Telephone and Data Systems, Inc. Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements payments.) Under this plan, pension costs are calculated separately for each participant and are funded currently. TDS also sponsors an unfunded non-qualified deferred supplemental executive retirement plan to supplement the benefits under these plans to offset the reduction of benefits caused by the limitation on annual employee compensation under the tax laws. Total pension costs were $8.8 million, $8.6 million and $8.8 million in 2001, 2000 and 1999, respectively. The Company sponsors two defined benefit postretirement plans that cover most of the employees of TDS, TDS Telecom and the subsidiaries of TDS Telecom. One plan provides medical benefits and the other plan provides life insurance benefits. Both plans are contributory, with retiree contributions adjusted annually. The medical plan anticipates future cost sharing changes that are consistent with the Company’s intent to increase retiree contributions by the health care cost trend rate.  An amount not to exceed 25 percent of the total contribution to the pension plan may be contributed to fund the cost of the medical benefits annually. An additional contribution equal to a reasonable amortization of the past service cost may be made without regard to the 25 percent limitation. The following table reconciles the beginning and ending balances of the benefit obligation and the fair value of plan assets for the other postretirement benefit plans. At December 31, 2001, 1,031,000 options are exercisable, have exercise prices between $34.51 and $119.28 with a weighted average exercise price of $69.39, and a weighted average remaining contractual life of 7.3 years. The remaining 360,000 options are not exercisable, have exercise prices between $87.05 and $119.08 with a weighted average exercise price of $111.87, and a weighted average remaining contractual life of 8.6 years. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free interest rates of 4.9%, 5.2% and 5.2%; expected dividend yields of 0.7%, 0.5% and 0.6%; expected lives of 8.1 years, 7.6 years and 7.5 years and expected volatility of 32.3%, 29.4% and 27.3%. The Company sponsors a qualified noncontributory defined contribution pension plan. Effective January 1, 2001, the Company merged two previous plans into a new successor pension plan and combined the plan assets held for the previous two plans. The plan provides benefits for the employees of TDS, TDS Telecom and U.S. Cellular. (Employees of certain telephone subsidiaries are covered under other pension plans or receive direct pension The primary purpose of TDS’s construction and expansion expenditures is to provide for normal growth, to upgrade communications service, to expand into new communication areas and to take advantage of service-enhancing and cost-reducing technological developments. The U.S. Cellular capital additions budget totals approximately $620-$640 million for 2002, primarily to add additional cell sites to expand and enhance coverage, including adding digital service capabilities to its systems. The TDS Telecom capital additions budget totals approximately $170-$190 million for The following table sets forth the weighted average assump- tions used in accounting for the plans. For measurement purposes, a 10.0% and 7.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001 and 2000, respectively. The 2001 annual rate of increase is expected to remain at 10% in 2002 and then decrease to 5.75% by 2010 while the 2000 annual rate of increase was expected to decrease to 5.5% by 2002. Net periodic benefit cost for the years ended December 31, 2001, 2000 and 1999 include the following components. 2002, including approximately $115-$125 million for the local telephone markets to provide for normal growth, and to upgrade plant and equipment to provide enhanced services, and approximately $55-$65 million for the competitive local exchange business to build switching and other network facilities to expand operations. At December 31, 2001, the Company had agreements  to acquire a telephone company and certain PCS licenses for aggregate consideration of $90.4 million in cash. TDS and its subsidiaries have leases for certain cellular plant facilities, office space and data processing equipment, most of which are classified as operating leases. For the years 2001, 2000 and 1999, rent expense for noncancelable, long-term leases was $52.9 million, $48.0 million and $31.2 million, respectively, and rent expense under cancelable, short-term leases was $3.0 million, $5.4 million and $14.6 million, respectively. At December 31, 2001, the aggregate minimum rental commitments under noncancelable, long-term operating leases were as follows. The Company is involved in legal proceedings before the Federal Communications Commission and various state and federal courts from time to time. Management does not believe that any of such proceedings should have a material adverse impact on the financial position, results of operations or cash flows of the Company. On November 1, 2000, the United States Bankruptcy Court for the Western District of Wisconsin confirmed a plan of financial reorganization for Airadigm Communications, Inc., a Wisconsin-based wireless services provider. Under the terms of the plan of reorganization, TDS and an unrelated entity have committed to provide funding to meet certain obligations of Airadigm. Airadigm continues to operate as an independent company providing wireless services. Pursuant to the plan of reorganization, under certain circumstances and subject to the FCC’s rules and regulations, TDS and the unrelated entity, or their respective designees, may each acquire certain personal communications services licenses for areas of Wisconsin and 58 Telephone and Data Systems, Inc. Annual Report 2001 Telephone and Data Systems, Inc. Annual Report 2001 59 Construction and Expansion Other Commitments Contingencies 22 Commitments and Contingencies Lease Commitments Pending Acquisitions Other Postretirement Benefits 21 Employee Benefit Plans December 31, 2001 2000 (Dollars in thousands) Change in Benefit Obligation Benefit obligation at beginning of year $ 20,109 $ 21,099 Service cost 750 1,028 Interest cost 1,482 1,592 Amendments — (2,612) Actuarial (gain) loss 6,249 (169) Benefits paid (984) (829) Benefit obligation at end of year 27,606 20,109 Change in Plan Assets Fair value of plan assets at beginning of year 21,948 24,185 Actual return on plan assets (3,036) (1,432) Employer contribution 31 24 Benefits paid (984) (829) Fair value of plan assets at end of year 17,959 21,948 Funded Status (9,647) 1,839 Unrecognized net actuarial (gain) loss 2,062 (9,250) Unrecognized prior service cost (1,087) (1,216) (Accrued) benefit cost $ (8,672) $ (8,627) One Percentage Point Increase Decrease (Dollars in thousands) Effect on total of service and  interest cost components $ 505 $ (432) Effect on postretirement benefit obligation $ 3,456 $(3,071) The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point increase or decrease in assumed health care cost trend rates would have the following effects.  Year Ended December 31, 2001 2000 1999 (Dollars in thousands) Service cost $ 750 $ 1,028 $ 1,019 Interest cost on  accumulated postretirement  benefit obligation 1,482 1,592 1,475 Expected return on plan assets (1,836) (1,909) (1,498) Net amortization and deferral (543) (420) (228) Net postretirement  (income) cost $ (147) $ 291 $ 768 Weighted Weighted Number Average Average of Shares Option Prices Fair Values Stock Options: Outstanding December 31, 1998 (777,000 exercisable) 1,003,000 $ 38.70 Granted 124,000 $ 63.82 $ 25.51 Exercised (199,000) $ 31.32 Canceled (10,000) $ 43.75 Outstanding December 31, 1999 (813,000 exercisable) 918,000 $ 43.66 Granted 584,000 $111.50 $ 47.07 Exercised (141,000) $ 41.10 Canceled (28,000) $ 92.92 Outstanding December 31, 2000 (933,000 exercisable) 1,333,000 $ 72.90 Granted 216,000 $ 99.58 $51.05 Exercised (153,000) $ 36.38 Canceled (5,000) $108.94 Outstanding December 31, 2001 (1,031,000 exercisable) 1,391,000 $ 80.37 A summary of the status of TDS stock option plans at December 31, 2001, 2000 and 1999 and changes during the years then ended is presented in the table and narrative  that follows. December 31, 2001 2000 Discount rate 7.25% 7.5% Expected return on plan assets 8.5% 8.5% Minimum Future Rental Payments (Dollars in thousands) 2002 $ 62,919 2003 56,918 2004 51,531 2005 47,350 2006 41,727 Thereafter $168,857