Telephone and Data Systems, Inc. Consolidated Statements of Common Stockholders’ Equity Notes to Consolidated Financial Statements Compre- Accumulated Series A Capital in hensive Other Com- Common Common Excess of Treasury Income prehensive Retained Shares Shares Par Value Shares (Loss) Income (Loss) Earnings (Dollars in thousands) Balance, December 31, 1998 $ 550 $ 69 $1,882,710 $ (29,439) $ 75,609 $ 323,696 Comprehensive Income Net income — — — — $ 179,834 — 179,834 Net unrealized gains on securities — — — — 103,462 103,462 — Comprehensive income $ 283,296 Dividends Common and series A common shares — — — — — (28,290) Preferred shares — — — — — (1,101) Repurchase Common Shares — — — (80,457) — — Dividend Reinvestment, Incentive  and Compensation Plans 1 1 177 6,921 — — Conversion of Preferred Shares 3 — 17,273 — — — Other — — (2,758) — — — Balance, December 31, 1999 554 70 1,897,402 (102,975) 179,071 474,139 Comprehensive Income Net income — — — — $2,237,002 — 2,237,002 Net unrealized losses on securities — — — — (357,415) (357,415) — Comprehensive income $1,879,587 Dividends Common and series A common shares — — — — — (29,904) Preferred shares — — — — — (568) Repurchase Common Shares — — — (287,732) — — Dividend Reinvestment, Incentive  and Compensation Plans — — 5,787 7,206 — — Conversion of Series A and Preferred Shares 1 (1) 393 — — — Adjust Investment in Subsidiary for Common Share Issuances and Repurchases — — (86,549) — — — Other — — (414) — — — Balance, December 31, 2000 555 69 1,816,619 (383,501) (178,344) 2,680,669 Comprehensive (Loss) Net (loss) — — — — $(198,055) — (198,055) Net unrealized losses on securities — — — — (173,776) (173,776) — Comprehensive (loss) $(371,831) Dividends Common and series A common shares — — — — — (31,683) Preferred shares — — — — — (458) Repurchase Common Shares — — — (30,335) — — Dividend Reinvestment, Incentive  and Compensation Plans — — 995 6,942 — — Conversion of Series A and Preferred Shares 2 (1) 746 — — — Adjust Investment in Subsidiary for Common Share Issuances and Repurchases — — 8,368 — — — Other — — 112 — — — Balance, December 31, 2001 $ 557 $ 68 $ 1,826,840 $(406,894) $(352,120) $2,450,473 The accompanying notes to consolidated financial statements are an integral part of these statements. 42 Telephone and Data Systems, Inc. Annual Report 2001 Telephone and Data Systems, Inc. Annual Report 2001 43 Cash and Cash Equivalents Reclassifications 1 Summary of Significant Accounting Policies Nature of Operations Outstanding checks aggregating $47.8 million and $35.3 million at December 31, 2001 and 2000, respectively, are classified as Accounts payable in the Consolidated Balance Sheets. Sufficient funds were available to fund these outstanding checks when presented for payment. TDS has cash management arrangements with its subsidiaries under which the subsidiaries may from time to time deposit excess cash with TDS for investment under TDS’s cash management program. Telephone and Data Systems, Inc. (“TDS” or “the Company”) is a diversified telecommunications company that provided high-quality telecommunications services to approximately 4.3 million cellular telephone and telephone customers in 34 states at December 31, 2001. The Company conducts substantially all of its wireless telephone operations through its 82.2%-owned subsidiary, United States Cellular Corporation (“U.S. Cellular”) and its wireline telephone operations through its wholly-owned subsidiary, TDS Telecommunications  Corporation (“TDS Telecom”). See Note 23 — Business Segment Information for summary financial information on each business segment. Marketable equity securities are classified as available-for-sale, and are stated at fair market value. Net unrealized holding gains and losses are included in Accumulated other comprehensive income. Realized gains and losses are determined on the basis of specific identification. As of December 31, 2001, the net unrealized holding loss, net of tax, aggregated $352.1 million. Management does not consider the unrealized loss to be “other than temporary.” Management continues to review the valuation of the investments on a periodic basis. If management determines an unrealized loss is other than temporary, the loss is recognized and recorded in the income statement. Intangible Assets The accounting policies of TDS conform to generally accepted accounting principles. The consolidated financial statements include the accounts of TDS, its majority-owned subsidiaries since acquisition and the cellular partnerships in which TDS has a majority general partnership interest or has a controlling financial interest. All material intercompany items have been eliminated. TDS uses the purchase method of accounting for business combinations. TDS includes as investments in subsidiaries the value of the consideration given and all direct and incremental costs relating to acquisitions. All costs relating to unsuccessful negotiations for acquisitions are charged to expense. Cellular license costs consist of costs incurred in acquiring Federal Communications Commission licenses to provide cellular service. These costs include amounts paid to license applicants and owners of interests in cellular entities awarded licenses and all direct and incremental costs relating to acquiring the licenses. These costs are capitalized and were amortized through charges to expense over 40 years upon commencement of operations. See Note 1 — Recent Accounting Pronouncements. The preparation of financial statements in conformity  with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Telephone franchise and other costs include the costs in excess of the underlying book value of acquired telephone companies. Costs aggregating $399.8 million and $248.4 million at December 31, 2001 and 2000, respectively, relating to acquisitions since November 1, 1970, were amortized on a straight-line basis over a 40-year period. Costs in excess of the underlying book value relating to acquisitions initiated before November 1, 1970, aggregating $6.5 million, were not amortized. See Note 1 — Recent Accounting Pronouncements. Certain amounts reported in prior years have been reclassified to conform to current period presentation. Use of Estimates Business Combinations Principles of Consolidation Marketable Equity Securities Cellular License Costs Telephone Franchise and Other Costs in Excess  of the Underlying Book Value of Subsidiaries Cash and cash equivalents include cash and those short-term, highly-liquid investments with original maturities of three months or less. The carrying amounts of Cash and cash equivalents approximate fair value due to the short-term nature of these investments. Investments in Unconsolidated Entities Investments in unconsolidated entities consists of investments where the Company holds a less than 50% ownership interest and where a quoted share price is not available. The Company 