TDS—Financially Strong and Committed to Shareholder Value Creation
TDS is in a good position financially. It has a strong balance sheet, which was further strengthened in 2004. Taking advantage of the favorable credit markets, U.S. Cellular refinanced debt and lengthened maturity schedules, providing added financial flexibility. As a result of these and other similar activities, TDS has greater financial flexibility than ever before and ample liquidity to pursue business opportunities.

TDS's sound financial position is the result of a disciplined and conservative approach to financial management. While such an approach is not in line with financial fads “du jour,” it serves the company well by allowing TDS to seize opportunities when others are incapable of doing so.

• To grow revenues at rates consistent with or greater than the growth rates of the communications markets that TDS companies participate in, currently targeting 10 percent or greater annual compound revenue growth over five years
• To generate return on capital (ROC) in each line of business that is greater than the weighted average cost of capital in that line of business
• To maintain a strong investment-grade credit rating, targeting A-
• To generate a total return for shareholders that exceeds the returns of comparable communications companies

TDS's five-year compound annual revenue growth rate at the end of 2004 was 12 percent, in line with our objective. Our ILEC business achieved its return-on-capital objective. With the buildout of new markets at U.S. Cellular and the impact of regulatory developments on our CLEC business, these businesses still have a way to go to achieve their ROC goals. Nevertheless, all of our businesses are committed to achieving these objectives. Our credit ratings remain investment grade, A- from one agency, and BBB+ and Baa1 from the other two. During 2004 our stock appreciated significantly, and we increased the TDS dividend again, for the 31st consecutive year.

Early in 2005, in part as an initiative aimed at increasing shareholder value, the TDS board of directors approved a proposal to seek shareholder approval to increase the number of authorized Special Common Shares of TDS stock in order to issue a special stock dividend. This stock dividend would be in the form of one Special Common Share for each issued Common Share and Series A Common Share. Special Common Shares, when seasoned in the marketplace, should provide the company greater strategic and financial flexibility. TDS has also indicated that it may possibly at some point in the future offer some of the Special Common Shares to acquire the remaining 18 percent of U.S. Cellular stock that TDS does not currently own. Doing so would of course be dependent on market and other conditions.

In terms of accounting and internal controls, 2004 was the first year that public companies like TDS were required to comply with the Section 404 requirements of the Sarbanes-Oxley Act of 2002. TDS has fully supported the purposes of the Act and its emphasis on effective internal controls to support financial reporting. And reviewing internal controls is in complete alignment with our long-standing commitment to financial integrity. We have regarded the effort expended toward Sarbanes-Oxley requirements as an opportunity to further improve financial processes. Through the hard work of people throughout the company, great strides were made in 2004, which create the foundation for continued compliance in 2005 and beyond.