EX-99 3 q402exhibit991.htm TDS Q402 EARNINGS RELEASE ON EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1

As previously announced, TDS and its subsidiaries will hold a joint teleconference on February 5, 2003, at 10:00 am Chicago time. Interested parties may listen to the call live over the Internet at http://www.firstcallevents.com/service/ajwz372101302gf12.html


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

  Julie D. Mathews, Manager, Investor Relations
  (312) 592-5341 julie.mathews@teldta.com

  Ruth E. Venning, Director, Corporate Relations
  (312) 592-5327 ruth.venning@teldta.com

FOR RELEASE: IMMEDIATE

TDS REPORTS FOURTH-QUARTER AND FULL-YEAR 2002 RESULTS

A year of solid operating performance for the company

February 5, 2003 — Chicago, Illinois — Telephone and Data Systems, Inc. [AMEX:TDS] reported operating revenues of $815.6 million for the fourth quarter of 2002, up 22% from $670.9 million in the comparable period a year ago. Operating income decreased 40% to $63.5 million from $105 million in the fourth quarter of 2001. Operating income plus depreciation and amortization decreased 9% to $203.2 million from $223.5 million in the fourth quarter of a year ago. Diluted earnings per share from continuing operations were a loss of $.50 per share compared to an income of $1.46 per share in the fourth quarter a year ago. Diluted earnings per share from continuing operations, excluding gains and (losses), net of tax and minority interest, of ($37.3) million in 2002, and excluding amortization of goodwill and indefinite lived intangibles, net of tax and minority interest, of $7.7 million in 2001 (a non-GAAP measurement of adjusted earnings per share from operations), were $.13 compared to $.76 in the fourth quarter a year ago. The decrease in adjusted diluted earnings per share reflects higher depreciation and amortization, interest expenses and a higher effective tax rate.

For the year, operating revenues increased 15% to $2.99 billion from $2.59 billion for year-end 2001. Operating income decreased 11% to $386.4 million from $436.2 million in 2001. Operating income plus depreciation and amortization expense increased 1% to $896.8 million from $886.2 million in 2001. Diluted earnings per share from continuing operations were a loss of $16.85 per share compared to a loss of $2.97 per share in the twelve months ended 2001. Diluted earnings per share from continuing operations, excluding gains and (losses), net of tax and minority interest, of ($1.14) billion in 2002, and excluding amortization of goodwill and indefinite lived intangibles in 2001, net of tax and minority interest, of $29.5 million (a non-GAAP measurement of adjusted

earnings per share from operations), were $2.50 compared to $3.24 in the twelve months ended 2001. The decrease in adjusted diluted earnings per share reflects primarily higher depreciation and amortization and interest expenses.


President’s Comments

“The fourth quarter brought to a close a year of successful operating results for TDS, as well as the largest acquisition in the company’s history,” said LeRoy T. Carlson, Jr., president and chief executive officer. “We are pleased with TDS’s operating performance during a year characterized by a continued sluggish U.S. economy and a troubled telecommunications industry. We attribute our strength during this period to the effective management of our business units and disciplined business approach and, even more importantly, to our commitment to superior customer service, a factor we believe is integral to the continued success of our businesses.

“U.S. Cellular, our 82-percent owned wireless subsidiary, generated strong operating results for the fourth quarter, in part due to the successful launch of the recently acquired Chicago metropolitan market. This market, which represents the largest acquisition in the company’s history, significantly strengthens U.S. Cellular’s competitive position in the Midwest and provides excellent growth opportunities for the future. It is a great tribute to the people at U.S. Cellular that the company successfully integrated the new market into its existing operations quickly and without disruption to customer service.

“During the quarter, U.S. Cellular posted 160,000 net customer unit activations, better than expected performance which highlights the successful efforts of the company’s market launch in the Chicago metropolitan area. In addition, our post-pay churn rate remained well below the industry average at the admirably low rate of 1.8 percent.

“TDS Telecom, our wireline business, reached an important milestone during the fourth quarter, as access line equivalents surpassed the million-line mark, a function of both organic growth and the acquisition of several properties earlier in the year. This significant milestone demonstrates the success of the growth strategy TDS Telecom has implemented since acquiring its first company in 1968 and growing the company through both traditional and acquisition-related means. And while our access-line growth in 2002 was slower than recent years – in part due the weak U.S. economy – TDS Telecom continues to promote revenue growth through its digital subscriber line (DSL), long-distance and vertical-services businesses.

“We’re hopeful that the U.S. economy will improve in 2003, encouraging a more healthy consumer and small business environment going forward, which should help our businesses as well as the industry overall. In the meantime, we have every reason to believe that the positive momentum our companies generated in 2002 will continue throughout this year.

“We’d like to take this opportunity to express our gratitude to the 11,100 people who make up the TDS companies for their hard work and dedicated efforts, in particular our front-line associates who provide excellent service on a daily basis to our most important constituency: our customers. Their efforts, together with efforts of the associates who support them, make the TDS companies the great service-providers they are.”

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Marketable Equity Securities

During the quarter, TDS entered into variable prepaid forward contracts to monetize almost 86 million Deutsche Telekom AG ordinary shares, receiving a net amount of $910 million in cash for the transactions. TDS has now entered into contracts for its entire position of 131.5 million Deutsche Telekom shares. The total cash received was approximately $1.4 billion. In addition, TDS monetized 2.7 million Vodafone ADRs and received net proceeds of $41.2 million in cash. This represents its entire position of Vodafone ADRs. The Vodafone collars currently limit TDS’s downside risk to an average of $15.25 per ADR and limit the upside potential to an average of $20.92 per ADR.

Said Sandra L. Helton, executive vice president and chief financial officer, “During the quarter the company concluded the monetization of its position in Deutsche Telekom. By doing so we have hedged our downside risk while providing potential for modest appreciation in the shares. In addition, this move, combined with the monetization of other securities in our portfolio during the latter half of 2002, leaves us in a very strong financial position – rare in the telecommunications environment today – and provides us the ability to take advantage of various opportunities that may arise.”

Under the terms of the monetization contracts, TDS will continue to own the Deutsche Telekom shares and will receive dividends, if paid, on such shares. At maturity of the contracts in 2007 and 2008, TDS is required to deliver a number of shares determined following a formula that “collars” the price of the Deutsche Telekom shares or, at the option of TDS, the cash value of such number of shares determined at such time. The collars currently limit TDS’s downside risk to an average of $11.65 per share and limit the upside potential to an average of $14.45 per share. To account for the contracts, at December 31, 2002, TDS has recorded a loan of $1.5 billion, a derivative asset of $2.2 million and a derivative liability of $47.1 million. Deferred taxes have been provided for the difference between the book basis and the tax basis of the Deutsche Telekom shares and are included in deferred tax liabilities. As of December 31, 2002, such deferred taxes totaled $659 million. The fair market value of the securities continues to be reflected on the balance sheet under marketable equity securities. The cash proceeds are included under cash and cash equivalents, net of paying down some short term debt during the quarter.


Accounting Matters

During the quarter, TDS recorded pre-tax writedowns of $41.8 million ($37.3 million after-tax) of the value of certain investments. The $41.8 million of writedowns included $25.4 million relating to the Company’s withdrawal from a partnership in which it owned an investment interest; $7.3 million relating to the writedown of a wireless investment to its fair value; $4.2 million relating to the reduction in value of a land purchase option; and $3.9 million relating to the reduction in value of certain notes receivable related to minority interests sold in 2000.

U.S. Cellular made certain changes to its accounting policies which required the Company to reclassify certain items on its income statement for previous quarters of 2002. The Company will also show the impact of certain other changes, including the cumulative effect of an accounting change, in previous quarters of 2002. Other than the cumulative effect of the accounting change, none of the above prior period changes have a significant impact on operating income, net income or earnings per share. These changes do, however, have a significant impact on certain income

3

statement captions for the restated periods. A summary of these changes is included on page 12, with the impact on affected GAAP and non-GAAP measurements shown for each of the first three quarters and cumulative for the first nine months of 2002.

TDS adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 effective January 1, 2002, and ceased the amortization of license costs and goodwill on that date. For the three months ended December 31, 2001, amortization of license costs and goodwill included in U.S. Cellular’s and TDS Telecom’s depreciation and amortization captions totaled $9.3 million and $1.7 million, respectively. The net after-tax effect for the fourth quarter of 2002 of ceasing amortization increased net income and earnings per diluted share by $7.7 million and $.13, respectively.

The amounts reported for “operating income plus depreciation and amortization” do not represent cash flows from operating activities as defined by Generally Accepted Accounting Principles (GAAP), and the amounts reported for “diluted earnings per share from continuing operations excluding gains and losses and amortization of goodwill and indefinite lived intangibles” do not represent earnings per share determined in accordance with GAAP. TDS believes that these are useful non-GAAP financial measures of its performance but they should not be construed as alternatives to measures of performance determined under GAAP.

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: the ability of USM 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 operates; advances in telecommunications technology; changes in the telecommunications regulatory environment; changes in the value of investments, including variable prepaid forward contracts; changes in the capital markets that could restrict the availability of financing; pending and future litigation; acquisitions/divestitures of properties and/or licenses; changes in customer growth rates, penetration rates, churn rates, roaming rates and the mix of products and services offered in TDS’s markets. Investors are encouraged to consider these and other risks and uncertainties that are discussed in documents filed by TDS with the SEC.

TDS is a diversified telecommunications corporation founded in 1969. Through its strategic business units, U.S. Cellular and TDS Telecom, TDS operates primarily by providing wireless and local telephone service. TDS builds value for its shareholders by providing excellent communications services in growing, closely related segments of the telecommunications industry. The Company currently employs approximately 11,100 people and serves approximately 5.1 million customers/units in 34 states.

As previously announced, TDS and its subsidiaries will hold a joint teleconference on February 5, 2003, at 10:00 am Chicago time. Interested parties may listen to the call live over the Internet at http://www.firstcallevents.com/service/ajwz372101302gf12.html or connect by telephone at

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888/245-6674 leader: Mark Steinkrauss for TDS and USM. The conference call will be archived on the conference call section of our website at www.teldta.com.


For more information about TDS and its subsidiaries, visit the web sites at:
TDS: http://www.teldta.com TDS Telecom: http://www.tdstelecom.com
USM: http://www.uscellular.com TDS Metrocom http://www.tdsmetro.com


5

TELEPHONE AND DATA SYSTEMS, INC.
SUMMARY OPERATING DATA


Quarter Ended      12/31/02    9/30/02    6/30/02    3/31/02    12/31/01  
U.S. Cellular:   
Total incremental population equivalents  
    (owned and acquirable, 000s) (1)    42,045    42,037    42,037    31,257    31,257  
TDS's proportionate share of USM pops    82.2 %  82.2 %  82.2 %  82.2 %  82.4 %
Consolidated Markets:  
    Total population (000s) (2)    36,568    36,568    27,548    27,548    25,670  
    Customer units    4,103,000    3,943,000    3,547,000    3,504,000    3,461,000  
    Net customer unit activations    160,000    76,000    43,000    31,000    82,000  
    Market penetration (2)    11.22 %  10.78 %  12.88 %  12.72 %  13.48 %
    Markets in operation    149    149    148    148    142  
    Cell sites in service    3,914    3,750    3,145    3,049    2,925  
    Average monthly revenue per unit   $ 47.91   $ 49.31   $ 47.48   $ 44.14   $ 45.14  
       Retail service revenue per unit   $ 38.69   $ 38.95   $ 37.93   $ 35.79   $ 35.51  
       Inbound roaming revenue per unit   $ 5.37   $ 6.52   $ 5.90   $ 5.20   $ 6.18  
       Long-distance/other revenue per unit   $ 3.85   $ 3.84   $ 3.65   $ 3.15   $ 3.45  
    Minutes of use (MOU) (3)    359    327    280    237    237  
    Postpay churn rate per month (4)    1.8 %  2.0 %  1.7 %  1.9 %  1.8 %
    Marketing cost per gross  
       customer unit addition (5)   $ 369   $ 348   $ 386   $ 362   $ 357  
    Construction Expenditures (000s)   $ 281,615   $ 192,256   $ 156,699   $ 100,075   $ 125,613  
 
TDS Telecom   
    ILECs:   
    Access line equivalents (6)    711,200    714,400    706,000    681,000    678,300  
    Growth in equivalent ILEC access lines  
       from prior quarter-end:  
          Acquisitions    ---    7,800    19,200    ---    800  
          Internal growth    (3,200 )  600    5,800    2,700    1,700  
    Access lines    672,400    677,400    671,900    651,100    650,700  
    Average monthly revenue  
       per access line equivalent   $ 76.34   $ 74.39   $ 74.58   $ 73.35   $ 78.33  
    Internet service accounts    117,600    118,400    118,000    115,200    117,500  
    Digital Subscriber Lines (DSL) customers    9,100    8,100    6,500    3,300    2,200  
    Long Distance customers    197,500    189,200    176,300    146,100    125,300  
    Caller I.D. penetration (7) (8)    30.9 %  30.3 %  29.6 %  29.1 %  28.1 %
    Voicemail penetration (7) (8)    13.4 %  13.5 %  13.4 %  13.3 %  13.2 %
    Construction Expenditures (000s)   $ 35,540   $ 36,484   $ 25,268   $ 19,194   $ 35,497  
    CLECs (8):   
    Access line equivalents - total CLECs (6)    291,400    273,100    243,900    221,500    192,100  
       TDS Metrocom    220,200    206,200    180,900    163,800    139,300  
       USLink    71,200    66,900    63,000    57,700    52,800  
    Internet service accounts    24,700    24,700    24,600    24,400    13,700  
    Percent of access lines on-switch:  
       TDS Metrocom    100.0 %  100.0 %  100.0 %  100.0 %  100.0 %
       U.S. Link    20.6 %  20.2 %  20.5 %  20.5 %  20.2 %
    Digital Subscriber Lines (DSL):  
       TDS Metrocom    11,800    10,300    9,100    8,500    6,800  
    Construction Expenditures (000s)   $ 16,216   $ 9,653   $ 16,991   $ 9,059   $ 17,579  

(1)

Represents pops in cellular operating and investment markets as well as PCS markets which are incremental to, and do not overlap with, cellular markets owned by USM. The 6/30/02 figure includes the Chicago MTA, which was acquired on 8/7/02.

(2)

Market penetration is calculated using 2001 Claritas population estimates for 9/30/02, 6/30/02 and 3/31/02 and 2000 Claritas population estimates for all other periods.

(3)

Average monthly local minutes of use (without roaming)

(4)

Excluding 13,000 lines disconnected due to the bankruptcy of a customer, postpay churn rate for 3/31/02 would be 1.8%.

(5)

Due to changes in accounting for agent rebates, for all quarters of 2002 this measurement is no longer calculable using information from the financial statements as reported.

(6)

Access line equivalents are derived by converting high capacity data lines to the estimated capacity of one switched access line. Basic rate ISDN = 2 DS0s; Primary rate ISDN = 23 DS0s; T1 = 24 DS0s; Trunk Lines = 1; DSLs = 1

(7)

Caller I.D. and Voicemail penetration is the total residential and business one-party customers purchasing the service divided by the total of these lines equipped for the service.

(8)

Does not include Chorus, MCT and TSNH data for all periods.


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TELEPHONE AND DATA SYSTEMS, INC.
FINANCIAL HIGHLIGHTS
Three Months Ended December 31,
 (Unaudited, dollars in thousands, except per share amounts)

                     
Increase (Decrease)
     2002    2001    Amount    Percent  
Operating Revenues   
     U.S. Cellular   $ 601,933   $ 478,748   $ 123,185    25.7 %
     TDS Telecom    213,691    192,115    21,576    11.2 %
     815,624    670,863    144,761    21.6 %
Operating Expenses Before Depreciation and Amortization   
     U.S. Cellular    465,295    327,297    137,998    42.2 %
     TDS Telecom    147,142    120,111    27,031    22.5 %
     612,437    447,408    165,029    36.9 %
Operating Income Plus Depreciation and Amortization   
     U.S. Cellular    136,638    151,451    (14,813 )  (9.8 %)
     TDS Telecom    66,549    72,004    (5,455 )  (7.6 %)
     203,187    223,455    (20,268 )  (9.1 %)
Depreciation and Amortization   
     U.S. Cellular    99,117    79,025    20,092    25.4 %
     TDS Telecom    40,584    39,427    1,157    2.9 %
*includes amortization of $16,227 and $18,388, respectively    139,701 *  118,452 *  21,249    17.9 %
Operating Income   
     U.S. Cellular    37,521    72,426    (34,905 )  (48.2 %)
     TDS Telecom    25,965    32,577    (6,612 )  (20.3 %)
     63,486    105,003    (41,517 )  (39.5 %)
Investment and Other Income   
     Interest and Dividend Income    4,883    2,092    2,791    133.4 %
     Investment Income, Net    11,551    11,544    7    0.1 %
     Gain (Loss) on Marketable Securities and Other Investments    (41,794 )  96,624    (138,418 )  N/M  
     (Loss) on Debt Extinguishment    ---    (23 )  23    N/M  
     Other Income, Net    (98 )  (50 )  (48 )  96.0 %
     (25,458 )  110,187    (135,645 )  N/M  
Income Before Interest and Income Taxes     38,028    215,190    (177,162 )  (82.3 %)
     Interest Expense    40,054    26,187    13,867    53.0 %
     Minority Interest in Income of Subsidiary Trust    6,203    6,203    ---    0.0 %
Income (Loss) Before Income Taxes     (8,229 )  182,800    (191,029 )  N/M  
     Income Tax Expense (Benefit)    11,323    88,416    (77,093 )  N/M  
Income (Loss) Before Minority Interest     (19,552 )  94,384    (113,936 )  N/M  
     Minority Share of (Income), net of tax    (9,917 )  (8,360 )  (1,557 )  N/M  
Income From Continuing Operations     (29,469 )  86,024    (115,493 )  N/M  
Discontinued Operations     ---    (24,092 )  24,092    N/M  
Net Income (Loss)     (29,469 )  61,932    (91,401 )  N/M  
     Preferred Dividend Requirement    (104 )  (113 )  9    N/M  
Net Income (Loss) Available to Common    $ (29,573 ) $ 61,819   $ (91,392 )  N/M  
Basic Average Common Shares Outstanding (000s)     58,676    58,561    115    0.2 %
Basic Earnings (Loss) Per Share   
     Continuing Operations   $ (0.50 ) $ 1.47   $ (1.97 )  N/M  
     Discontinued Operations    ---    (0.41 )  0.41    N/M  
    $ (0.50 ) $ 1.06    ($ 1.56 )  N/M  
Diluted Average Common Shares Outstanding (000s)     58,676    59,103    (427 )  (0.7 %)
Diluted Earnings (Loss) Per Share   
     Continuing Operations   $ (0.50 ) $ 1.46   $ (1.96 )  N/M  
     Discontinued Operations    ---    (0.41 )  0.41    N/M  
    $ (0.50 ) $ 1.05    ($ 1.55 )  N/M  
Diluted EPS Continuing Operatons-- Excluding Gains (Losses) and FAS 142 Adoption    $ 0.13   $ 0.76   $ (0.63 )  (82.9 %)
Diluted EPS-- FAS 142 Adoption     ---    (0.13 )  0.13    N/M  
Diluted EPS--Gains (Losses)     (0.63 )  0.83    (1.46 )  N/M  
Diluted EPS - Continuing Operations    $ (0.50 ) $ 1.46    (1.96 )  N/M  

N/M — Percentage change not meaningful.


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TELEPHONE AND DATA SYSTEMS, INC.
FINANCIAL HIGHLIGHTS
Year Ended December 31,
 (Unaudited, dollars in thousands, except per share amounts)

                     
Increase (Decrease)
     2002    2001    Amount    Percent  
Operating Revenues   
     U.S. Cellular   $ 2,184,478   $ 1,894,830   $ 289,648    15.3 %
     TDS Telecom    800,888    693,712    107,176    15.4 %
     2,985,366    2,588,542    396,824    15.3 %
Operating Expenses Before Depreciation and Amortization   
     U.S. Cellular    1,552,158    1,276,960    275,198    21.6 %
     TDS Telecom    536,408    425,408    111,000    26.1 %
     2,088,566    1,702,368    386,198    22.7 %
Operating Income Plus Depreciation and Amortization   
     U.S. Cellular    632,320    617,870    14,450    2.3 %
     TDS Telecom    264,480    268,304    (3,824 )  (1.4 %)
     896,800    886,174    10,626    1.2 %
Depreciation and Amortization   
     U.S. Cellular    351,154    300,658    50,496    16.8 %
     TDS Telecom    159,291    149,361    9,930    6.6 %
*includes amortization of $41,640 and $71,663, respectively    510,445 *  450,019 *  60,426    13.4 %
Operating Income   
     U.S. Cellular    281,166    317,212    (36,046 )  (11.4 %)
     TDS Telecom    105,189    118,943    (13,754 )  (11.6 %)
     386,355    436,155    (49,800 )  (11.4 %)
Investment and Other Income   
     Interest and Dividend Income    57,330    14,246    43,084    N/M  
     Investment Income, Net    43,675    49,376    (5,701 )  (11.5 %)
     (Loss) on Marketable Securities and Other Investments    (1,888,391 )  (548,305 )  (1,340,086 )  N/M  
     (Loss) on Debt Extinguishment (1)    ---    (6,956 )  6,956    N/M  
     Other Income (Expense), Net    2,396    5,048    (2,652 )  (52.5 %)
     (1,784,990 )  (486,591 )  (1,298,399 )  N/M  
Loss Before Interest and Income Taxes     (1,398,635 )  (50,436 )  (1,348,199 )  N/M  
     Interest Expense    132,224    103,709    28,515    27.5 %
     Minority Interest in Income of Subsidiary Trust    24,810    24,810    ---    0.0 %
Loss Before Income Taxes     (1,555,669 )  (178,955 )  (1,376,714 )  N/M  
     Income Tax Expense (Benefit)    (577,000 )  (44,907 )  (532,093 )  N/M  
Loss Before Minority Interest     (978,669 )  (134,048 )  (844,621 )  N/M  
     Minority Share of (Income), net of tax (1)    (9,068 )  (39,915 )  30,847    N/M  
Loss From Continuing Operations     (987,737 )  (173,963 )  (813,774 )  N/M  
Discontinued Operations     ---    (24,092 )  24,092    N/M  
Loss Before Cumulative Effect of Accounting Change     (987,737 )  (198,055 )  (789,682 )  N/M  
Cumulative effect of accounting change     3,366    ---    3,366    N/M  
Net Loss     (984,371 )  (198,055 )  (786,316 )  N/M  
     Preferred Dividend Requirement    (427 )  (458 )  31    N/M  
Net Loss Available to Common    $ (984,798 ) $ (198,513 ) $ (786,285 )  N/M  
Basic Average Common Shares Outstanding (000s)     58,644    58,661    (17 )  (0.0 %)
Basic Loss Per Share   
     Continuing Operations   $ (16.85 ) $ (2.97 ) $ (13.88 )  N/M  
     Discontinued Operations    ---    (0.41 )  0.41    N/M  
     Cumulative effect of accounting change    0.06    ---    0.06    N/M  
    $ (16.79 ) $ (3.38 ) $ (13.41 )  N/M  
Diluted Average Common Shares Outstanding (000s)     58,644    58,661    (17 )  (0.0 %)
Diluted Loss Per Share   
     Continuing Operations   $ (16.85 ) $ (2.97 ) $ (13.88 )  N/M  
     Discontinued Operations    ---    (0.41 )  0.41    N/M  
     Cumulative effect of accounting change    0.06    ---    0.06    N/M  
    $ (16.79 ) $ (3.38 ) $ (13.41 )  N/M  
Diluted EPS Continuing Operatons-- Excluding Gains (Losses) and FAS 142 Adoption    $ 2.50   $ 3.24   $ (0.74 )  (22.8 %)
Diluted EPS-- FAS 142 Adoption     ---    (0.50 )  0.50    N/M  
Diluted EPS--Gains (Losses)     (19.35 )  (5.71 )  (13.64 )  N/M  
Diluted EPS - Continuing Operations    $ (16.85 ) $ (2.97 ) $ (13.88 )  N/M  
(1)

In accordance with SFAS No. 145, effective January 1, 2002, TDS classifies gains and losses on the extinguishment of debt as Other (Expense). In prior periods, these gains and losses were classified as extraordinary items. Amounts in Other (Expense) and Minority Share of (Income) for 2001 reflect the reclassification of $7.0 million, and $1.2 million, respectively, of after-tax losses on the extinguishment of debt to conform to current period presentation.


N/M — Percentage change not meaningful.


8

TELEPHONE AND DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
 (Unaudited, dollars in thousands)


ASSETS

     December 31,  December 31,
     2002    2001  
Current Assets   
    Cash and cash equivalents   $ 1,330,291   $ 140,744  
    Accounts receivable from customers and other    448,033    379,161  
    Deposit receivable from FCC    ---    56,060  
    Federal Income Tax receivable    40,000    ---  
    Materials and supplies, at average cost, and  
       other current assets    161,043    98,391  
     1,979,367    674,356  
Investments   
    Cellular license costs, net    1,038,556    858,791 *
    Goodwill, net    1,106,451    870,801 *
    Intangible Assets    40,087    ---  
    Marketable equity securities    1,944,939    2,700,230  
    Investments in unconsolidated entities    205,995    233,678  
    Notes Receivable    7,287    101,887  
    Other investments    14,914    15,079  
     4,358,229    4,780,466  
Property, Plant and Equipment, net   
    U.S. Cellular    2,148,432    1,527,805  
    TDS Telecom    1,047,811    1,016,634  
     3,196,243    2,544,439  
Other Assets and Deferred Charges     99,544    80,313  
    $ 9,633,383   $ 8,079,574  
  

* Reclassified to conform to current year presentation.


9a

TELEPHONE AND DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
 (Unaudited, dollars in thousands)


LIABILITIES AND STOCKHOLDERS’ EQUITY


     December 31,  December 31,
     2002    2001  
Current Liabilities   
    Current portion of long-term debt   $ 64,482   $ 67,461  
    Notes payable    461,792    265,300  
    Accounts payable    393,113    270,005  
    Advance billings and customer deposits    95,922    68,044  
    Accrued interest    31,751    24,264  
    Accrued taxes    34,413    14,263  
    Accrued compensation    58,678    56,973  
    Other current liabilities    58,370    49,906  
     1,198,521    816,216  
Deferred Liabilities and Credits   
    Deferred taxes    1,170,505    1,411,061 *
    Derivative Liability    61,160    ---  
    Other    55,645    50,469  
     1,287,310    1,461,530  
Long-term Debt, excluding current portion   
    Prepaid Forward Contracts    1,656,616    ---  
    Other Long-term Debt    1,641,624    1,507,764  
     3,298,240    1,507,764  
Minority Interest     489,735    467,698  
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Company Subordinated Debentures     300,000    300,000  
Preferred Shares     6,954    7,442  
Common Stockholders' Equity   
    Common Shares, $.01 par value    559    557  
    Series A Common Shares, $.01 par value    66    68  
    Capital in excess of par value    1,832,806    1,826,840  
    Treasury Shares    (404,169 )  (406,894 )
    Accumulated other comprehensive income    191,704    (352,120 )
    Retained earnings    1,431,657    2,450,473  
     3,052,623    3,518,924  
    $ 9,633,383   $ 8,079,574  

* Reclassified to conform to current year presentation.


9b

BALANCE SHEET HIGHLIGHTS
DECEMBER 31, 2002
 (Unaudited, dollars in thousands)


U.S.
Cellular
TDS
Telecom 		TDS
Corporate
& Other
Intercompany
Eliminations
TDS
Consolidated
Cash and Cash Equivalents     $ 27,170   $ 398,078   $ 905,043   $ ---   $ 1,330,291  
Affiliated Cash Investments    709    304,065    ---    (304,774 )  ---  
Notes Receivable--Affiliates    ---    ---    447,845    (447,845 )  ---  
    $ 27,879   $ 702,143   $ 1,352,888   $ (752,619 ) $ 1,330,291  
Cellular License, Goodwill and  
  Intangibles, net   $ 1,722,272   $ 462,822   $ ---   $ ---   $ 2,185,094  
Marketable Equity Securities    185,961    50,755    1,708,223    ---    1,944,939  
Investment in Unconsolidated Entities    161,451    18,966    32,404    (6,826 )  205,995  
Notes Receivable    7,287    ---    ---    ---    7,287  
Long-term Notes Receivable - Affiliates    ---    ---    105,000    (105,000 )  ---  
Other Investments    ---    14,914    ---    ---    14,914  
    $ 2,076,971   $ 547,457   $ 1,845,627   $ (111,826 ) $ 4,358,229  
Property, Plant and  
  Equipment, net   $ 2,148,432   $ 1,047,811   $ ---   $ ---   $ 3,196,243  
Notes Payable:  
                external   $ 460,000   $ ---   $ 1,792   $ ---   $ 461,792  
                cash management    ---    ---    304,774    (304,774 )  ---  
                intercompany    ---    447,445    ---    (447,445 )  ---  
    $ 460,000   $ 447,445   $ 306,566   $ (752,219 ) $ 461,792  
Prepaid Forward Contracts   $ 159,856   $ 41,182   $ 1,455,578   $ ---   $ 1,656,616  
Long-term Debt:  
  Current Portion   $ 45,200   $ 17,888   $ 1,394   $ ---   $ 64,482  
  Affiliated    105,000    400    ---    (105,400 )  ---  
  Non-current Portion    541,605    263,039    836,980    ---    1,641,624  
     Total   $ 691,805   $ 281,327   $ 838,374   $ (105,400 ) $ 1,706,106  
Trust Originated Preferred Securities   $ ---   $ ---   $ 300,000   $ ---   $ 300,000  
Preferred Shares   $ ---   $ ---   $ 6,954   $ ---   $ 6,954  
  Total Outstanding Debt and  
        Preferred Shares   $ 1,311,661   $ 769,954   $ 2,907,472   $ (857,619 ) $ 4,131,468  
Construction Expenditures:  
   Quarter Ended 12/31/02   $ 281,615   $ 51,756           $ 333,371  
   Year Ended 12/31/02   $ 730,645   $ 168,405             $ 899,050  

10

TDS Telecom Highlights
Three Months Ended December 31,
 (Unaudited, dollars in thousands)

                   
Increase (Decrease)
     2002    2001    Amount    Percent  
Local Telephone Operations   
       Operating Revenues   
           Local Service   $ 48,912   $ 47,526   $ 1,386    2.9 %
           Network Access and Long-Distance    89,489    87,848    1,641    1.9 %
           Miscellaneous    24,853    23,794    1,059    4.5 %
     163,254    159,168    4,086    2.6 %
       Operating Expenses   
           Network Operations    39,827    32,755    7,072    21.6 %
           Customer Operations    26,620    21,065    5,555    26.4 %
           Corporate Expenses    21,591    25,461    (3,870 )  (15.2 %)
     88,038    79,281    8,757    11.0 %
       Operating Income Plus Depreciation and Amortization     75,216    79,887    (4,671 )  (5.8 %)
       Depreciation and Amortization   
           Depreciation    32,059    31,097    962    3.1 %
           Amortization    764    2,222    (1,458 )  (65.6 %)
     32,823    33,319    (496 )  (1.5 %)
       Operating Income     42,393    46,568    (4,175 )  (9.0 %)
TDS Metrocom Operations   
       Revenues    34,915    21,064    13,851    65.8 %
       Expenses before Depreciation    45,318    30,642    14,676    47.9 %
       Operating Income Plus Depreciation and Amortization     (10,403 )  (9,578 )  (825 )  (8.6 %)
       Depreciation    6,920    5,346    1,574    29.4 %
       Operating (Loss)     (17,323 )  (14,924 )  (2,399 )  (16.1 %)
USLink Operations   
       Revenues    16,173    12,344    3,829    31.0 %
       Expenses before Depreciation and Amortization    14,437    10,649    3,788    35.6 %
       Operating Income Plus Depreciation and Amortization     1,736    1,695    41    2.4 %
       Depreciation and Amortization    841    762    79    10.4 %
       Operating Income     895    933    (38 )  (4.1 %)
Intercompany Revenues    (651 )  (461 )  (190 )  N/M  
Intercompany Expenses    (651 )  (461 )  (190 )  N/M  
     ---    ---    ---    N/M  
Total TDS Telecom Operating Income    $ 25,965   $ 32,577   $ (6,612 )  (20.3 %)
N/M – Percent change not meaningful.

11

TDS Telecom Highlights
Year Ended December 31,
 (Unaudited, dollars in thousands)

                   
Increase (Decrease)
     2002    2001    Amount    Percent  
Local Telephone Operations   
       Operating Revenues   
           Local Service   $ 192,511   $ 179,529   $ 12,982    7.2 %
           Network Access and Long-Distance    346,597    319,410    27,187    8.5 %
           Miscellaneous    87,679    77,878    9,801    12.6 %
     626,787    576,817    49,970    8.7 %
       Operating Expenses   
           Network Operations    142,618    119,455    23,163    19.4 %
           Customer Operations    94,302    81,673    12,629    15.5 %
           Corporate Expenses    91,721    81,986    9,735    11.9 %
     328,641    283,114    45,527    16.1 %
       Operating Income Plus Depreciation and Amortization     298,146    293,703    4,443    1.5 %
       Depreciation and Amortization   
           Depreciation    127,952    123,665    4,287    3.5 %
           Amortization    2,280    8,122    (5,842 )  (71.9 %)
     130,232    131,787    (1,555 )  (1.2 %)
       Operating Income     167,914    161,916    5,998    3.7 %
TDS Metrocom Operations   
       Revenues    118,997    68,150    50,847    74.6 %
       Expenses before Depreciation    156,827    97,309    59,518    61.2 %
       Operating Income Plus Depreciation and Amortization     (37,830 )  (29,159 )  (8,671 )  (29.7 %)
       Depreciation    25,770    14,567    11,203    76.9 %
       Operating (Loss)     (63,600 )  (43,726 )  (19,874 )  (45.5 %)
USLink Operations   
       Revenues    57,605    50,662    6,943    13.7 %
       Expenses before Depreciation and Amortization    53,441    46,902    6,539    13.9 %
       Operating Income Plus Depreciation and Amortization     4,164    3,760    404    10.7 %
       Depreciation and Amortization    3,289    3,007    282    9.4 %
       Operating Income     875    753    122    (16.2 %)
Intercompany Revenues    (2,501 )  (1,917 )  (584 )  N/M  
Intercompany Expenses    (2,501 )  (1,917 )  (584 )  N/M  
     ---    ---    ---    N/M  
Total TDS Telecom Operating Income    $ 105,189   $ 118,943   $ (13,754 )  (11.6 %)
N/M – Percent change not meaningful.

12

TELEPHONE AND DATA SYSTEMS, INC.
SUMMARY OF INCOME STATEMENT AND RELATED EFFECTS OF 2002 ACCOUNTING CHANGES



Three Months Ended March 31, 2002 Three Months Ended June 30, 2002 Three Months Ended September 30, 2002 Nine Months Ended September 30, 2002
As Reported Effects of 2002 Accounting Changes As Adjusted As Reported Effects of 2002 Accounting Changes As Adjusted As Reported Effects of 2002 Accounting Changes As Adjusted As Reported Effects of 2002 Accounting Changes As Adjusted
Operating Revenues - US Cellular                                                    
  Changes related to EITF 01-09 - new activations reclass                   $ (2,977 )         $ (8,880 )         $ (11,857 )    
  Changes related to EITF 01-09 - new activations accrual                    --            (1,614 )          (1,614 )    
  Changes related to EITF 01-09 - retention reclass                    (393 )          (5,970 )          (6,363 )    
  Changes related to EITF 01-09 - retention accrual                    --            (1,321 )          (1,321 )    
     Total   $ 478,420   $ --   $ 478,420   $ 527,710   $ (3,370 ) $ 524,340   $ 597,571   $ (17,785 ) $ 579,786   $ 1,603,701   $(21,155 ) $1,582,546
 
Operating Expenses Before Depreciation and Amortization -  
  US Cellular  
  Changes related to EITF 01-09 - new activations reclass       $ --           $ (2,977 )         $ (8,880 )         $ (11,857 )    
  Changes related to SAB 101 - defer expenses        (830 )          (1,223 )          (937 )          (2,990 )    
  Changes related to ETIF 01-09 - retention        --            (393 )          (5,970 )          (6,363 )    
     Total   $ 326,822   $ (830 ) $ 325,992   $ 351,252   $ (4,593 ) $ 346,659   $ 430,000   $ (15,787 ) $ 414,213   $ 1,108,074   $(21,210 ) $1,086,864
 
Operating Income Plus Depreciation and Amortization (000s)   $ 151,598   $ 830   $ 152,428   $ 176,458   $ 1,223   $ 177,681   $ 167,571   $ (1,998 ) $ 165,573   $ 495,627   $ 55   $ 495,682  
Operating income (000s)   $ 78,846   $ 830   $ 79,676   $ 100,049   $ 1,223   $ 101,272   $ 64,695   $ (1,998 ) $ 62,697   $ 243,590   $ 55   $ 243,645  
Income (loss) before cumulative effect of a change in  
  accounting principle (000s)   $ 13,597   $ 413   $ 14,010   $ (952,381 ) $ 591   $ (951,790 ) $ (19,511 ) $ (977 ) $ (20,488 ) $ (958,295 ) $ 27   $ (958,268 )
Cumulative effect of a change in accounting principle (000s)   $ --   $ 3,366   $ 3,366   $ --   $ --   $ --   $ --   $ --   $ --   $ --   $ 3,366   $ 3,366  
Net income (loss) (000s)   $ 13,597   $ 3,779   $ 17,376   $ (952,381 ) $ 591   $ (951,790 ) $ (19,511 ) $ (977 ) $ (20,488 ) $ (958,295 ) $ 3,393   $ (954,902 )
Basic earnings per share from cumulative effect of a  
  change in accounting principle (000s)   $ --   $ 0.06   $ 0.06   $ --   $ --   $ --   $ --   $ --   $ --   $ --   $ 0.06   $ 0.06  
 Basic earnings per share   $ 0.23   $ 0.06   $ 0.29   $ (16.24 ) $ 0.01   $ (16.23 ) $ (0.33 ) $ (0.02 ) $ (0.35 ) $ (16.35 ) $ 0.06   $ (16.29 )


13