretary or the persons calling such meeting. Any meeting at which a quorum of stockholders is present, in person or by proxy, may be adjourned from time to time without notice, other than by announcement at such meeting,

_________________

1.     As amended June 29, 2004

until its business shall be completed. At such adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat as above provided.

        Section 1.4. Quorum. Except as otherwise provided by the laws of the State of Delaware or the Restated Certificate of Incorporation, a majority of the voting power of shares of capital stock of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of stockholders, notwithstanding the subsequent withdrawal of enough stockholders to leave less than a quorum. If at any meeting a quorum shall not be present, the chairman of such meeting shall adjourn such meeting to another time and/or place without notice other than announcement at such meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat as above provided. At such adjourned meeting, if a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting, notwithstanding the subsequent withdrawal of enough stockholders to leave less than a quorum.

        Section 1.5. Voting.

        (a)     Unless otherwise provided by law, the stockholders entitled to vote at any meeting of stockholders and the number of votes to which such stockholders are entitled shall be determined as provided in the Restated Certificate of Incorporation. Unless otherwise provided by law or in the Restated Certificate of Incorporation, directors shall be elected by a plurality of the votes cast in the election of directors. Each other question shall, unless otherwise provided by law, the Restated Certificate of Incorporation or these By-laws, be decided by the vote of the holders of stock having a majority of the votes which could be cast by the holders of all stock entitled to vote on such question which are present in person or by proxy at the meeting.

        (b)     Where a separate vote by a class or group is required by the laws of the State of Delaware, the Restated Certificate of Incorporation or by these Bylaws, a majority of the voting power of the outstanding shares of each such class or group present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to the vote on that matter and the affirmative vote of a majority of the voting power of the outstanding shares of each class or group present in person or represented by proxy at the meeting shall be the act of each such class or group.

        Section 1.6. Proxies.

        (a)     At every meeting of stockholders, each stockholder having the right to vote thereat shall be entitled to vote in person or by proxy. Such proxy shall be filed with the Secretary before or at the time of the meeting. No proxy shall be valid after eleven months from its date, unless such proxy provides for a longer period.

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        (b)     A stockholder may authorize another person or persons to act for such stockholder as proxy (i) by executing a writing authorizing such person or persons to act as such, which execution may be accomplished by such stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature, or (ii) by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission (a “Transmission”) to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such Transmission; provided, however, that any such Transmission must either set forth or be submitted with information from which it can be determined that such Transmission was authorized by such stockholder. The inspector or inspectors appointed pursuant to Section 1.10 of these Bylaws shall examine Transmissions to determine if they are valid. If it is determined that a Transmission is valid, the person or persons making that determination shall specify the information upon which such person or persons relied. Any copy, facsimile telecommunication or other reliable reproduction of such a writing or such a Transmission may be substituted or used in lieu of the original writing or Transmission for any and all purposes for which the original writing or Transmission could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or Transmission.

        Section 1.7. Fixing Date for Determination of Stockholders of Record.

        (a)     In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date shall be adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no such record date shall have been fixed by the Board of Directors, such record date shall be at the close of business on the day next preceding the day on which such notice is given or, if such notice is waived, at the close of business on the day next preceding the day on which such meeting shall be held. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

        (b)     In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date shall be adopted by the Board of Directors, and which record date shall not be more than 10 days after the date upon which such resolution shall be adopted. If no such record date shall have been fixed by the Board of Directors, such record date shall be, if no prior action by the Board of Directors shall be required by the laws of the State of Delaware, the first date on which a signed written consent setting forth the action taken or proposed to be taken shall be delivered to the Corporation at its registered office in the State of Delaware, at its principal place of business or to the Secretary. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no such record date shall have been fixed by the Board of Directors and prior action by the Board of Directors shall be required by the laws

3

of the State of Delaware, such record date shall be at the close of business on the day on which the Board of Directors shall adopt the resolution taking such prior action.

        (c)     In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or any allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of any capital stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date shall be adopted by the Board of Directors, and which record date shall not be more than 60 days prior to such payment, allotment or other action. If no such record date shall have been fixed, such record date shall be at the close of business on the day on which the Board of Directors shall adopt the resolution relating to such payment, allotment or other action.

        Section 1.8. Stockholder List. The Secretary or any other officer who has charge of the stock ledger of the Corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to such meeting, during ordinary business hours, for a period of at least 10 days prior to such meeting, either at a place within the city where such meeting is to be held, which place shall be specified in the notice of such meeting, or, if not so specified, at the place where such meeting is to be held. The list shall also be produced and kept at the time and place of such meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such stock ledger shall be the only evidence as to who are the stockholders entitled to examine such stock ledger, such list or the books of the Corporation or to vote in person or by proxy at any meeting of stockholders.

        Section 1.9. Voting of Shares by Certain Holders. Shares of capital stock of the Corporation standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent or proxy as the bylaws of such other corporation may prescribe or, in the absence of such provision, as the Board of Directors of such other corporation may determine.

        Shares of capital stock of the Corporation standing in the name of a deceased person, a minor, an incompetent or a corporation declared bankrupt and entitled to vote may be voted by an administrator, executor, guardian, conservator or trustee, as the case may be, either in person or by proxy, without transfer of such shares into the name of the official so voting.

        A stockholder whose shares of capital stock of the Corporation are pledged shall be entitled to vote such shares unless on the transfer books of the Corporation the pledgor has expressly empowered the pledgee to vote such shares, in which case only the pledgee, or such pledgee’s proxy, may represent such shares and vote thereon.

        Shares of capital stock of the Corporation belonging to the Corporation, or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation shall be held by the Corporation, shall not be voted at any meeting of stockholders and shall not be counted in determining the total number of outstanding shares for

4

the purpose of determining whether a quorum is present. Nothing in this Section 1.9 shall be construed to limit the right of the Corporation to vote shares of capital stock of the Corporation held by it in a fiduciary capacity.

        Section 1.10. Voting Procedures and Inspectors of Elections.

        (a)     The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors (individually an “Inspector,” and collectively the “Inspectors”) to act at such meeting and make a written report thereof. The Board of Directors may designate one or more persons as alternate Inspectors to replace any Inspector who shall fail to act. If no Inspector or alternate shall be able to act at such meeting, the person presiding at such meeting shall appoint one or more other persons to act as Inspectors thereat. Each Inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of Inspector with strict impartiality and according to the best of his or her ability.

        (b)     The Inspectors shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each, (ii) determine the shares of capital stock of the Corporation represented at such meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the Inspectors and (v) certify their determination of the number of such shares represented at such meeting and their count of all votes and ballots. The Inspectors may appoint or retain other persons or entities to assist them in the performance of their duties.

        (c)     The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at such meeting shall be announced at such meeting. No ballots, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by any stockholder shall determine otherwise.

        (d)     In determining the validity and counting of proxies and ballots, the Inspectors shall be limited to an examination of the proxies, any envelopes submitted with such proxies, any information provided in accordance with the second paragraph of Section 1.6 of these Bylaws, ballots and the regular books and records of the Corporation, except that the Inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by a stockholder of record to cast or more votes than such stockholder holds of record. If the Inspectors consider other reliable information for the limited purpose permitted herein, the Inspectors, at the time they make their certification pursuant to paragraph (b) of this Section 1.10, shall specify the precise information considered by them, including the person or persons from whom they obtained such information, when the information was obtained, the means by which such information was obtained and the basis for the Inspectors’ belief that such information is accurate and reliable.

        Section 1.11. Consent of Stockholders in Lieu of Meeting. Any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in

5

writing, setting forth the action so taken, shall be signed by persons entitled to vote capital stock of the Corporation representing not less than 90% of the voting power of the shares that would be necessary to authorize or take such action at a meeting at which all shares of capital stock of the Corporation entitled to vote thereon were present and voted. Every written consent shall bear the date of signature of each stockholder (or his, her or its proxy) who shall sign such consent. Prompt notice of the taking of corporate action without a meeting of stockholders by less than unanimous written consent shall be given to those stockholders who shall not have consented in writing. All such written consents shall be delivered to the Corporation at its registered office in the State of Delaware, at its principal place of business or to the Secretary. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. No written consent shall be effective to authorize or take the corporate action referred to therein unless, within 60 days of the earliest dated written consent delivered in the manner required by this Section 1.11 to the Corporation, written consents signed by a sufficient number of persons to authorize or take such action shall be delivered to the Corporation at its registered office in the State of Delaware, at its principal place of business or to the Secretary as aforesaid. All such written consents shall be filed with the minutes of proceedings of the stockholders and actions authorized or taken under such written consents shall have the same force and effect as those adopted by vote of the stockholders at any annual or special meeting thereof.

        Section 1.12. Introduction of Business at a Meeting of Stockholders. At an annual or special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of stockholders. To be properly brought before an annual or special meeting of stockholders, business must be (a) in the case of a special meeting, specified in the notice of the special meeting (or any supplement thereto) given by the Corporation, or (b) in the case of an annual meeting, properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the annual meeting by a stockholder. For business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the President or the Secretary of the Corporation. To be timely, a stockholder’s notice must be received at the principal executive offices of the Corporation not earlier than 120 calendar days nor later than 90 calendar days in advance of the anniversary date of the date of the Corporation’s proxy statement to stockholders in connection with the most recent preceding annual meeting of stockholders, except that if the date of the current year’s annual meeting has been changed by more than 30 calendar days from the anniversary date of the most recent preceding annual meeting, a stockholder proposal shall be received by the Corporation not later than the close of business on the tenth day following the date of public notice of the date of the current year’s annual meeting.

        A stockholder’s notice shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder’s notice and (d) any material interest of the stockholder in such proposal.

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        Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 1.12. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be considered.

        Section 1.13. Nomination of Directors. Only persons nominated in accordance with the procedures set forth in this section shall be eligible for election as directors. Nominations of persons for election to the Board may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors, or (b) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 1.13. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the President or the Secretary of the Corporation. To be timely, a stockholder’s notice must be received at the principal executive offices of the Corporation not earlier than 120 calendar days nor later than 90 calendar days in advance of the anniversary date of the date of the Corporation’s proxy statement to stockholders in connection with the preceding year’s annual meeting of stockholders, except that if the date of the current year’s annual meeting has been changed by more than 30 calendar days from the anniversary date of the most recent preceding annual meeting, a nomination shall be received by the Corporation not later than the close of business on the tenth day following the date of public notice of the date of the current year’s annual meeting.

        A stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder’s notice and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation’s books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominee and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such nominee on the date of such stockholder’s notice.

        No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

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        This Section 1.13 shall not apply to the election of a director to a directorship which may be filled by the Board of Directors under the Delaware General Corporation Law.

        Section 1.14. Conduct of Meetings of Stockholders. The person that shall preside as chairman at all meetings of stockholders shall be, if present, the Chairman of the Board or, in his or her absence or failure to act, the President, or in his or her absence or failure to act, the Chairman Emeritus, and in his or her absence or failure to act, the senior officer of the Corporation present shall postpone or adjourn the meeting to another time and/or place without notice other than announcement at such meeting. The chairman of a meeting of stockholders shall have the power to adopt and enforce rules for the conduct of such meeting, including but not limited to the maintenance of order and decorum. The chairman of the meeting may in his or her discretion postpone or adjourn any meeting of the stockholders or adjournment thereof to another time and/or place without notice other than announcement at such meeting.

ARTICLE II

DIRECTORS

        Section 2.1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

        Section 2.2. Number and Term of Directors. The Board of Directors shall consist of twelve members. The term of office of each director elected at an annual meeting, or elected or appointed at any time in the period between annual meetings, shall expire at the next annual meeting of shareholders following such election or appointment. Each director elected or appointed shall serve until his successor shall be elected and qualify, or until his earlier death, resignation, removal or disqualification.

        Section 2.3. Resignation or Removal. Any director may resign by giving written notice to the Board of Directors or the President. Any such resignation shall take effect at the time of receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Directors may be removed from office, either with or without cause, only as provided in the Restated Certificate of Incorporation or the laws of the State of Delaware.

        Section 2.4. Vacancies.

        (a)     Except as otherwise required by the Restated Certificate of Incorporation or the laws of the State of Delaware or these Bylaws, any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors provided in Section 2.2 of these Bylaws, may be filled for the remainder of the unexpired term by the affirmative vote of a majority of the directors then in office, although less than a quorum, by a sole remaining director or by the stockholders.

        (b)     Except as otherwise required by the Restated Certificate of Incorporation, when one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the

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power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the remainder of the unexpired term of such office.

        Section 2.5. Place of Meetings. Meetings of the Board of Directors may be held at such places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as may be specified in the call of any such meeting.

        Section 2.6. Regular Meetings. A regular annual meeting of the Board of Directors shall be held, without call or notice, immediately after and at the same place as the annual meeting of stockholders, or at such other time and place as may be fixed by resolution of the Board of Directors or specified by the Secretary at the direction of the Chairman of the Board, the President or the Chairman Emeritus, for the purpose of organizing the Board of Directors, electing officers and transacting any other business that may properly come before such meeting. If the stockholders shall elect the directors by written consent of stockholders as permitted by Section 1.11 of these Bylaws, a special meeting of the Board of Directors shall be called as soon as practicable after such election for the purposes described in the preceding sentence. Additional regular meetings of the Board of Directors may be held without call or notice at such times as shall be fixed by resolution of the Board of Directors or specified by the Secretary at the direction of the Chairman of the Board, the President or the Chairman Emeritus.

        Section 2.7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or the Chairman Emeritus or by a majority of the directors then in office. Notice of each special meeting shall be mailed by the Secretary to each director at least three days before such meeting, or be given by the Secretary personally or by telegraph or telecopy or by electronic mail at least four hours before such meeting, in the manner set forth in Section 9.1 of these Bylaws. Such notice shall set forth the date, time and place of such meeting but need not, unless otherwise required by the laws of the State of Delaware, state the purpose of such meeting.

        Section 2.8. Quorum and Voting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. The act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws. A majority of the directors present at any meeting at which a quorum shall be present may adjourn such meeting to any other date, time or place without further notice other than announcement at such meeting. If at any meeting a quorum shall not be present, a majority of the directors present may adjourn such meeting to any other date, time or place upon notice to all directors pursuant to Section 2.7.

        Section 2.9. Telephonic Meetings. Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee through conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in any meeting conducted pursuant to this Section 2.9 shall constitute presence in person at such meeting.

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        Section 2.10. Presumption of Assent. Unless otherwise provided by the laws of the State of Delaware, a director who is present at a meeting of the Board of Directors or a committee thereof at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of such meeting or unless he or she shall file his or her written dissent to such action with the person acting as secretary of such meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of such meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

        Section 2.11. Action without Meeting. Unless otherwise restricted by the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee.

        Section 2.12. Major Responsibilities. The major responsibilities of the Board of Directors shall include, without limitation, oversight of the Corporation’s: strategy; condition, performance and longer-term value; customer, economic, social, regulatory and technological environment; competitive position; legal compliance; management organization; human resources; senior management succession planning; and contribution to communities served and society.

        Section 2.13. Presiding Director. The presiding director at any meeting of the Board of Directors shall be the Chairman of the Board, or in his or her absence or failure to act, the President, or in his or her absence or failure to act, the Chairman Emeritus, and in his or her absence or failure to act, the meeting shall be postponed or adjourned to another time and/or place as specified by a majority of the directors or sole director present at such meeting, without notice other than announcement at such meeting.

        Section 2.14. Executive Committee. The Board of Directors may, in its discretion, by resolution passed by a majority of the entire Board of Directors, designate an Executive Committee consisting of the Chairman of the Board, the President, the Chairman Emeritus, and such number of other directors as the Board of Directors shall determine. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation with respect to any matter which may require action prior to, or which in the opinion of the Executive Committee may be inconvenient, inappropriate or undesirable to be postponed until, the next meeting of the Board of Directors; provided, however, that the Executive Committee shall not have the power or authority of the Board of Directors in reference to (a) approving or adopting, or recommending to the stockholders any action or matter expressly required by Delaware law to be submitted to the stockholders for approval or (b) adopting, amending or repealing these Bylaws. The presiding member at any meeting of the Executive Committee shall be the Chairman of the Board, or in his or her absence or failure to act, the President, or in his or her absence or failure to act, the Chairman Emeritus, and in his or her absence or failure to act, the meeting shall be postponed or adjourned to another time and/or place as specified by a majority of the committee members or sole committee

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member present at such meeting, without notice other than announcement at such meeting.

        Section 2.15. Other Committees. The Board of Directors may from time to time, in its discretion, by resolution passed by a majority of the entire Board of Directors, designate other committees of the Board of Directors consisting of such number of directors as the Board of Directors shall determine, which shall have and may exercise such lawfully delegable powers and duties of the Board of Directors as shall be conferred or authorized by such resolution. The Board of Directors shall have the power to change at any time the members of any such committee, to fill vacancies and to dissolve any such committee.

        Section 2.16. Alternates. The Board of Directors may from time to time designate from among the directors alternates to serve on any committee of the Board of Directors to replace any absent or disqualified member at any meeting of such committee. Whenever a quorum cannot be secured for any meeting of any committee from among the regular members thereof and designated alternates, the member or members, including alternates, of such committee present at such meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another director to act at such meeting in place of any absent or disqualified member.

        Section 2.17. Quorum and Manner of Acting of Committees. A majority of the members of any committee of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of such committee, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee.

        Section 2.18. Committee Chairman, Books and Records, Etc. Except as otherwise provided herein, the chairman of each committee of the Board of Directors shall be selected from among the members of such committee by the Board of Directors.

        Each committee shall keep a record of its acts and proceedings, and all actions of each committee shall be reported to the Board of Directors at its next meeting.

        Each committee shall fix its own rules of procedure not inconsistent with these Bylaws or the resolution of the Board of Directors designating such committee and shall meet at such times and places and upon such call or notice as shall be provided by such rules.

        Section 2.19. Chairman of the Board. The Board of Directors shall elect one director as Chairman of the Board; provided that in the event of the death, resignation, removal or disqualification of the Chairman of the Board, the vacancy in the position of Chairman of the Board shall be filled by a director who is selected by the Board of Directors. The Chairman of the Board shall manage and preside over the activities of the Board of Directors, enabling it to perform its responsibilities, and in furtherance thereof shall, among other things, (a) assign tasks to: the President or other senior management; the General Counsel; the Secretary; committees of the Board of Directors; and members of the Board of Directors, (b) establish governance and other procedures for the activities of the Board of Directors, (c) propose committees of the Board of Directors, and their chairs, members and charters, and (d) propose persons to fill vacancies on the Board of Directors. The Chairman of the Board shall also (a) provide counsel to the

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President and other senior management, (b) arrange that appropriate communication, including full deliberation, occurs among the directors of the Board of Directors, members of committees of the Board of Directors and senior management on important matters, (c) serve as an ex-officio member of each committee of the Board of Directors unless prohibited from doing so by law or regulation, (d) establish agendas for meetings of the Board of Directors and meetings of stockholders with advice from the President, (e) establish a schedule of meetings of the Board of Directors and coordinate the schedule of meetings of committees of the Board of Directors, and (f) propose compensation for the Board of Directors and for committees of the Board of Directors, chairs and members thereof. In the absence of the Chairman of the Board or in the event of his or her inability or refusal to act, the duties of the Chairman of the Board shall be performed by the President, or in the event of his or her absence or inability or refusal to act, by the Chairman Emeritus or, in the event of his or her absence or inability or refusal to act, by another director selected by the Board of Directors. The Chairman of the Board shall be elected by the Board of Directors at the first meeting of the Board of Directors held after the election of directors. If the election of the Chairman of the Board shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. A vacancy may be filled at any meeting of the Board of Directors. The Chairman of the Board shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, resignation, removal or disqualification.

        Section 2.20. Reliance upon Records. Every director, and every member of any committee of the Board of Directors, shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the director or member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, including, but not limited to, such records, information, opinions, reports or statements as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the Corporation’s capital stock might properly be purchased or redeemed.

        Section 2.21. Interested Directors. The presence of a director, who is directly or indirectly a party in a contract or transaction with the Corporation, or between the Corporation and any other corporation, partnership, association or other organization in which such director is a director or officer or has a financial interest, may be counted in determining whether a quorum is present at any meeting of the Board of Directors or a committee thereof at which such contract or transaction is discussed or authorized, and such director may participate in such meeting to the extent permitted by applicable law, including Section 144 of the General Corporation Law of the State of Delaware.

        Section 2.22. Compensation. Unless otherwise restricted by the laws of the State of Delaware or the Restated Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. The directors shall be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof and may be paid a fixed sum for attendance at each such meeting and an annual retainer or salary

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for services as a chairman, director, committee chair or committee member. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE III

OFFICERS

        Section 3.1. Number and Designation. The officers of the Corporation shall be a President, a Chairman Emeritus, one or more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, a General Counsel, a Secretary, a Treasurer and a Controller, and such Assistant Secretaries, Assistant Treasurers or other officers or agents as may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person unless the Restated Certificate of Incorporation or these Bylaws provide otherwise.

        Section 3.2. Election and Term of Office. The Chairman Emeritus of the Corporation shall be LeRoy T. Carlson until the earlier of his retirement, death, resignation, removal or disqualification and, in any such event, the office of Chairman Emeritus shall be retired and shall cease to be an office of this Corporation. The other officers of the Corporation shall be elected by the Board of Directors at the first meeting of the Board of Directors held after the election of directors. If the election of such other officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Except as otherwise provided herein, each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, resignation, removal or disqualification.

        Section 3.3. Removal and Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer or agent may resign at any time by giving written notice to the Chairman of the Board or the President with a copy to the Secretary. Any such resignation shall take effect at the time of receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

        Section 3.4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term.

        Section 3.5. President. The President shall be the chief executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation and supervise the duties assigned to the officers of the Corporation. The President may execute, alone or with the Secretary or any other officer of the Corporation authorized by the Board of Directors, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors or an authorized committee thereof has authorized to be executed, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or a

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committee thereof or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed, and in general he or she shall perform all duties incident to the office of President and such other duties as from time to time may be prescribed by the Board of Directors or by the Chairman of the Board. In the event of the absence of the President or in the event of his or her inability or refusal to act as President for a continuous period of three months or in the event of his earlier death, resignation, removal or disqualification (a “permanent absence”), the Chairman of the Board or, in the event of the permanent absence of the Chairman of the Board, and in the event of his or her inability or refusal to succeed to and perform his or her duties, the Chairman Emeritus, shall, automatically and without any action on the part of the Board of Directors or otherwise, succeed to and perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions placed upon the President set forth in this Section 3.5. In the event of the permanent absence of all such persons, the vacancy in the position of President shall be filled with a person who is selected by the Board of Directors.

        Section 3.6. Chairman Emeritus. In the absence of both the President and the Chairman of the Board or in the event of their inability or refusal to act for a period of less than three months (a “temporary absence”), the Chairman Emeritus shall perform the duties of the Chairman of the Board and the President and, when so acting, shall have all the powers of, and be subject to all the restrictions placed upon the Chairman of the Board and the President. He or she may execute, alone or with the Secretary or any other officer of the Corporation authorized by the Board of Directors, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors or an authorized committee thereof has authorized to be executed, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or a committee thereof or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed, and in general he or she shall perform all duties incident to the office of Chairman Emeritus and such other duties as from time to time may be prescribed by the President, the Chairman of the Board or the Board of Directors.

        Section 3.7. Executive Vice President and Chief Financial Officer. The Executive Vice President and Chief Financial Officer shall in general supervise and control the financial business and financial affairs of the Corporation. The Executive Vice President and Chief Financial Officer shall supervise the duties assigned to the Secretary, the Treasurer and the Controller and in general he or she shall perform all the duties incident to the offices of Executive Vice President and Chief Financial Officer and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chairman Emeritus or the Board of Directors.

        Section 3.8. The Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Subsidiary CEOs. In the temporary absence of the President , the Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents and the chief executive officers of subsidiaries of the Corporation (“Subsidiary CEOs”) shall, from time to time, perform such specific duties of the President as may be delegated to one or more of such persons in writing by the Chairman of the Board, or in the temporary absence of the Chairman of the Board, by the Chairman Emeritus and, when so acting, shall have such powers and be subject to such restrictions as would be applicable to the President with respect to such specific duties. The Board of Directors may also designate certain Executive Vice Presidents, Senior Vice Presidents

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or Vice Presidents as being in charge of designated divisions, plants or functions of the Corporation’s business and add appropriate descriptions to their titles. In addition, any Executive Vice President, Senior Vice President or Vice President shall perform such duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chairman Emeritus or the Board of Directors.

        Section 3.9. General Counsel. The General Counsel shall be the principal legal officer of the Corporation and shall be responsible for and have charge of all legal matters affecting the Corporation, its subsidiaries, and those affiliated entities which it controls. The General Counsel shall perform or supervise the performance of all duties incident to such legal matters, together with such other duties as from time to time may be assigned to him by the Chairman of the Board, the President, the Chairman Emeritus or the Board of Directors. The duties and powers of the General Counsel shall extend to all subsidiaries of the Corporation and, insofar as the Chairman of the Board, the President, or the Chairman Emeritus may deem appropriate and practicable, to all affiliated entities.

        Section 3.10. The Secretary. The Secretary shall (a) keep the minutes of proceedings of the stockholders, the Board of Directors and any committee of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) affix the seal of the Corporation or a facsimile thereof, or cause it to be affixed, and, when so affixed, attest the seal by his or her signature, to all Certificates for shares of capital stock of the Corporation prior to the issue thereof and to all other documents the execution of which on behalf of the Corporation under its seal is duly authorized by the Board of Directors or otherwise in accordance with the provisions of these Bylaws; (e) keep a register of the post office address of each stockholder, director or committee member, which shall be furnished to the Secretary by such stockholder, director or member; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the General Counsel, the Chairman Emeritus or the Board of Directors.

        Section 3.11. The Treasurer. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation, receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article IV of these Bylaws, disburse the funds of the Corporation as ordered by the Board of Directors, the Chairman of the Board, the President or the Executive Vice President and Chief Financial Officer or as otherwise required in the conduct of the business of the Corporation and render to the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer or the Board of Directors, upon request, an accounting of all his or her transactions as Treasurer and a report on the financial condition of the Corporation. The Treasurer shall in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer or the Board of Directors. If required by the Board of Directors or the

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President, the Treasurer shall give a bond (which shall be renewed regularly), in such sum and with such surety or sureties as the Board of Directors or the President, shall determine, for the faithful discharge of his or her duties and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

        Section 3.12. Controller. The Controller shall be the chief accounting officer of the Corporation. The duties of the Controller shall be to maintain adequate records of all assets, liabilities and transactions of the Corporation; to see that adequate audits are currently and regularly performed; and, in conjunction with other officers and department heads, to initiate and enforce measures and procedures whereby the business of the Corporation shall be conducted with the maximum safety, efficiency and economy. The Controller shall establish and administer an adequate plan for the control of operations, including systems and procedures required to properly maintain internal controls on all financial transactions of the Corporation. The Controller shall perform all duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer or the Board of Directors. The duties and powers of the Controller shall extend to all subsidiaries of the Corporation and, insofar as the Chairman of the Board, the President or the Executive Vice President and Chief Financial Officer may deem appropriate and practicable, to all affiliated entities.

        Section 3.13. Assistant Treasurers and Secretaries. In the absence of the Secretary or the Treasurer, as the case may be, or in the event of his or her inability or refusal to act, the Assistant Secretaries and the Assistant Treasurers, respectively, in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall perform the duties and exercise the powers of the Secretary or the Treasurer, as the case may be. In addition, the Assistant Secretaries shall, in general, perform such duties as may be assigned to them by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the General Counsel, the Chairman Emeritus, the Secretary or the Board of Directors. In addition, the Assistant Treasurers shall, in general, perform such duties as may be assigned to them by the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Treasurer or the Board of Directors. Each Assistant Treasurer shall, if required by the Board of Directors or the President, give a bond (which shall be renewed regularly), in such sum and with such surety or sureties as the Board of Directors or the President shall determine, for the faithful discharge of his or her duties.

        Section 3.14. Salaries. The salaries and other compensation of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors or by such committee or officer as it shall designate for such purpose. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation.

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ARTICLE IV

CONTRACTS, LOANS, CHECKS, AND DEPOSITS

        Section 4.1. Contracts. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

        Section 4.2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in the name of the Corporation unless authorized by or pursuant to a resolution adopted by the Board of Directors. Such authority may be general or confined to specific instances.

        Section 4.3. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money issued in the name of the Corporation shall be signed by such officers, employees or agents of the Corporation as shall from time to time be designated by the Board of Directors, the Chairman of the Board,the President, the Chairman Emeritus, the Executive Vice President and Chief Financial Officer or the Treasurer.

        Section 4.4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as shall be designated from time to time by the Board of Directors, the Chairman of the Board, the President, the Chairman Emeritus, the Executive Vice President and Chief Financial Officer or the Treasurer; and such officers may designate any type of depository arrangement (including, but not limited to, depository arrangements resulting in net debits against the Corporation) as may from time to time be offered or made available.

ARTICLE V

CERTIFICATES OF STOCK AND THEIR TRANSFER

        Section 5.1. Certificates of Stock. Shares of capital stock of the Corporation shall be represented by Certificates which shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered on the books of the Corporation as they are issued. Such Certificates shall indicate the holder’s name and the number of shares evidenced thereby and shall be signed by the Chairman of the Board, the President, the Chairman Emeritus, an Executive Vice President, Senior Vice President or a Vice President and by the Secretary or an Assistant Secretary. If any stock Certificate shall be manually signed (a) by a transfer agent or an assistant transfer agent or (b) by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any officer of the Corporation may be facsimile. In case any such officer whose facsimile signature has been used on any such stock Certificate shall cease to be such officer, whether because of death, resignation, removal or otherwise, before such stock Certificate shall have been delivered by the Corporation, such stock Certificate may nevertheless be delivered by the Corporation as though the person whose facsimile signature has been used thereon had not ceased to be such officer.

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        Section 5.2. Lost, Stolen or Destroyed Certificates. The Board of Directors in individual cases, or by general resolution or by delegation to the transfer agent for the Corporation, may direct that a new stock Certificate or Certificates for shares of capital stock of the Corporation be issued in place of any stock Certificate or Certificates theretofore issued by the Corporation claimed to have been lost, stolen or destroyed, upon the filing of an affidavit to that effect by the person claiming such loss, theft or destruction. When authorizing such an issuance of a new stock Certificate or Certificates, the Board of Directors may, in its discretion and as a condition precedent to such issuance, require the owner of such lost, stolen or destroyed stock Certificate or Certificates to advertise the same in such manner as the Corporation shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the stock Certificate or Certificates claimed to have been lost, stolen or destroyed.

        Section 5.3. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a stock Certificate for shares of capital stock of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer or, if the relevant stock Certificate for shares of capital stock of the Corporation is claimed to have been lost, stolen or destroyed, upon compliance with the provisions of Section 5.2 of these Bylaws, and upon payment of applicable taxes with respect to such transfer, and in compliance with any restrictions on transfer applicable to such stock Certificate or the shares represented thereby of which the Corporation shall have notice and subject to such rules and regulations as the Board of Directors may from time to time deem advisable concerning the transfer and registration of stock Certificates for shares of capital stock of the Corporation, the Corporation shall issue a new stock Certificate or Certificates for such shares to the person entitled thereto, cancel the old stock Certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof or by such holder’s attorney or successor duly authorized as evidenced by documents filed with the Secretary or transfer agent of the Corporation. Whenever any transfer of shares of capital stock of the Corporation shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the stock Certificate or Certificates representing such shares are presented to the Corporation for transfer, both the transferor and transferee request the Corporation to do so.

        Section 5.4. Stockholders of Record. The Corporation shall be entitled to treat the holder of record of any share of capital stock of the Corporation as the holder thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

ARTICLE VI

GENERAL PROVISIONS

        Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be the same as the calendar year.

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        Section 6.2. Seal. The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the words “CORPORATE SEAL” and “DELAWARE”; and it shall otherwise be in the form approved by the Board of Directors. Such seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or otherwise reproduced.

ARTICLE VII

OFFICES

        Section 7.1. Registered Office. The registered office of the Corporation in the State of Delaware shall be located at 1209 Orange Street in the City of Wilmington, County of New Castle, and the name of its registered agent is Corporation Trust Company.

        Section 7.2. Other Offices. The Corporation may have offices at such other places, both within or without the State of Delaware, as shall be determined from time to time by the Board of Directors or as the business of the Corporation may require.

ARTICLE VIII

INDEMNIFICATION

        Section 8.1. General.

        (a)     The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolocontendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

        (b)     The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of

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such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper.

        (c)     To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 8.1, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.

        (d)     Any indemnification under paragraphs (a) and (b) of this Section 8.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 8.1. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (ii) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (iii) by the stockholders.

        (e)     Subject to compliance with the other terms and conditions of this Section 8.1, expenses (including attorneys’ fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation pursuant to this Section 8.1. Such expenses (including attorneys’ fees) incurred by other employees and agents may be so paid upon compliance with the terms and conditions set forth in this Section 8.1 or such other terms and conditions as the Board of Directors deems appropriate.

        (f)     The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.

        (g)     For purposes of this Article VIII, any reference to the “Corporation” shall include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent

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corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.

        (h)     For purposes of this Article VIII, any reference to “other enterprise” shall include employee benefit plans; any reference to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and any reference to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

        (i)     The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

        (j)     Notwithstanding any other provisions of this Section 8.1, the Corporation shall not make any payments pursuant to this Section 8.1 unless the Corporation shall have first received adequate documentation demonstrating that such amounts for which payment is requested were actually and reasonably incurred for the purposes permitted to be reimbursed pursuant to this Section 8.1. Such documentation may include time records, fee and disbursement records (including hourly rates), description of the work performed, periodic litigation status reports, the legal basis for the indemnification claim, and other information reasonably requested by the Corporation. If a written claim has been made for payment or reimbursement of expenses, the Corporation may require periodic status reports from the claimant or the counsel handling the defense of such proceeding as to the status of such proceeding, the matters presented in the proceeding for which indemnification is sought, the names of any expert witnesses to be retained, the projected costs for such proceeding and any other information which is customary to obtain in order to determine whether such expenses were actually and reasonably incurred for the purposes permitted to be reimbursed pursuant to this Section 8.1. In the event that the party requesting indemnification or advancement of expenses has incurred costs in multiple proceedings, or shared legal counsel with other claimants, or circumstances exist where some costs are permitted or required to be reimbursed and some are not, the party submitting the request for payment shall allocate such costs and explain in sufficient detail a reasonable basis for the allocation of costs. If the party requesting payment fails to make an allocation when necessary, or to provide an adequate explanation for any such allocation, the Corporation shall determine a reasonable basis for allocation based on the written information furnished to it. If any information relating to the allocation of expenses or any other matter is not properly supplied, the Corporation shall not be required to make payment until such information is fully supplied. If a claim under this Section 8.1 is not paid in full by the Corporation within ninety days after a written claim meeting the requirements of this Section 8.1 has been received by the Corporation, the claimant may at any time thereafter bring

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suit against the Corporation to recover the unpaid amount of the claim, plus any interest required by law to be paid. Such suit may only be filed in the Circuit Court of Cook County, Illinois, the federal district court for the Northern District of Illinois, the Superior Court of Delaware, New Castle County, or the federal district court for Delaware. It shall be a defense to any such action that the claimant has not met the requirements of this Section 8.1, including the provisions of this paragraph (j), or the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to pay the claimant for the amount claimed.

        (k)     Notwithstanding any other provisions of this Section 8.1, nothing herein shall require the Corporation to make an advance of expenses at any time. In the event that any written claim for advancement of expenses is submitted to the Corporation, this Section 8.1 shall apply to such written claim for advancement of expenses except to the extent expressly required by the General Corporation Law of the State of Delaware or applicable law. Any undertaking shall comply with the requirements of paragraph (l) of this Section 8.1.

        (l)     If any undertaking is permitted to be delivered by a person pursuant to this Section 8.1 or the General Corporation Law of the State of Delaware, the Corporation shall prescribe the form of undertaking. The Corporation shall be a party to the instrument evidencing the undertaking. In the event that there is doubt as to the collectibility of any amounts to be advanced to a claimant which may be required to be repaid, or for other good and sufficient reason, the Corporation may require adequate security for the undertaking.

        (m)     Except to the extent expressly required by the General Corporation law of the State of Delaware or applicable law or except as otherwise approved by the Board of Directors, the Corporation does not intend to provide indemnification or advancement of expenses to any person who (i) has not acted in good faith or has acted in a manner opposed to the best interests of the Corporation; (ii) has initiated any action, suit or proceeding against the Corporation which was not authorized by the Board of Directors of the Corporation; (iii) has breached any agreement with the Corporation in any material respect; (iv) has tortiously induced any director, officer, employee, agent, customer or supplier of the Corporation or other person or entity to breach his, her or its contractual obligations to the Corporation; (v) has tortiously interfered with the Corporation’s customers or business relationships; (vi) has committed, threatened or conspired to commit any acts of dishonesty, embezzlement, misappropriation of funds, theft of trade secrets, fraud, breach of fiduciary duty or other crime or tort against the Corporation; or (vii) has engaged in any other unlawful or tortious conduct against the Corporation or its interests. To the extent permitted by the General Corporation Law of the State of Delaware and applicable law, these rules of interpretation shall be applied in construing all provisions of this Section 8.1.

        (n)     Notwithstanding anything to the contrary in this Section 8.1, the Corporation may provide indemnification to a person consistent with the requirements of Section 145(a) and Section 145(b) of the General Corporation Law of the State of Delaware and this Section 8.1, and the Corporation shall provide indemnification to the extent required by Section 145(c) of the General Corporation Law of the State of Delaware. The provisions of this Section 8.1 are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially enforceable provisions, to the extent so enforceable, shall nevertheless be binding and enforceable.

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        Section 8.2. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of the General Corporation Law of the State of Delaware.

ARTICLE IX

NOTICES

        Section 9.1. Manner of Notice. Except as otherwise provided by law, whenever under the provisions of the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws notice is required to be given to any stockholder, director or member of any committee of the Board of Directors, such notice may be given by personal delivery or by depositing it, in a sealed envelope, in the United States mails, air mail or first class, postage prepaid, addressed, or by delivering it to a telegraph company, charges prepaid, for transmission, or by transmitting it via telecopier or by electronic mail via the Internet or similar system, to such stockholder, director or member either at the address of such stockholder, director or member as it appears on the books of the Corporation or, in the case of such a director or member, at his or her business address; and such notice shall be deemed to be given at the time when it is thus personally delivered, deposited, delivered or transmitted, as the case may be. Such requirement for notice shall also be deemed satisfied, except in the case of stockholder meetings with respect to which written notice is required by law, if actual notice is received orally or by other writing by the person entitled thereto as far in advance of the event with respect to which notice is being given as the minimum notice period required by the laws of the State of Delaware or these Bylaws.

        Whenever notice is required to be given under any provision of the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws to any stockholder to whom (a) notice of two consecutive annual meetings of stockholders, and all notices of meetings of stockholders or of the taking of action by stockholders by written consent without a meeting to such stockholder during the period between such two consecutive annual meetings, or (b) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities of the Corporation during a 12-month period, have been mailed addressed to such stockholder at the address of such stockholder as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such stockholder shall not be required. Any action or meeting which shall be taken or held without notice to such stockholder shall have the same force and effect as if such notice had been duly given. If any such stockholder shall deliver to the Corporation a written notice setting forth the then current address of such stockholder, the requirement that notice be given to such stockholder shall be reinstated.

        Section 9.2. Waiver of Notice. Whenever any notice is required to be given under any provision of the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled

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to such notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends such meeting for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because such meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, the Board of Directors or a committee of the Board of Directors need be specified in any written waiver of notice unless so required by the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws.

ARTICLE X

DIVIDENDS

        The Board of Directors may from time to time declare, and the Corporation may pay, dividends, in cash, in property or in shares of capital stock of the Corporation, on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by law and by the Restated Certificate of Incorporation.

ARTICLE XI

AMENDMENTS

        Except to the extent otherwise provided in the Restated Certificate of Incorporation or these Bylaws, these Bylaws shall be subject to alteration, amendment or repeal, and new Bylaws may be adopted (a) by the affirmative vote of the holders of not less than a majority of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote for matters other than the election of directors or (b) by the affirmative vote of not less than a majority of the entire Board of Directors at any meeting of the Board of Directors at which there is a quorum present and voting; provided, however, that the right to call a special meeting by holders of at least fifty percent of the voting power of the capital stock of the Corporation issued and outstanding and entitled to vote at a special meeting, as provided in Section 1.2 of these Bylaws, shall not be altered, amended or repealed with respect to any group of shareholders entitled to call a special meeting, without the approval by the affirmative vote of the holders of not less than a majority of the voting power of the shares of capital stock which are held by such shareholders and which are entitled to vote in such group at such special meeting.

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EX-12

Exhibit 12

TELEPHONE AND DATA SYSTEMS, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
For the Six Months ended June 30, 2004

(Dollars in Thousands)

EARNINGS:
Income before income taxes and minority interest	$	125,195
Add (Deduct):
Earnings on Equity Method Investments		(33,162	)
Distributions from Unconsolidated Entities		7,484
Minority interests in pre-tax income of subsidiaries that do not have fixed charges		(4,955	)
		94,562
Add fixed charges:
Consolidated interest expense		95,243
Interest Portion (1/3) of Consolidated Rent Expense		13,804
	$	203,609
FIXED CHARGES:
Consolidated interest expense	$	95,243
Interest Portion (1/3) of Consolidated Rent Expense		13,804
	$	109,047
RATIO OF EARNINGS TO FIXED CHARGES		1.87
Tax-Effected Preferred Dividends	$	166
Fixed Charges		109,047
Fixed Charges and Preferred Dividends	$	109,213
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS		1.86

EX-31

Exhibit 31.1

Certification of Chief Executive Officer

I, LeRoy T. Carlson, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Telephone and Data Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2004

/s/ LeRoy T. Carlson, Jr.
LeRoy T. Carlson, Jr.
President and Chief Executive Officer

EX-31

Exhibit 31.2

Certification of Chief Financial Officer

I, Sandra L. Helton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Telephone and Data Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2004

/s/ Sandra L. Helton
Sandra L. Helton
Executive Vice President and
Chief Financial Officer

EX-32

Exhibit 32.1

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

        I, LeRoy T. Carlson, Jr., the chief executive officer of Telephone and Data Systems, Inc., certify that (i) the quarterly report on Form 10-Q for the second quarter of 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.

/s/ LeRoy T. Carlson, Jr.

LeRoy T. Carlson, Jr.
August 5, 2004

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Telephone and Data Systems, Inc. and will be retained by Telephone and Data Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32.2

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

        I, Sandra L. Helton, the chief financial officer of Telephone and Data Systems, Inc., certify that (i) the quarterly report on Form 10-Q for the second quarter of 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.

/s/ Sandra L. Helton

Sandra L. Helton
August 5, 2004

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Telephone and Data Systems, Inc. and will be retained by Telephone and Data Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99

Exhibit 99.1

Contact: Mark A. Steinkrauss, Vice President-Corporate Relations - TDS
(312) 592-5384 mark.steinkrauss@teldta.com

FOR RELEASE: IMMEDIATE

U.S. CELLULAR AND TDS TELECOM TO SELL WIRELESS ASSETS TO ALLTEL

CHICAGO – Aug. 4, 2004 – United States Cellular Corporation [AMEX:USM] and TDS Telecom, subsidiaries of Telephone and Data Systems, Inc. [AMEX:TDS], today announced that they have entered into definitive agreements to sell certain wireless properties to ALLTEL Corporation of Little Rock, Ark. [NYSE:AT] for a total of approximately $143 million in cash (approximately $111 million after taxes), including working capital that is subject to adjustment upon close of the transactions. The transactions are subject to regulatory approvals and are expected to close in the fourth quarter of 2004.

U.S. Cellular Assets
The U.S. Cellular assets to be sold to ALLTEL include operating markets and investment interests in several license areas. The operating markets are in one 25 megahertz (MHz) Metropolitan Statistical Area (MSA) license in Florida and one 25 MHz Rural Service Area (RSA) license in Ohio, representing an aggregate of 460,000 population equivalents, and including 35 cell sites and approximately 37,000 customers. For the quarter ended June 30, 2004, total revenue from these markets, which were included in U.S. Cellular’s consolidated operations, was $5.7 million.

The U.S. Cellular investment interests are in five MSA licenses and two RSA licenses, representing an aggregate of 268,000 population equivalents in Ohio, North Carolina, Mississippi and Wisconsin. These assets are treated as investments; investment income from the assets is reported in “Investment Income” on U.S. Cellular’s income statement.

U.S. Cellular will receive approximately $80 million in cash for the operating markets and investment interests.

TDS Telecom Assets
The TDS Telecom assets to be sold to ALLTEL include a majority interest in one RSA market in Georgia which has been operated by ALLTEL, representing 133,000 population equivalents, and an investment interest in one RSA market in Wisconsin, representing 5,000 population equivalents. Income from these assets is reported in “Other Income Net” on TDS’s Income Statement. Proceeds will approximate $63 million in cash.

A complete list of the markets involved in the transactions can be found in Exhibit A.

LeRoy T. Carlson, Jr., president and chief executive officer of TDS, said, “The proposed sales are further illustrations of TDS’s strategy to deploy capital to the most important parts of our businesses. In addition to these sales, for example, twice in the last 12 months U.S. Cellular has sold or traded properties to AT&T Wireless that were not integral to its long-term business plan. U.S. Cellular proceeds from the transactions will help defray the costs of building out several new markets at U.S. Cellular, while the TDS Telecom proceeds will help fund the deployment of new technologies at TDS Telecom.

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“At the same time,” Carlson continued, “these sales eliminate the operating, accounting, legal and regulatory costs associated with these small operating markets and investment interests. The transactions also serve to make our companies less complex and more transparent to the investment community. We will continue to look for more opportunities to streamline our operations, reduce costs and drive profitable growth for our shareholders.”

John E. Rooney, president and chief executive officer of U.S. Cellular, commented, “The U.S. Cellular transaction is a continuation of our strategy to exit markets that are not strategic to our long-term success. These properties, while valuable in their own right, do not complement the geographic footprint of the company nor strengthen its competitive position in our larger, more well-established markets. We can use the proceeds to offset the cost of building several of the markets we acquired last year from AT&T Wireless.”

Falkenberg Capital Corporation of Denver, Colo. represented U.S. Cellular and TDS Telecom in the transactions.

U.S. Cellular Corporation, the nation’s eighth largest wireless service carrier, provides wireless service to 4.7 million customers in 26 states. The Chicago-based company operates on a customer satisfaction strategy, meeting customer needs by providing a comprehensive range of wireless products and services, superior customer support and a high-quality network.

TDS Telecom is a growing communications company serving more than 1 million residential and business customers in small rural and suburban communities in 30 states. The company’s goal is to provide the most effective communication technology and high-quality services in its chosen markets. TDS Telecom is a subsidiary of Telephone and Data Systems, Inc., a diversified telecommunications corporation founded in 1969 and a FORTUNE 500 company, that operates primarily by providing wireless and local telephone service through its strategic business units, U.S. Cellular (AMEX: USM) and TDS Telecom.

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 and projections, 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: changes in circumstances or events that may affect the ability of USM to start up the operations of the licensed areas involved in the AT&T Wireless transaction completed in August 2003; the ability of U.S. Cellular to successfully manage and grow the operations of the Chicago MTA; changes in the overall economy; changes in competition in the markets in which TDS and U.S. Cellular operate; advances in telecommunications technology; the impact of local number portability; changes in the telecommunications regulatory environment; changes in the value of investments, including variable prepaid forward contracts; changes in the capital markets that could adversely impact the availability, cost and terms of financing; an adverse change in the ratings afforded TDS and U.S. Cellular debt securities by nationally accredited ratings organizations; pending and future litigation; acquisitions/divestitures of properties and/or licenses; changes in customer growth rates, average service revenue per unit, churn rates, roaming rates and the mix of products and services offered in TDS and U.S. Cellular markets. Investors are encouraged to consider these and other risks and uncertainties that are discussed in documents filed by TDS with the Securities and Exchange Commission.

U.S. Cellular’s web site is www.uscellular.com.
TDS Telecom’s web site is: www.tdstelecom.com.

Exhibit A follows.

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Exhibit A

Markets (25 MHz) included in the proposed ALLTEL transaction

U.S. Cellular Operating Markets	Market No.	Total Market Population	Ownership	Population Equivalents
Fort Pierce, Fla	MSA 208	340,399	100 %	340,399
Ohio 9	RSA 593	243,570	49 %	119,349

U.S. Cellular Investments	Market No.	Total Market Population	Ownership	Population Equivalents
Raleigh-Durham / Fayetteville /	MSAs	1,477,252	8.0 %	117,885
Burlington, N.C.	071 / 149 / 280
Jackson, Miss.	MSA 106	447,689	6.6 %	29,547
Eau Claire, Wis.	MSA 232	151,986	44.5 %	67,634
Ohio 2	RSA 586	259,296	10.8 %	28,115
Ohio 5	RSA 589	240,235	10.4 %	24,986

TDS Telecom Investments	Market No.	Total Market Population	Ownership	Population Equivalents
Georgia 12	RSA 382	228,650	58.3 %	133,303
Wisconsin 8	RSA 715	244,092	2.0 %	4,882

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