Telephone and Data Systems, Inc. Management’s Discussion and Analysis of Results of Operation and Financial Condition Selected Consolidated Financial Data Year Ended or at December 31, 2001 2000 1999 1998 1997 (Dollars in thousands, except per share amounts) Operating Revenues $ 2,588,542 $ 2,326,856 $2,122,346 $1,803,639 $1,430,748 Operating Income 436,155 420,066 370,393 270,487 229,686 Gain (Loss) on Marketable Securities and Other Investments (548,305) 15,716 345,938 262,698 41,438 Net Income (Loss) Available to Common from Continuing Operations From Operations 167,653 154,249 110,765 58,607 74,734 From Gains (Losses) (336,359) (9,226) 179,414 124,964 14,705 $ (168,706) $ 145,023 $ 290,179 $ 183,571 $ 89,439 Basic Weighted Average Shares Outstanding (000’s) 58,661 59,922 61,436 60,982 60,211 Basic Earnings per Share from Continuing Operations $ ( 2.87 ) $ 2.42 $ 4.72 $ 3.01 $ 1.49 Diluted Earnings per Share from Continuing Operations  From Operations 2.86 2.54 1.78 .97 1.24 From Gains (Losses) (5.73) (.15) 2.87 2.02 .24 $ (2.87) $ 2.39 $ 4.65 $ 2.99 $ 1.48 Pretax Profit (Loss) on Revenues ( 6.6 ) % 14.9% 28.6% 21.8% 15.5% Effective Income Tax (Benefit) Rate ( 26.1 ) % 43.1% 41.3% 40.9% 43.2% Dividends per Common and Series A Common Share $ .54 $ .50 $ .46 $ .44 $ .42 Cash and Cash Equivalents $ 140,744 $ 99,019 $ 111,010 $ 45,139 $ 45,996 Working Capital ( 141,860 ) (457,311) 138,336 (192,179) (448,958) Property, Plant and Equipment, net 2,558,031 2,186,025 2,095,889 2,020,092 1,892,556 Total Assets 8,046,792 8,634,609 5,397,476 5,091,554 4,580,881 Notes Payable 265,300 499,000 — 170,889 527,587 Long-term Debt (including current portion) 1,575,225 1,188,626 1,294,844 1,291,032 1,082,594 Common Stockholders’ Equity 3,518,924 3,936,067 2,448,261 2,253,195 1,969,557 Capital Expenditures $ 700,150 $ 456,019 $ 399,631 $ 463,543 $ 488,833 Current Ratio .8 .5 1.4 .7 .4 Common Equity per Share $ 60.08 $ 67.07 $ 40.04 $ 36.83 $ 32.50 Return on Average Common Equity ( 4.5 ) % 4.5% 12.3% 8.7% 4.5% 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 wireless telephone and wireline telephone customer units in 34 states at December 31, 2001. TDS 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”). The following discussion and analysis should be read in conjunction with TDS’s consolidated financial statements and the accompanying notes. Results of Operations Operating Revenues increased 11% ($261.7 million) during 2001 and 10% ($204.5 million) during 2000 reflecting primarily the 14% and 17% growth in customer units in 2001 and 2000, respectively. U.S. Cellular revenues increased $178.2 million in 2001 and $140.2 million in 2000 on 13% and 18% increases in customer units, respectively. TDS Telecom revenues increased $83.5 million in 2001 and $64.3 million in 2000 as access lines increased by 19% and 12%, respectively. The increase in access lines is primarily related to the growth in the competitive local exchange operations and acquisitions. Operating Expenses rose 13% ($245.6 million) in 2001 and 9% ($154.8 million) in 2000. U.S. Cellular operating expenses increased $153.3 million during 2001 and $103.7 million during 2000 due primarily to the costs associated with providing service to an expanding customer base and additional depreciation and amortization expense. TDS Telecom operating expenses increased $92.3 million during 2001 and $51.1 million during 2000 due to the expansion of the competitive local exchange business and growth in local telephone operation.  Investment and Other Income (Expense) primarily includes gains and (losses) on marketable securities and other investments, interest and dividend income and investment income. Gain (Loss) on marketable securities and other investments totaled $(548.3) million in 2001, $15.7 million in 2000 and $345.9 million in 1999. The Company held marketable securities of certain companies that were involved in merger transactions in 2001 and 1999 generating significant gains and losses. TDS recognized a gain or loss on the difference between the historical basis in its investments and the value of the shares and cash received from the mergers. In 2001, TDS realized a loss of $644.9 million as a result of the merger between VoiceStream Wireless Corporation (“VoiceStream”) and Deutsche Telekom AG. Partially offsetting the loss in 2001 was a gain of $96.1 million recorded as a result of the merger between 23 Telephone and Data Systems, Inc. Annual Report 2001 Telephone and Data Systems, Inc. Annual Report 2001 – 3000 – 2500 – 2000 – 1500 – 1000 – 500 – 0 2,589 2,122 2,327 TDS Telecom Total Revenues $ Millions U.S. Cellular – 500 – 400 – 300 – 200 – 100 – 0 436 370 420 TDS Telecom Operating Income $ Millions U.S. Cellular Year Ended December 31,  2001 2000 1999 (Dollars in thousands) Operating Income U.S. Cellular $317,212 $292,313 $255,842 TDS Telecom  ILEC 161,916 142,708 124,093 CLEC (42,973) (14,955) (9,542) 118,943 127,753 114,551 Operating Income $436,155 $420,066 $370,393 Operating Income increased 4% ($16.1 million) in 2001 and 13% ($49.7 million) in 2000. U.S. Cellular’s operating income increased 9% ($24.9 million) in 2001 and 14% ($36.5 million) in 2000, reflecting the increase in customers and revenues. TDS Telecom’s operating income declined 7% ($8.8 million) in 2001 and increased 12% ($13.2 million) in 2000. The decrease in TDS Telecom’s operating income in 2001 reflects increased operating losses from the competitive local exchange business due to continued expansion of the business. 22