-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R1q25Rjng01S8+Nd//NPu6MiLkZbM5mBNRFlWV+5+9iiRbVyjFhhrOhn4PjpBxuJ tTbm8sa+rkwqkVwNL34Odw== 0001047469-03-009441.txt : 20030320 0001047469-03-009441.hdr.sgml : 20030320 20030320164746 ACCESSION NUMBER: 0001047469-03-009441 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES CELLULAR CORP CENTRAL INDEX KEY: 0000821130 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 621147325 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09712 FILM NUMBER: 03610830 BUSINESS ADDRESS: STREET 1: 8410 W BRYN MAWR AVE STREET 2: STE 700 CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 7733998900 MAIL ADDRESS: STREET 1: 301 S. WESTFIELD ROAD STREET 2: P.O. BOX 5158 CITY: MADISON STATE: WI ZIP: 53705-0158 10-K 1 a2103341z10-k.htm FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

Commission file number 1-9712

UNITED STATES CELLULAR CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware		62-1147325
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
(Address of principal executive offices) (Zip code)

Registrant's Telephone Number: (773) 399-8900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Shares, $1 par value		American Stock Exchange
Liquid Yield Option Notes Due 2015		American Stock Exchange
8.75% Senior Notes Due 2032		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X

Indicated by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No

As of February 28, 2003, the aggregate market value of registrant's Common Shares held by nonaffiliates was approximately $365.1 million (based upon the closing price of the Common Shares on February 28, 2003, of $24.35, as reported by the American Stock Exchange). For purposes hereof, it was assumed that each director, executive officer and holder of 10% or more of the voting power of the Company is an affiliate.

The number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2003, is 53,113,991 Common Shares, $1 par value, and 33,005,877 Series A Common Shares, $1 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Those sections or portions of the registrant's 2002 Annual Report to Shareholders and of the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held May 6, 2003, described in the cross reference sheet and table of contents attached hereto are incorporated by reference into Parts II and III of this report.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

		Page Number or Reference(1)
Item 1.	Business	3
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	31	(2)
Item 6.	Selected Financial Data	31	(3)
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31	(4)
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31	(4)
Item 8.	Financial Statements and Supplementary Data	31	(5)
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 10.	Directors and Executive Officers of the Registrant	33	(6)
Item 11.	Executive Compensation	33	(7)
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33	(8)
Item 13.	Certain Relationships and Related Transactions	33	(9)
Item 14.	Controls and Procedures	33
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	34

(1): Parenthetical references are to information incorporated by reference from Exhibit 13, which includes portions of the registrant's Annual Report to Shareholders for the year ended December 31, 2002 ("Annual Report") and from the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held on May 6, 2003 (the "Proxy Statement").
(2): Annual Report section entitled "United States Cellular Stock and Dividend Information."
(3): Annual Report section entitled "Selected Consolidated Financial Data."
(4): Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."
(5): Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Changes in Common Shareholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Income Information (Unaudited)," "Report of Independent Accountants" and "Copy of Previously Issued Report of Independent Accountants."
(6): Proxy Statement sections entitled "Election of Directors" and "Executive Officers."
(7): Proxy Statement section entitled "Executive Compensation," except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
(8): Proxy Statement section entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Securities Authorized for Issuance under Equity Compensation Plans."
(9): Proxy Statement section entitled "Certain Relationships and Related Transactions."

United States Cellular Corporation

8410 WEST BRYN MAWR • CHICAGO, ILLINOIS 60631
TELEPHONE (773) 399-8900

PART I

Item 1. Business

The Company

United States Cellular Corporation (the "Company") provides wireless telephone service to 4,103,000 customers through the operations of 149 majority-owned ("consolidated") wireless systems serving approximately 18% of the geography and approximately 13% of the population of the United States. Since 1985, when the Company began providing cellular service in Knoxville, Tennessee and Tulsa, Oklahoma, the Company has expanded its wireless networks and customer service operations to cover eight market areas in 25 states as of December 31, 2002. The Company owns wireless licenses covering territories in two additional states and has the rights to commence service in those licensed areas in the future. The wireless licenses that the Company currently manages cover a total population of more than one million in each market area.

The Company's ownership interests in wireless licenses include interests in licenses covering 175 cellular MSAs or RSAs and 35 personal communication service ("PCS") BTAs. Of those interests, the Company owns controlling interests in licenses covering 143 MSAs or RSAs and all 35 PCS BTAs. The Company's interests in licenses covering six PCS BTAs are owned exclusively through joint ventures ("JVs") in which the Company owns a limited partner interest; the Company is considered to have the controlling financial interest for financial reporting purposes in these PCS BTAs.

The Company manages the operations of all but two of the cellular licenses in which it owns a controlling interest; the Company has contracted with another wireless operator to manage the operations of the other two markets. The Company also manages the operations of four additional cellular licenses in which it does not own a controlling interest, through an agreement with the controlling interest holder or holders. The Company manages or has the rights to manage the operations of 29 of the 35 PCS BTAs in which it owns licenses. As of year-end 2002, six of these BTAs were operational; marketing activities had not yet begun in the other 29 BTAs. In the six PCS BTAs in which the Company owns a limited partner interest, the general partner has the authority to select the manager of these operations. None of these six PCS BTAs were operational at year-end 2002.

The following table summarizes the status of the Company's interests in wireless markets at December 31, 2002.

	Total	Cellular	PCS
Included in Consolidated Operations (1)	178	143	35
Accounted for Using Equity Method (2)	26	26	—
Accounted for Using Cost Method (3)	6	6	—

Total Markets	210	175	35

(1): The Company owns a controlling interest in each of the 143 cellular markets and 35 PCS markets. The Company owns a limited partner interest in six PCS markets, and includes the operations of these markets in its consolidated results because the Company is considered to have the controlling financial interest for financial reporting purposes. Six PCS markets were operational at year-end 2002 and the customer activity for these markets is included in the Company's consolidated results in 2002.

(2): Represents cellular markets in which the Company owns a noncontrolling interest and which are accounted for using the equity method. The Company's investments in these markets are included in investment in unconsolidated entities on its balance sheet and its proportionate share of the net income of these markets is included in investment income on its statement of operations.
(3): Represents cellular markets in which the Company owns a noncontrolling interest and which are accounted for using the cost method. The Company's investments in these markets are included in investment in unconsolidated entities on its balance sheet.

Some of the territory covered by the PCS BTA licenses the Company operates overlaps with territory covered by the cellular licenses the Company operates. In other cases, the Company owns a controlling interest in one license and a limited partner interest in another license which covers the same PCS BTA. For the purpose of tracking population counts, when the Company acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the reported amount of total population equivalents in the case of an acquisition of a licensed area that overlaps a previously owned licensed area. The incremental population equivalents that are added in such event are referred to throughout this Form 10-K as "incremental" population measurements. Amounts reported in this Form 10-K as "total market population" and "population equivalents" do not duplicate any population equivalents in the case of any overlapping licensed areas the Company owns.

The Company's wireless interests represent 42.0 million incremental population equivalents as of December 31, 2002. Overall, 95% of the Company's incremental population equivalents are in consolidated markets and 5% are in markets in which the Company holds an investment interest.

The Company is a limited partner in a JV which was a successful bidder for 17 PCS licenses in 13 markets in the January 2001 Federal Communications Commission ("FCC") spectrum auction ("Auction 35"). The JV has acquired five of such licenses in four markets, which are included in the 35 PCS BTAs discussed above. With respect to the remaining licenses, such licenses had been reauctioned by the FCC after defaults by winning bidders in a prior auction and were made subject by the FCC to the final outcome of certain legal proceedings initiated by the prior winning bidders. During 2002, the FCC allowed all successful bidders to opt out of any pending applications to purchase licenses resulting from Auction 35. The FCC approved the dismissal of the JV's pending applications and all amounts deposited with the FCC have been returned to the JV.

The Company believes that it is the eighth largest wireless company in the United States, based on internally prepared calculations of the aggregate number of customers in its consolidated markets compared to the number of customers disclosed by other wireless companies in their publicly released information. The Company's business development strategy is to operate controlling interests in wireless licenses in areas adjacent to or in proximity to its other wireless licenses, thereby building contiguous operating market areas. The Company anticipates that grouping its operations into market areas will continue to provide the Company certain economies in its capital and operating costs. As the number of opportunities for outright acquisitions has decreased in recent years, and as the Company's regions have grown, the Company's focus has broadened to include exchanges and divestitures of managed and investment interests which are considered less essential to the Company's operating strategy.

Wireless systems in the Company's 149 operational consolidated markets served 4,103,000 customers at December 31, 2002, and contained 3,914 cell sites. The average penetration rate in the Company's operational consolidated markets was 11.22% at December 31, 2002, and the churn rate in these markets averaged 2.1% per month for the twelve months ended December 31, 2002.

The Company was incorporated in Delaware in 1983. The Company's executive offices are located at 8410 West Bryn Mawr, Chicago, Illinois 60631. Its telephone number is 773-399-8900. The Common Shares of the Company are listed on the American Stock Exchange under the symbol "USM." The Company's Liquid Yield Option Notes ("LYONs") are also listed on the American Stock Exchange under the symbol "USM.B". The Company's 8.75% Senior Notes are listed on the New York Stock Exchange under the symbol "UZG". The Company is a majority-owned subsidiary of Telephone and Data Systems, Inc. ("TDS"). TDS owns 82.2% of the combined total of the outstanding Common Shares and Series A Common Shares of the Company and controls 96.0% of the combined voting power of both classes of common stock.

Unless the context indicates otherwise, references to:

•: "TDS" refers to Telephone and Data Systems, Inc., and its subsidiaries;
•: "The Company" or "U.S. Cellular" refer to United States Cellular Corporation and its subsidiaries;
•: "MSA" refer to the Metropolitan Statistical Area, as designated by the U.S. Office of Management and Budget and used by the FCC in designating metropolitan cellular market areas;
•: "RSA" refer to the Rural Service Area, as used by the FCC in designating non-MSA cellular market areas;
•: "MTA" refer to Metropolitan Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks A and B;
•: "BTA" refer to Basic Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks C through F;
•: "PCS" refer to personal communication service;
•: cellular, PCS, or wireless "markets" or "systems" refer to MSAs, RSAs, MTAs, BTAs, or any combination thereof; and
•: "population equivalents" mean the population of a market, based on 2002 Claritas estimates, multiplied by the percentage interests that the Company owns or has the right to acquire in an entity licensed or designated to receive a license from the FCC to operate a cellular or PCS system in such market ("licensee").

Available Information

The Company's website is http://www.uscellular.com. Investors may access, free of charge, through the About Us / Investor Relations portion of the website, the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after such material is electronically filed with the Securities and Exchange Commission.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical fact, including the words "believes", "anticipates", "intends", "expects", and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following risks:

•: Increases in the level of competition in the markets in which the Company operates could adversely affect the Company's revenues or increase its costs to compete.
•: Advances or changes in telecommunications technology could render certain technologies used by the Company obsolete. Competitors may have a lower fixed investment per customer because of technology changes.
•: Changes in the telecommunications regulatory environment could adversely affect the Company's financial condition or results of operations or could prevent the portion of the Company's business which depends on access to competitors' facilities from obtaining such access on reasonable terms.
•: Changes in the supply or demand of the market for wireless licenses, increased competition, adverse developments in the Company's business or the wireless industry and/or other

factors could result in an impairment of the value of the Company's investment in licenses, goodwill and/or physical assets, which may require the Company to write down the value of such assets.

•: Conversions of LYONs, early redemptions of debt or repurchases of debt, changes in estimates or other factors or developments, could cause the amounts reported under Contractual Obligations in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference herein to be different from the amounts presented.
•: Changes in circumstances relating to and/or in the assumptions underlying the accounting estimates described under Critical Accounting Policies in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference herein could have a material effect on the Company's financial condition, changes in financial condition and results of operations.
•: Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending or future litigation that are Company-specific or that apply to the wireless industry in general could have an adverse effect on the Company's financial condition, results of operations or ability to do business.
•: Costs, integration problems or other factors associated with acquisitions/divestitures of properties and or licenses could have an adverse effect on the Company's financial condition or results of operations.
•: Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on the Company's operations.
•: Changes in roaming partners, rates, and the ability to provide voice and data services on other carriers' networks could have an adverse effect on the Company's operations.
•: Changes in competitive factors with national wireless carriers could result in product and cost disadvantages and could have an adverse effect on the Company's operations.
•: Continued uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.
•: Changes in the Company's credit ratings could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.
•: Changes in circumstances or other events relating to the integration of Chicago 20MHz, including market launch costs or problems or other factors associated with such acquisition could have an adverse effect on the Company's financial condition or results of operations.
•: The continuation of the economic downturn and continued bankruptcies in the telecommunications industry could result in higher bad debts and slower business activity, which would have an adverse effect on the Company's business.
•: War, conflicts, hostilities and/or terrorists attacks could have an adverse effect on the Company's business.
•: Changes in our accounting policies, estimates or assumptions could have an adverse effect on our financial condition or results of operations.
•: Changes in general economic and business conditions, both nationally and in the market areas in which the Company operates, could have an adverse effect on the Company's business.

The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

Wireless Telephone Operations

The Wireless Telephone Industry. Wireless telephone technology provides high-quality, high-capacity communications services to hand-held portable and in-vehicle wireless telephones. Wireless telephone systems are designed for maximum mobility of the customer. Access is provided through system interconnections to local, regional, national and world-wide telecommunications networks. Wireless telephone systems also offer a full range of ancillary services such as conference calling, call-waiting, call-forwarding, voice mail, facsimile and data transmission; those systems which have digital radio capabilities may offer additional features such as caller ID, short messaging services and certain data transmission services.

Wireless telephone systems divide each service area into smaller geographic areas or "cells." Each cell is served by radio transmitters and receivers which operate on discrete radio frequencies licensed by the FCC. All of the cells in a system are connected to a computer-controlled Mobile Telephone Switching Office ("MTSO"). The MTSO is connected to the conventional ("landline") telephone network and potentially other MTSOs. Each conversation on a wireless phone involves a transmission over a specific set of radio frequencies from the wireless phone to a transmitter/receiver at a cell site. The transmission is forwarded from the cell site to the MTSO and from there may be forwarded to the landline telephone network or to another wireless phone to complete the call. As the wireless telephone moves from one cell to another, the MTSO determines radio signal strength and transfers ("hands off") the call from one cell to the next. This hand-off is not noticeable to either party on the phone call.

The FCC currently grants two licenses to provide cellular telephone service in each cellular licensed area. Multiple licenses have been granted in each PCS licensed area, and PCS licensed areas (BTAs and MTAs) overlap with cellular licensed areas. As a result, PCS license holders can and do compete with cellular license holders for customers. Competition for customers also includes competing communications technologies, such as:

•: conventional landline telephone,
•: Specialized Mobile Radio ("SMR") systems,
•: mobile satellite communications systems, and
•: radio paging.

PCS licensees have initiated service in nearly all areas of the United States, including substantially all of the Company's licensed areas, and the Company expects other wireless operators to continue deployment of PCS in all of the Company's operating regions throughout 2003. Additionally, technologies such as Enhanced Specialized Mobile Radio ("ESMR") and mobile satellite communication systems are proving to be competitive with wireless service in many of the Company's markets.

The services available to wireless customers and the sources of revenue available to wireless system operators are similar to those provided by conventional landline telephone companies. Customers may be charged a separate fee for system access, airtime, long-distance calls and ancillary services. Wireless system operators also provide service to customers of other operators' wireless systems while the customers are temporarily located within the operators' service areas. Customers using service away from their home system are called "roamers." Roaming is available because technical standards require that analog wireless telephones be compatible in all market areas in the United States. Additionally, because the Company has deployed digital radio technologies in substantially all of its service areas, its customers with digital, dual-mode (both analog and digital capabilities) or tri-mode (analog plus digital capabilities at both the cellular and PCS radio frequencies) wireless telephones can roam in other companies' service areas which have a compatible digital technology in place. Likewise, the Company can provide roaming service to other companies' customers who have compatible digital wireless telephones. In all cases, the

system that provides the service to roamers will generate usage revenue, at rates that have been negotiated between the serving carrier and the customer's carrier.

There have been a number of technical developments in the wireless industry since its inception. Currently, while substantially all companies' MTSOs process information digitally, on certain cellular systems the radio transmission uses analog technology. All PCS systems utilize digital radio transmission. Several years ago, certain digital transmission techniques were approved for implementation by the wireless industry. Time Division Multiple Access ("TDMA") technology was selected as one industry standard by the wireless industry and has been deployed by many wireless operators, including the Company's operations in a substantial portion of its markets. Another digital technology, Code Division Multiple Access ("CDMA"), is also being deployed by the Company in its remaining markets. In 2002, the Company began its plans to deploy CDMA 1XRTT technology, which allows for higher speed data transmission, throughout all of its markets, over a three-year period ending in 2004. As of December 31, 2002, the Company had deployed CDMA 1XRTT technology in a substantial portion of its Midwest market area, where it had previously deployed TDMA technology, as part of its technology conversion plans.

The Company will continue to deploy the TDMA technology currently in place for the next few years. Migration of the Company's customers to CDMA handsets in these markets is expected to take a few years; in addition, continuing to deploy its current TDMA technology will enable the Company to use both CDMA and TDMA to serve roaming customers in these markets.

Digital radio technology offers several advantages, including the following:

•: greater privacy,
•: less transmission noise,
•: data transmission capabilities,
•: greater system capacity, and
•: potentially lower incremental costs to accommodate additional system usage.

The conversion from analog to digital radio technology is continuing on an industry-wide basis; however, this process is expected to continue for a few more years. Wireless operators in the United States have deployed TDMA, CDMA and a third digital technology, Global System for Mobile Communication ("GSM"), in the licensed areas where they have begun operations.

The Company's Operations. From its inception in 1983 until 1993, the Company was principally in a start-up phase. Until 1993, the Company's activities had been concentrated significantly on the acquisition of interests in cellular licenses and on the construction and initial operation of wireless systems. The development of a wireless system is capital-intensive and requires substantial investment prior to and subsequent to initial operation. The Company experienced operating losses and net losses from its inception until 1993. In the years since 1993, the Company has produced operating income and net income, except in 2002 when higher operating expenses and losses on investments resulted in a net loss for the year.

Management anticipates further growth in wireless units in service and revenues as the Company continues to expand through internal growth and as the PCS licenses acquired in 2001 and 2002 become fully integrated into the Company's operations. Expenses associated with this expansion may reduce the rate of growth in cash flows from operating activities and operating income during the period of additional growth. In addition, the Company anticipates that the seasonality of revenue streams and operating expenses may cause the Company's cash flows from operating activities and operating income to vary from quarter to quarter.

While the Company has produced operating income and net income since 1993 (except the net loss in 2002), changes in any of several factors may reduce the Company's growth in operating income and net income over the next few years. These factors include:

•: the growth rate in the Company's customer base;
•: the usage and pricing of wireless services;
•: the cost to begin or integrate operations of newly acquired licensed areas;

•: the percentage of customers who discontinue service (the "churn rate");
•: the cost of providing wireless services, including the cost of attracting and retaining customers;
•: the Company's migration to a single digital equipment platform, which will require substantial capital expenditures;
•: continued competition from other wireless licensees and other telecommunication technologies; and
•: continuing technological advances which may provide additional competitive alternatives to wireless service.

The Company is building a substantial presence in selected geographic areas throughout the United States where it can efficiently integrate and manage wireless telephone systems. Its wireless interests include eight operating market areas. See "The Company's Wireless Interests."

The Company has acquired its wireless interests through the wireline application process for MSAs and RSAs, including settlements and exchanges with other applicants, and through acquisitions, including acquisitions from TDS and third parties.

Wireless Systems Development

Acquisitions, Divestitures and Exchanges. The Company assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from grouping its markets geographically. The Company also reviews attractive opportunities for the acquisition of additional wireless spectrum. Over the past few years, the Company has completed exchanges of minority interests or controlling interests in its less strategic markets for controlling interests in markets which better complement its operating market areas. The Company has also completed outright sales of other less strategic markets, and has purchased controlling interests in markets which enhance its operating market areas. In 2001, the Company began acquiring interests in PCS markets. These markets are either adjacent to the Company's current operations, thus expanding its current operating market areas, or are in territories in which the Company currently operates, and will add spectrum capacity to those operations. As a result of its acquisition activities, currently 95% of the Company's interests are in markets where it is the operator or expects to manage.

The Company may continue to make opportunistic acquisitions or exchanges in markets that further strengthen its operating market areas and in other attractive markets. The Company also seeks to acquire minority interests in markets where it already owns the majority interest and/or operates the market. There can be no assurance that the Company, or TDS for the benefit of the Company, will be able to negotiate additional acquisitions or exchanges on terms acceptable to it or that regulatory approvals, where required, will be received. The Company plans to retain minority interests in certain wireless markets which it believes will earn a favorable return on investment. Other minority interests may be exchanged for interests in markets which enhance the Company's operations or may be sold for cash or other consideration. The Company also continues to evaluate the disposition of certain controlling interests in wireless licenses which are not essential to its corporate development strategy.

Acquisition of Chicago 20MHz. On August 7, 2002, the Company completed the acquisition of all of the assets and certain liabilities of in Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). The purchase price was approximately $618 million, including working capital and other adjustments. Chicago 20MHz operated the PrimeCo wireless system in the Chicago Major Trading Area ("MTA"), and is the holder of certain FCC licenses, including a 20 megahertz ("MHz") PCS license in the Chicago MTA (excluding Kenosha County, Wisconsin) covering a total population of 13.2 million.

The Company financed the Chicago 20MHz purchase using $175 million from the Company's 9% Series A Notes due 2032 issued to PrimeCo, $105 million from an intercompany note with TDS and the remaining amount from the Company's $500 million revolving credit facility with a series of banks. Net of cash acquired in the transaction and bonds issued to the sellers of Chicago 20MHz, the Company used cash totaling $431.9 million for the acquisition of Chicago 20MHz.

Other Acquisitions. Additionally in 2002, the Company, through JVs, acquired majority interests in 10 MHz licenses in three PCS markets. The interests the Company acquired are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. The Company also acquired the remaining minority interests in three other PCS markets in which it previously owned an interest, resulting in 100% ownership in those markets. The aggregate amount paid by the Company to acquire the interests in these transactions, which represented 1.4 million population equivalents (684,000 incremental population equivalents), was $21.1 million.

The Company has an effective shelf registration for its Common Shares and Preferred Stock under the Securities Act of 1933 for issuance specifically in connection with acquisitions.

Pending Acquisition—Subsequent Event. On March 10, 2003, the Company announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. The Company will receive 10 and 20 MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. The Company will also receive approximately $31 million in cash and minority interests in six markets it currently controls. The Company will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total Company revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the Company's properties and the assignment to the Company of most of the PCS licenses is expected to occur in the third quarter of 2003. The assignment and development of certain licenses will be deferred by the Company until later periods. The acquisition of licenses in the exchange will be accounted for as a purchase by the Company and the transfer of the properties by the Company will be accounted for as a sale. The buildout of the licenses could require substantial capital investment by the Company over the next several years. The Company is currently working on a buildout and financing plan for these markets.

The following table summarizes by major classes, the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

		December 31, 2002
		(Dollars in millions)
Current assets		$	16.8
Net property, plant and equipment			86.0
Licenses			53.1
Goodwill			78.2
Other			.6

	Total assets		234.7
Current liabilities			(13.4	)

Net assets to be transferred		$	221.3

The Company is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, the Company will reclassify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

Wireless Interests and Operating Market Areas

The Company operates its adjacent wireless systems under an organization structure in which it groups its markets into geographic market areas to offer customers large local service areas which primarily utilize the Company's network. Customers may make outgoing calls and receive incoming calls within each market area without special roaming arrangements. In addition to benefits to customers, its operating strategy also has provided to the Company certain economies in its capital and operating costs. These economies are made possible through increased sharing of facilities, personnel and other costs and enable the Company to maintain a relatively low per customer cost of service. The extent to which the Company benefits from these revenue

enhancements and economies of operation is dependent on market conditions, population size of each market area and network engineering considerations.

The Company may continue to make opportunistic acquisitions and exchanges which will complement its established operating market area. From time to time, the Company may also consider exchanging or selling its interests in markets which do not fit well with its long-term strategies.

The Company owned interests in wireless telephone systems in 175 cellular markets and 35 PCS markets at December 31, 2002, representing 42.0 million incremental population equivalents. The following table summarizes the changes in the Company's incremental population equivalents in recent years.

		December 31,
		2002	2001	2000	1999	1998
		(Thousands of population equivalents) (1)
Included in Consolidated Operations (2)
	Cellular	25,589	25,546	25,133	25,172	24,911
	PCS	14,378	2,903	—	—	—
To Be Included in Consolidated Operations (3)
	Cellular	—	—	133	—	—
	PCS	—	655	—	—	—

Total Markets To Be Included in Consolidated Operations
	Cellular	25,589	25,546	25,266	25,172	24,911
	PCS	14,378	3,558	—	—	—
Accounted for Using Equity Method (cellular only) (4)		2,005	2,077	2,348	2,333	2,601
Accounted for Using Cost Method (cellular only) (5)		73	76	45	45	46

Total
	Cellular	27,667	27,699	27,659	27,550	27,558
	PCS	14,378	3,558	—	—	—

	Total wireless population equivalents	42,045	31,257	27,659	27,550	27,558

(1): Based on 2002 Claritas estimates for all years.
(2): Includes incremental population equivalents in markets in which the Company owns a controlling interest at the end of each respective year, and in 2002 and 2001 also includes incremental population equivalents in PCS markets in which the Company owns a noncontrolling limited partner interest but the Company is considered to have the controlling financial interest for financial reporting purposes.
(3): In 2001, includes incremental population equivalents in markets in which the Company has the right to acquire noncontrolling limited partner interests in PCS markets in which the Company will be considered to have the controlling financial interest for financial reporting purposes. In 2000, includes population equivalents in a market in which the Company had the right, pursuant to agreements pending at the end of the year, to acquire a controlling interest.
(4): Includes population equivalents in markets in which the Company owns noncontrolling interests at the end of each respective year, and which are accounted for using the equity method.
(5): Includes population equivalents in markets in which the Company owns noncontrolling interests at the end of each respective year, and which are accounted for using the cost method.

The following section details the Company's wireless interests, including those it owned or had the right to acquire as of December 31, 2002. The table presented therein lists the cellular and PCS markets that the Company manages or has the right to manage grouped according to operating market area. The Company's operating structure shows the areas in which the Company is currently focusing its development efforts. These market areas have been devised with a long-term goal of allowing delivery of wireless service to areas of economic interest and along corridors of economic activity. The number of incremental population equivalents represented by the Company's wireless interests may have no direct relationship to the number of potential wireless customers or the revenues that may be realized from the operation of the related wireless systems.

THE COMPANY'S WIRELESS INTERESTS

The table below sets forth certain information with respect to the interests in wireless markets which the Company owned or had the right to acquire pursuant to definitive agreements as of December 31, 2002.

Some of the territory covered by the PCS BTA licenses the Company owns overlaps with territory covered by the cellular licenses the Company owns. In other cases, the Company owns a controlling interest in one license and a limited partner interest in another license which covers the same PCS BTA. For the purpose of tracking amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, when the Company acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, in the case of an acquisition of a licensed area that overlaps a previously owned licensed area.

Market Area/Market			2002 Population (1)	Current Percentage Interest		Percentage Change Pursuant To Definitive Agreements (2)		Total		Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
Markets Currently Managed or Which May Be Managed by the Company:
MIDWEST MARKET AREA:
	Chicago MTA
		Chicago, IL-IN-MI-OH 20MHz B Block MTA # (3) (4)	13,181,000	100.00	%			100.00	%	13,181,000	12,037,000

	Wisconsin/Minnesota
		Milwaukee, WI	1,506,000	100.00				100.00		1,506,000	1,506,000
		Columbia (WI 9)	411,000	100.00				100.00		411,000	411,000
		Madison, WI	434,000	92.50				92.50		402,000	402,000
		Appleton, WI	364,000	100.00				100.00		364,000	364,000
		Wood (WI 7)	299,000	100.00				100.00		299,000	299,000
		Rochester, MN 10MHz F Block # (5)	260,000	85.00		15.00	%	100.00		260,000	260,000
		Vernon (WI 8)	243,000	100.00				100.00		243,000	243,000
		Green Bay, WI	231,000	100.00				100.00		231,000	231,000
		Racine, WI	190,000	92.15				92.15		175,000	175,000
		Janesville-Beloit, WI	153,000	100.00				100.00		153,000	153,000
		Kenosha, WI	154,000	99.32				99.32		153,000	153,000
		Door (WI 10)	131,000	100.00				100.00		131,000	131,000
		Sheboygan, WI	114,000	100.00				100.00		114,000	114,000
		La Crosse, WI	108,000	95.11				95.11		103,000	103,000
		Trempealeau (WI 6) (3)	88,000	100.00				100.00		88,000	88,000
		Pierce (WI 5) (3)	14,000	100.00				100.00		14,000	14,000
		Madison, WI 10MHz F Block #	694,000	100.00				100.00		694,000	—

											4,647,000

	Iowa
		Des Moines, IA	463,000	100.00				100.00		463,000	463,000
		Davenport, IA-IL	358,000	97.37				97.37		348,000	348,000
		Humboldt (IA 10)	188,000	100.00				100.00		188,000	188,000
		Cedar Rapids, IA	194,000	96.43				96.43		187,000	187,000
		Iowa (IA 6)	158,000	100.00				100.00		158,000	158,000
		Muscatine (IA 4)	154,000	100.00				100.00		154,000	154,000
		Waterloo-Cedar Falls, IA	151,000	93.03				93.03		140,000	140,000
		Hardin (IA 11)	114,000	100.00				100.00		114,000	114,000
		Iowa City, IA	113,000	100.00				100.00		113,000	113,000
		Jackson (IA 5)	108,000	100.00				100.00		108,000	108,000
		Kossuth (IA 14)	105,000	100.00				100.00		105,000	105,000
		Lyon (IA 16)	103,000	100.00				100.00		103,000	103,000
		Dubuque, IA	89,000	95.51				95.51		85,000	85,000
		Mitchell (IA 13)	65,000	100.00				100.00		65,000	65,000
		Audubon (IA 7)	55,000	100.00				100.00		55,000	55,000
		Union (IA 2)	51,000	100.00				100.00		51,000	51,000
		Monroe (IA 3)	90,000	49.00				49.00		44,000	44,000
		Winneshiek (IA 12)	116,000	24.50				24.50		28,000	28,000
		Ida (IA 9) *	61,000	16.67				16.67		10,000	10,000
		Des Moines, IA 10MHz D Block #	811,000	100.00				100.00		811,000	—
		Davenport, IA-IL 10MHz E Block #	428,000	100.00				100.00		428,000	—
		Clinton, IA-IL 10MHz E Block #	146,000	100.00				100.00		146,000	—
		Burlington, IA-IL-MO 10MHz E Block #	135,000	100.00				100.00		135,000	—
		Iowa City, IA 10MHz E Block #	134,000	100.00				100.00		134,000	—
		Ottumwa, IA 10MHz E Block #	123,000	100.00				100.00		123,000	—

											2,519,000

		2002 Population (1)	Current Percentage Interest		Percentage Change Pursuant To Definitive Agreements (2)		Total		Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
Western Illinois
	Peoria, IL	346,000	100.00	%			100.00	%	346,000	346,000
	Jo Daviess (IL 1)	326,000	100.00				100.00		326,000	326,000
	Rockford, IL	324,000	100.00				100.00		324,000	324,000
	Adams (IL 4) * (3)	215,000	100.00				100.00		215,000	215,000
	Mercer (IL 3)	196,000	100.00				100.00		196,000	196,000
	Alton, IL *	22,000	100.00				100.00		22,000	22,000
	Rockford, IL 10MHz E Block #	460,000	100.00				100.00		460,000	—
	Peoria, IL 10MHz E Block #	459,000	100.00				100.00		459,000	—
	Peoria, IL 10MHz C Block # (5)	459,000	85.00				85.00		390,000	—
	LaSalle-Peru-Ottawa-Streator, IL 10MHz F Block # (6)	153,000	85.00		15.00	%	100.00		153,000	—
	LaSalle-Peru-Ottawa-Streator, IL 10MHz C Block # (5)	153,000	85.00				85.00		130,000	—
	Galesburg, IL 30MHz C Block # (6)	74,000	85.00		15.00		100.00		74,000	—
	Jacksonville, IL 10MHz F Block # (6)	70,000	85.00		15.00		100.00		70,000	—

										1,429,000

Nebraska/Missouri/Iowa
	Omaha, NE-IA 10MHz E Block #	999,000	100.00				100.00		999,000	948,000
	St. Joseph, MO-KS 10MHz E Block #	197,000	100.00				100.00		197,000	197,000
	Mills (IA 1)	62,000	100.00				100.00		62,000	62,000

										1,207,000

Missouri
	Moniteau (MO 11)	160,000	100.00				100.00		160,000	160,000
	Columbia, MO *	138,000	100.00				100.00		138,000	138,000
	Stone (MO 15)	133,000	100.00				100.00		133,000	133,000
	Laclede (MO 16)	107,000	100.00				100.00		107,000	107,000
	Washington (MO 13)	98,000	100.00				100.00		98,000	98,000
	Callaway (MO 6) *	92,000	100.00				100.00		92,000	92,000
	Sedalia, MO 10MHz C Block # (5)	94,000	85.00				85.00		80,000	63,000
	Schuyler (MO 3)	56,000	100.00				100.00		56,000	56,000
	Shannon (MO 17)	56,000	100.00				100.00		56,000	56,000
	Linn (MO 5) (3)	55,000	100.00				100.00		55,000	55,000
	Harrison (MO 2) (3)	13,000	100.00				100.00		13,000	13,000

										971,000

Central Illinois/Indiana
	Miami (IN 4) *	187,000	85.71				85.71		160,000	160,000
	Warren (IN 5) *	128,000	33.33				33.33		43,000	43,000
	Springfield, IL 10MHz E Block #	267,000	100.00				100.00		267,000	—
	Springfield, IL 10MHz F Block # (6)	267,000	85.00		15.00		100.00		267,000	—
	Decatur-Effingham, IL 10MHz E Block #	247,000	100.00				100.00		247,000	—
	Decatur-Effingham, IL 10MHz F Block # (6)	247,000	85.00		15.00		100.00		247,000	—
	Bloomington, IL 10MHz E Block #	241,000	100.00				100.00		241,000	—
	Bloomington, IL 10MHz F Block # (6)	241,000	85.00		15.00		100.00		241,000	—
	Champaign-Urbana, IL 10MHz E Block #	231,000	100.00				100.00		231,000	—
	Champaign-Urbana, IL 10MHz F Block # (6)	231,000	85.00		15.00		100.00		231,000	—
	Danville, IL-IN 15MHz C Block # (5)	109,000	85.00				85.00		92,000	—
	Mattoon, IL 10MHz E Block #	64,000	100.00				100.00		64,000	—
	Mattoon, IL 10MHz F Block # (6)	64,000	85.00		15.00		100.00		64,000	—

										203,000

	TOTAL MIDWEST MARKET AREA									23,013,000

Market Area/Market			2002 Population (1)	Current Percentage Interest		Total		Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
MID-ATLANTIC MARKET AREA:
	Eastern North Carolina/South Carolina
		Harnett (NC 10)	339,000	100.00	%	100.00	%	339,000	339,000
		Rockingham (NC 7)	316,000	100.00		100.00		316,000	316,000
		Northampton (NC 8)	299,000	100.00		100.00		299,000	299,000
		Greenville (NC 14)	263,000	100.00		100.00		263,000	263,000
		Greene (NC 13)	255,000	100.00		100.00		255,000	255,000
		Hoke (NC 11)	249,000	100.00		100.00		249,000	249,000
		Wilmington, NC	243,000	98.83		98.83		240,000	240,000
		Chesterfield (SC 4)	225,000	100.00		100.00		225,000	225,000
		Chatham (NC 6)	178,000	100.00		100.00		178,000	178,000
		Jacksonville, NC	150,000	97.57		97.57		147,000	147,000
		Sampson (NC 12)	155,000	100.00		100.00		155,000	155,000
		Camden (NC 9)	121,000	100.00		100.00		121,000	121,000

									2,787,000

	Virginia/North Carolina
		Roanoke, VA	244,000	100.00		100.00		244,000	244,000
		Giles (VA 3)	219,000	100.00		100.00		219,000	219,000
		Bedford (VA 4)	192,000	100.00		100.00		192,000	192,000
		Ashe (NC 3)	175,000	100.00		100.00		175,000	175,000
		Lynchburg, VA	164,000	100.00		100.00		164,000	164,000
		Charlottesville, VA	165,000	95.37		95.37		157,000	157,000
		Buckingham (VA 7)	96,000	100.00		100.00		96,000	96,000
		Tazewell (VA 2) (3)	139,000	100.00		100.00		139,000	139,000
		Bath (VA 5)	63,000	100.00		100.00		63,000	63,000

									1,449,000

	West Virginia/Maryland/Pennsylvania/Ohio
		Monongalia (WV 3) *	268,000	100.00		100.00		268,000	268,000
		Raleigh (WV 7) *	251,000	100.00		100.00		251,000	251,000
		Grant (WV 4) *	191,000	100.00		100.00		191,000	191,000
		Salisbury, MD 20MHz C Block # (5)	192,000	85.00		85.00		163,000	163,000
		Tucker (WV 5) *	128,000	100.00		100.00		128,000	128,000
		Hagerstown, MD *	135,000	100.00		100.00		135,000	135,000
		Ross (OH 9) *	244,000	49.00		49.00		119,000	119,000
		Cumberland, MD *	102,000	100.00		100.00		102,000	102,000
		Bedford (PA 10) * (3)	50,000	100.00		100.00		50,000	50,000
		Garrett (MD 1) *	30,000	100.00		100.00		30,000	30,000

									1,437,000

		TOTAL MID-ATLANTIC MARKET AREA							5,673,000

NORTHWEST MARKET AREA:
	Washington/Oregon/Idaho
		Clark (ID 6)	307,000	100.00		100.00		307,000	307,000
		Yakima, WA *	223,000	87.81		87.81		196,000	196,000
		Richland-Kennewick-Pasco, WA *	198,000	100.00		100.00		198,000	198,000
		Pacific (WA 6) *	190,000	100.00		100.00		190,000	190,000
		Butte (ID 5) (7)	176,000	100.00		100.00		176,000	176,000
		Umatilla (OR 3) *	162,000	100.00		100.00		162,000	162,000
		Okanogan (WA 4)	117,000	100.00		100.00		117,000	117,000
		Hood River (OR 2) *	82,000	100.00		100.00		82,000	82,000
		Kittitas (WA 5) * (3)	83,000	98.24		98.24		81,000	81,000
		Skamania (WA 7) *	30,000	100.00		100.00		30,000	30,000

									1,539,000

Market Area/Market			2002 Population (1)	Current Percentage Interest		Total		Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
	Oregon/California
		Coos (OR 5)	262,000	100.00	%	100.00	%	262,000	262,000
		Crook (OR 6) *	221,000	100.00		100.00		221,000	221,000
		Del Norte (CA 1)	216,000	100.00		100.00		216,000	216,000
		Medford, OR *	186,000	100.00		100.00		186,000	186,000
		Mendocino (CA 9)	148,000	100.00		100.00		148,000	148,000
		Modoc (CA 2)	65,000	100.00		100.00		65,000	65,000

									1,098,000

		TOTAL NORTHWEST MARKET AREA							2,637,000

FLORIDA/GEORGIA MARKET AREA:
		Daytona Beach, FL 20MHz C Block # (5)	511,000	85.00		85.00		434,000	434,000
		Fort Pierce, FL *	335,000	100.00		100.00		335,000	335,000
		Tallahassee, FL	328,000	100.00		100.00		328,000	328,000
		Worth (GA 14)	275,000	100.00		100.00		275,000	275,000
		Gainesville, FL	257,000	100.00		100.00		257,000	257,000
		Toombs (GA 11)	166,000	100.00		100.00		166,000	166,000
		Walton (FL 10)	135,000	100.00		100.00		135,000	135,000
		Harrison (FL 7) (7)	133,000	100.00		100.00		133,000	133,000
		Putnam (FL 5) (3)	71,000	100.00		100.00		71,000	71,000
		Dixie (FL 6)	66,000	100.00		100.00		66,000	66,000
		Jefferson (FL 8) (3)	54,000	100.00		100.00		54,000	54,000
		Calhoun (FL 9)	47,000	100.00		100.00		47,000	47,000

		TOTAL FLORIDA/GEORGIA MARKET AREA							2,301,000

TEXAS/OKLAHOMA/MISSOURI/KANSAS MARKET AREA:
		Tulsa, OK *	853,000	55.06		55.06		470,000	470,000
		Garvin (OK 9)	211,000	100.00		100.00		211,000	211,000
		Joplin, MO *	161,000	100.00		100.00		161,000	161,000
		Seminole (OK 6)	223,000	55.06		55.06		123,000	123,000
		Elk (KS 15) *	153,000	75.00		75.00		115,000	115,000
		Wichita Falls, TX *	144,000	78.46		78.46		113,000	113,000
		Lawton, OK *	115,000	78.46		78.46		90,000	90,000
		Haskell (OK 10)	84,000	100.00		100.00		84,000	84,000
		Stillwater, OK 10MHz F Block #	80,000	100.00		100.00		80,000	80,000
		Jackson (OK 8) *	93,000	78.46		78.46		73,000	73,000
		Enid, OK 10MHz C Block # (5)	85,000	85.00		85.00		72,000	72,000
		Nowata (OK 4) * (3)	108,000	55.06		55.06		60,000	60,000
		Ponca City, OK 30MHz C Block #	48,000	100.00		100.00		48,000	48,000
		Hardeman (TX 5) * (3)	38,000	78.46		78.46		30,000	30,000
		Briscoe (TX 4) * (3)	12,000	78.46		78.46		10,000	10,000
		Beckham (OK 7) * (3)	9,000	78.46		78.46		7,000	7,000

		TOTAL TEXAS/OKLAHOMA/MISSOURI/KANSAS MARKET AREA							1,747,000

MAINE/NEW HAMPSHIRE/VERMONT MARKET AREA:
		Manchester-Nashua, NH	393,000	94.10		94.10		369,000	369,000
		Carroll (NH 2)	245,000	100.00		100.00		245,000	245,000
		Coos (NH 1) *	234,000	100.00		100.00		234,000	234,000
		Kennebec (ME 3)	230,000	100.00		100.00		230,000	230,000
		Somerset (ME 2)	141,000	100.00		100.00		141,000	141,000
		Bangor, ME	146,000	91.88		91.88		134,000	134,000
		Addison (VT 2) * (3)	111,000	100.00		100.00		111,000	111,000
		Lewiston-Auburn, ME	104,000	83.63		83.63		87,000	87,000
		Washington (ME 4) *	87,000	100.00		100.00		87,000	87,000
		Oxford (ME 1)	85,000	100.00		100.00		85,000	85,000

		TOTAL MAINE/NEW HAMPSHIRE/VERMONT MARKET AREA							1,723,000

Market Area/Market			2002 Population (1)	Current Percentage Interest		Total		Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET AREA:
	Knoxville, TN *		583,000	96.03	%	96.03	%	560,000	560,000
	Asheville, NC *		230,000	100.00		100.00		230,000	230,000
	Henderson (NC 4) * (3)		218,000	100.00		100.00		218,000	218,000
	Bledsoe (TN 7) * (3)		180,000	96.03		96.03		173,000	173,000
	Hamblen (TN 4) * (3)		156,000	100.00		100.00		156,000	156,000
	Cleveland, TN 10MHz C Block # (5)		106,000	85.00		85.00		90,000	76,000
	Yancey (NC 2) * (3)		34,000	100.00		100.00		34,000	34,000

	TOTAL EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET AREA								1,447,000

SOUTHERN TEXAS MARKET AREA:
	Corpus Christi, TX		385,000	100.00		100.00		385,000	385,000
	Atascosa (TX 19) (7)		273,000	100.00		100.00		273,000	273,000
	Edwards (TX 18)		236,000	100.00		100.00		236,000	236,000
	Laredo, TX		204,000	100.00		100.00		204,000	204,000
	Wilson (TX 20)		163,000	100.00		100.00		163,000	163,000
	Victoria, TX		86,000	100.00		100.00		86,000	86,000

	TOTAL SOUTHERN TEXAS MARKET AREA								1,347,000

Other Markets:
	Jefferson (NY 1) *		248,000	60.00		60.00		149,000	149,000
	Franklin (NY 2) *		230,000	57.14		57.14		131,000	131,000

									280,000

		Total Managed Markets							40,168,000

Cluster/Market			2002 Population (1)	Current Percentage Interest	Total	Total Current and Acquirable Population Equivalents (1)	Incremental Current and Acquirable Population Equivalents (1)
Markets Managed by Others:
	Los Angeles/Oxnard, CA *		16,841,000	5.50	5.50	926,000	926,000
	Oklahoma City, OK *		1,061,000	14.60	14.60	155,000	155,000
	Rochester, MN/Chippewa (MN 7)/Lac Qui Parle (MN 8)/Pipestone (MN 9)/Le Sueur (MN 10)/Goodhue (MN 11) *		960,000	15.74	15.74	152,000	152,000
	Raleigh-Durham/Fayetteville/Burlington, NC *		1,452,000	7.98	7.98	116,000	116,000
	Cherokee (NC 1) *		205,000	50.00	50.00	103,000	103,000
	Others (Fewer than 100,000 population equivalents each)					425,000	425,000

		Total Population Equivalents of Markets Managed by Others					1,877,000

		Total Population Equivalents					42,045,000

*: Designates wireline cellular licensed area.
#: Designates PCS licensed area.
(1): "2002 Population" represents the total population of the licensed area in which the Company has an interest, based on 2002 Claritas estimates. "Total Current and Acquirable Population Equivalents" represents the Company's proportionate share of the population in the "2002 Population" column, based on the percentage in the "Total" column. In PCS licensed areas, "Incremental Current and Acquirable Population Equivalents" represents the population equivalents related to the portion of the PCS licensed areas owned or to be acquired that is not already served by a cellular licensed area in which the Company owns an interest in and manages.

(2): Interests under these agreements are expected to be acquired at the time specified therein, following the satisfaction of customary closing conditions.
(3): These markets have been partitioned into more than one licensed area. The 2002 population, percentage ownership and number of population equivalents shown are for the licensed areas within the markets in which the Company owns an interest.
(4): This PCS licensed area is made up of 18 BTAs, as follows: Benton Harbor, MI; Bloomington, IL; Champaign-Urbana, IL; Chicago, IL (excluding Kenosha County, WI); Danville, IL-IN; Decatur-Effingham, IL; Elkhart, IN-MI; Fort Wayne, IN-OH; Galesburg, IL; Jacksonville, IL; Kankakee, IL; LaSalle-Peru-Ottawa-Streator, IL; Mattoon, IL; Michigan City, IN; Peoria, IL; Rockford, IL; South Bend-Mishawaka, IN; and Springfield, IL.
(5): The Company's interests in these licensed areas have been acquired through JV agreements with third parties. The Company owns limited partnership interests in these JVs, which are controlled by the third parties, who own general partner interests. The general partner in each JV has sole authority to select the manager of these licensed areas.
(6): The Company's interests in these licensed areas have been acquired through JV agreements with third parties. The Company owns limited partnership interests in these JVs, which are controlled by the third parties, who own the general partner interests. The Company will manage the operations of these licensed areas through management agreements with the general partners.
(7): These licensed areas include territory and population equivalents of fill-in areas which were annexed from adjacent MSAs or RSAs.

System Design and Construction. The Company designs and constructs its systems in a manner it believes will permit it to provide high-quality service to substantially all types of wireless telephones, based on market and engineering studies which relate to specific markets. Such engineering studies are performed by Company personnel or independent engineering firms. The Company's switching equipment is digital, which improves transmission quality and is capable of interconnecting in a manner which reduces costs of operation. Both analog and digital radio transmissions are made between cell sites and the wireless telephones. During 2002, approximately 85% of this traffic utilized digital radio transmissions. Network reliability is given careful consideration and extensive redundancy is employed in many aspects of the Company's network design, though not all of the Company's MTSOs and cell sites have backup power capabilities, nor does all of its Wide Area Network ("WAN"). Route diversity, ring topology and extensive use of emergency standby power are also utilized to enhance network reliability and minimize service disruption from any particular network failure.

In accordance with its strategy of building and strengthening its operating market areas, the Company has selected high-capacity digital wireless switching systems that are capable of serving multiple markets through a single MTSO. The Company's wireless systems are designed to facilitate the installation of equipment which will permit microwave interconnection between the MTSO and the cell site. The Company has implemented such microwave interconnection in many of the wireless systems it operates. In other areas, the Company's systems rely upon landline telephone connections to link cell sites with the MTSO. Although the installation of microwave network interconnection equipment requires a greater initial capital investment, a microwave network enables a system operator to avoid the current and future charges associated with leasing telephone lines from the landline telephone company. In addition, microwave facilities can be used to connect separate wireless systems to allow shared switching, which reduces the aggregate cost of the equipment necessary to operate multiple systems. Microwave facilities can also be used to carry long-distance calls, which reduces the costs of interconnecting to the landline network.

The Company has continued to expand its WAN to accommodate various business functions, including:

•: order processing
•: over the air provisioning
•: automatic call delivery
•: intersystem handoff
•: credit validation
•: fraud prevention

•: call data record collection
•: network management
•: long-distance traffic and
•: interconnectivity of all of the Company's MTSOs and cell sites.

In addition, the WAN accommodates virtually all internal data communications between various Company office locations and the Company's retail locations to process customer activations. The WAN is deployed in the Company's six customer service centers ("Customer Care Centers") for all customer service functions using the Company's main billing and information system. The Company is in the process of evaluating the customer service and other communications systems acquired in the Chicago 20MHz transaction and is developing plans to integrate all of its systems as soon as is practicable.

Management believes that currently available technologies will allow sufficient capacity on the Company's networks to meet anticipated demand over the next few years.

Costs of System Construction and Financing

Construction of wireless systems is capital-intensive, requiring substantial investment for land and improvements, buildings, towers, MTSOs, cell site equipment, microwave equipment, engineering and installation. The Company, consistent with FCC control requirements, uses primarily its own personnel to engineer each wireless system it owns and operates, and engages contractors to construct and maintain the facilities.

The costs (exclusive of the costs to acquire licenses) to develop the systems in which the Company owns an interest have historically been financed through capital contributions or through certain vendor financing. In recent years, the Company has met these funding requirements with cash generated by operations, proceeds from debt and equity offerings and proceeds from the sales of wireless interests. The Company expects to meet its future funding requirements with cash generated by operations and borrowings under its revolving credit facilities.

Marketing

The Company's marketing plan is centered around increasing penetration of its markets, increasing customer awareness of U.S. Cellular's brand of wireless service and reducing churn. The Company increases customer awareness through the use of traditional media such as TV, radio, and print advertising. Recently, the Company has increased its use of other media such as the Internet, direct marketing and telemarketing. The Company has achieved its current level of penetration of its markets through a combination of promotional advertising and broad distribution. The Company supports a multi-faceted distribution program, including direct sales, agents and retail sales and service/centers in the vast majority of its markets, plus the Internet and telesales for customers who wish to contact the Company through those media. The Company maintains a relatively low customer churn by executing a vision centered around customer satisfaction, development of processes that are more customer-friendly, extensive training of frontline sales and support associates and the implementation of retention programs. The marketing plan stresses the value of the Company's service offerings and incorporates combinations of rate plans and wireless telephone equipment which are designed to meet the needs of defined customer segments and their usage patterns.

Company-owned and managed locations are designed to market wireless service to the consumer and small business segments in a familiar setting. The Company has expanded its e-commerce site to enable customers to purchase a broad range of accessories online, and this site is continually evolving to address customers' current needs. The Company anticipates that as customers become increasingly comfortable with e-commerce, the Internet will become a more robust marketing channel for sales of rate plans as well as accessories. Traffic on its Web site is continually increasing as customers use the site for gathering information, purchasing handsets and accessories, signing up for service and finding the locations of its stores and agents.

The Company believes that operating decisions should be made close to the customer. It manages its operating market areas with a local staff, including sales, marketing, network operations, engineering and finance personnel. The Company operates six regional Customer Care Centers whose personnel are responsible for customer service and certain other functions. Direct sales consultants market wireless service to business customers. Retail sales associates work out of the Company's approximately 500 Company-owned retail stores and kiosks and market wireless service primarily to the consumer and small business segments. The Company maintains an ongoing training program to improve the effectiveness of sales consultants and retail associates by focusing their efforts on obtaining customers and maximizing the sale of high-use packages. These packages enable customers to buy packages of minutes for a fixed monthly rate.

The Company continues to expand its relationships with agents, dealers and non-Company retailers to obtain customers, and at year-end 2002 had contracts with approximately 900 of these businesses aggregating approximately 1,800 locations. Agents and dealers are independent business people who obtain customers for the Company on a commission basis. The Company has provided additional support and training to its exclusive agents to increase customer satisfaction for customers they serve. The Company's agents are generally in the business of selling wireless telephones, wireless service packages and other related products. The Company's dealers include major appliance dealers, office supply dealers, car stereo companies and mass merchants including national companies such as Wal-Mart, Staples, Best Buy and American TV. Additionally, in support of its overall Internet initiatives, the Company has recruited agents who provide services exclusively through the Internet. No single agent, dealer or other non-Company retailer accounted for 10% or more of the Company's operating revenues during the past three years.

The Company uses a variety of direct mail, billboard, radio, television and newspaper advertising to stimulate interest by prospective customers in purchasing the Company's wireless service and to establish familiarity with the Company's name. The Company operates under a unified brand name and logo, U.S. Cellular^SM, across all its markets, and uses the tag line, "We Connect With You"^SM.

The Company continues to actively advertise its digital service offerings through both television and radio advertising, resulting in a significant increase in the number of customers on digital rate plans during 2002, and as of year-end 2002 over 80% of the Company's customers were using the Company's digital services. Advertising is directed at gaining customers, improving customers' awareness of the U.S. Cellular^SM brand, increasing existing customers' usage of the Company's services and increasing the public awareness and understanding of the wireless services offered by the Company. The Company attempts to select the advertising and promotion media that are most appealing to the targeted groups of potential customers in each local market. The Company supplements its advertising with a focused public relations program. This program combines nationally supported activities and unique local activities, events, and sponsorships to enhance public awareness of the Company. These programs are aimed at supporting the communities in which the Company serves. The programs range from loaning phones to public service operations in emergencies, to assisting victims of domestic abuse through the Company's Stop Abuse From Existing programs, to supporting safe driving programs.

In late 2002, after acquiring the Chicago license from PrimeCo, the Company launched its U.S. Cellular brand in the Chicago market. The Company developed a new series of locally focused TV and radio commercials, featuring actress Joan Cusack, to convey its customer satisfaction strategy to a new marketplace. In conjunction with the brand launch, the Company created a one-time price plan promotion while opening new retail and agent locations, rebranding the former PrimeCo locations and designating a customer service team to work with current and potential customers in the Chicago market to familiarize them with U.S. Cellular's brand of customer service. Initial reactions to the brand launch have been favorable, generating a high volume of traffic in the Company's Chicago area locations. Also, in January 2003, the Company signed a naming rights contract with the Chicago White Sox baseball team to rename their ballpark U.S. Cellular Field.

The following table summarizes, by operating market area, the total population, the Company's customer units and penetration for the Company's majority-owned markets that were operational and had begun marketing activities as of December 31, 2002.

Operating Market Areas	Population (1)	Customers	Penetration
Midwest Market Area	19,627,000	2,039,000	10.39	%
Mid-Atlantic Market Area	5,310,000	591,000	11.13	%
Northwest Market Area	2,639,000	370,000	14.02	%
Florida/Georgia Market Area	1,806,000	167,000	9.25	%
Texas/Oklahoma/Missouri/Kansas Market Area	2,250,000	324,000	14.40	%
Maine/New Hampshire/Vermont Market Area	1,751,000	293,000	16.73	%
Eastern Tennessee/Western North Carolina Market Area	1,377,000	177,000	12.85	%
Southern Texas Market Area	1,326,000	78,000	5.88	%
Other Markets	482,000	64,000	13.28	%

	36,568,000	4,103,000	11.22	%

(1): Represents 100% of the population of the licensed areas that were operational and in which the Company had begun marketing activities and has a controlling financial interest for financial reporting purposes, based on 2001 Claritas population estimates. "Population" in this context includes only the areas covering such markets and is only used for the purposes of calculating market penetration and is not related to "population equivalents," as previously defined.

Customers and System Usage

The Company provides service to a broad range of customers from a wide spectrum of demographic segments. The Company uses a segmentation model to classify businesses and consumers into logical groupings for developing new products and services, direct marketing campaigns, and retention efforts. Business users typically include a large proportion of individuals who work outside of their offices such as people in the construction, real estate, wholesale and retail distribution businesses and professionals. Increasingly, the Company is providing wireless service to consumers and to customers who use their wireless telephones for mixed business and personal use as well as for security purposes. A major portion of the Company's recent customer growth is from these users.

The Company's wireless systems are used most extensively during normal business hours. On average, the retail customers in the Company's consolidated markets used their wireless systems approximately 304 minutes per unit each month and generated retail service revenue of approximately $38 per month during 2002, compared to 216 minutes and $36 per month in 2001. Revenue generated by roamers using the Company's systems ("inbound roaming"), together with local retail, toll and other revenues, brought the Company's total average monthly service revenue per customer unit in consolidated markets to $47 during 2002. Average monthly service revenue per customer unit increased approximately 2% during 2002, the first year of such an increase since 1995. This increase was primarily due to an increase in the number of minutes used by both retail customers and roamers, partially offset by decreases in average revenue per minute of use from both retail customers and roamers. Competitive pressures, continued penetration of the consumer market and the Company's increasing use of pricing and other incentive programs to stimulate overall usage resulted in a decrease in average retail service revenue per minute of use in 2002. The decrease in inbound roaming revenue per minute was primarily due to the general downward trend in per minute prices for roaming negotiated between the Company and other wireless operators. The Company anticipates that average monthly retail service revenue per customer unit will remain relatively constant in the near future, while total monthly service revenue per customer is expected to decline slightly in the future. However, this effect is anticipated to be more than offset by increases in the Company's customer base; therefore, the Company anticipates that total revenues will continue to grow for the next few years.

The Company's main sources of revenue are from its own customers and from inbound roaming customers. The interconnectivity of wireless service enables a customer to place or receive a call in a wireless service area away from the customer's home service area. The Company has

entered into roaming agreements with operators of other wireless systems covering virtually all systems in the United States, Canada and Mexico, including most major PCS operators. Roaming agreements offer customers the opportunity to roam on these systems. These reciprocal agreements automatically pre-register the customers of the Company's systems in the other carriers' systems. Also, a customer of a participating system roaming (i.e., traveling) in a Company market where this arrangement is in effect is able to make and receive calls on the Company's system. The charge for this service is negotiated as part of the roaming agreement between the Company and the roaming customer's carrier. The charge is billed by the Company to the customer's home system, which then bills the customer. In some instances, based on competitive factors, many carriers, including the Company, may charge lower amounts to their customers than the amounts actually charged to the carriers by other wireless carriers for roaming.

The following table summarizes certain information about customers and market penetration in the Company's consolidated operations.

			Year Ended or At December 31,
			2002		2001		2000		1999		1998
Majority-owned and managed markets:
	Wireless markets in operation (1)		149		142		139		139		138
	Total population of markets in service (000s)		36,568		25,670		24,912		24,861		24,370
	Customer Units:
		at beginning of period (2)	3,461,000		3,061,000		2,602,000		2,183,000		1,710,000
		acquired (divested) during period (3)	332,000		46,000		(24,000)		15,000		19,000
		additions during period (2)	1,244,000		1,095,000		1,154,000		1,000,000		896,000
		disconnects during period (2)	934,000		741,000		671,000		596,000		442,000
		at end of period (2)	4,103,000		3,461,000		3,061,000		2,602,000		2,183,000
Market penetration at end of period (4)			11.22	%	13.48	%	12.29	%	10.47	%	8.96	%

(1): Represents the number of cellular or PCS licensed areas in which the Company owned a controlling financial interest and which was operational at the end of each respective period. The revenues and expenses of these licensed areas are included in the Company's consolidated revenues and expenses for each period.
(2): Represents the approximate number of revenue-generating wireless telephones served by the Company in the licensed areas referred to in footnote (1). The revenue generated by such wireless telephones is included in consolidated revenues.
(3): Represents the approximate number of revenue-generating wireless telephones added to or subtracted from the Company's customer base during the period due to acquisitions or divestitures of wireless licenses.
(4): Computed by dividing the number of customer units at the end of the period by the total population of markets in service as estimated by Claritas (1997-2001) for the years 1998-2002, respectively.

Products and Services

Wireless Telephones and Installation. The Company offers a full range of wireless telephones for use by its customers, including both analog and digital handsets. Features offered in some of the wireless telephones include hands-free calling, repeat dialing and others. The Company's digital service offerings include additional features such as caller ID, short messaging services and data transmission, and a majority of new customers are selecting dual-mode or tri-mode wireless telephones, which can be used on analog and digital networks, to fully utilize these features. Dual-mode and tri-mode wireless telephones also enable customers to enjoy virtually seamless roaming regardless of their travel patterns. New customers are selecting from a variety of wireless telephones. These units are stylish, compact, fully featured and attractively priced. They appeal to newer segments of the customer population, especially a younger demographic group which has become a fast-growing portion of the wireless user population.

The Company negotiates volume discounts with its wireless telephone suppliers. The Company significantly increased its purchasing power in 2002 by implementing a new distribution software system that enables the Company to sell and distribute handsets to its agents. The Company discounts wireless telephones sold to customers to meet competition or to stimulate sales by reducing the cost of becoming a wireless customer. In most instances, where permitted by law, customers are generally required to sign a service contract with the Company. The Company also works with wireless equipment manufacturers in promoting specific equipment in its local advertising.

The Company has established service facilities in many of its local markets to ensure quality service of the wireless telephones it sells. These facilities allow the Company to improve its service by promptly assisting customers who experience equipment problems. Additionally, the Company employs a repair facility in Tulsa, Oklahoma, to handle more complex service and repair issues.

Wireless Services. The Company's customers are able to choose from a variety of packaged pricing plans which are designed to fit different calling patterns and customer needs. The ability to help a customer find the right technology and the right pricing plan is central to the Company's brand positioning. The Company generally offers local, regional and national consumer plans that can be tailored to a customer's needs by the addition of features or feature packages. Many consumer plans enable small work groups or families to share the plan minutes enabling the customer to get more value for their money. Business plans are offered to companies to meet their unique needs. The Company's national rate plan, SpanAmerica^SM, prices all calls, regardless of where they are made or received, as local calls with no long distance or roaming charges. Additionally, the Company is continually reviewing its prepaid offerings, including its traditional TalkTracker® offering and the prepaid services offered in the Chicago market, to streamline them and make them more compatible with the lifestyles of the customers who want to buy this product.

The Company's customer bills typically show separate charges for custom-calling features, airtime in excess of the packaged amount, and toll calls. Custom-calling features provided by the Company include wide-area call delivery, call forwarding, voice mail, call waiting, three-way calling and no-answer transfer.

Regulation

Regulatory Environment. The Company's operations are subject to FCC and state regulation. The wireless telephone licenses the Company holds are granted by the FCC for the use of radio frequencies in the 850 megahertz (MHz) band ("cellular" licenses), and in the 1900 MHz band ("PCS" licenses), and are an important component of the overall value of the Company's assets. The construction, operation and transfer of wireless systems in the United States are regulated to varying degrees by the FCC pursuant to the Communications Act of 1934 ("Communications Act"). In 1996, Congress enacted the Telecommunications Act of 1996 ("Telecommunications Act"), which amended the Communications Act. The Telecommunications Act mandated significant changes in telecommunications rules and policies to promote competition, ensure the availability of telecommunications services to all parts of the United States and to streamline regulation of the telecommunications industry to remove regulatory burdens, as competition develops. The FCC has promulgated regulations governing construction and operation of wireless systems, licensing (including renewal of licenses) and technical standards for the provision of wireless telephone service under the Communications Act, and is implementing the legislative objectives of the Telecommunications Act, as discussed below.

Licensing. For cellular telephone licensing purposes, the FCC has divided the United States into separate geographic markets (MSAs and RSAs). In each market, the allocated cellular frequencies are divided into two equal blocks. During the application process, in the early 1980s, the FCC reserved one block of frequencies for non-wireline applicants and another block for wireline applicants.

Since January 1, 2002, an entity which controls one cellular system in an MSA has been able to control the competing cellular system in that MSA. The FCC determined that wireless competition in MSAs among cellular, PCS and certain SMR carriers, such as Nextel, which interconnect with the

public switched telephone network, was sufficient to permit relaxation of the former prohibition on MSA cross-ownership. However, the FCC has retained the rule which prohibits any entity which controls a cellular system in an RSA from owning an interest exceeding five percent in another cellular system in the same RSA, though that rule may be waived in appropriate circumstances.

The FCC has also allocated a total of 140 MHz for broadband PCS, 20 MHz to unlicensed operations and 120 MHz to licensed operations, consisting of two 30 MHz blocks in each of 51 Major Trading Areas ("MTAs") and one 30 MHz block and three 10 MHz blocks in each of 493 Basic Trading Areas ("BTAs"). Subject to some conditions, the FCC permits licensees to split their licenses and assign a portion, on either geographic or frequency basis, or both, to a third party.

Between January 1, 2002 and January 1, 2003, no entity was allowed to have a controlling interest in more than 55 MHz of cellular, PCS, or "covered" SMR spectrum in a given MTA or BTA. Cellular systems have 25 MHz of spectrum, and PCS systems may have 10, 15, or 30 MHz of spectrum. As of January 1, 2003, this "spectrum cap" has been eliminated, and the FCC will determine whether acquisition of wireless licenses are in the public interest on a case-by-case basis under criteria which have not yet been specified.

The completion of acquisitions involving the transfer of control of a wireless system requires prior FCC approval. Acquisitions of minority interests generally do not require FCC approval. Whenever FCC approval is required, any interested party may file a petition to dismiss or deny the application for approval of the proposed transfer.

The FCC must be notified each time an additional cell site is constructed which enlarges the service area of a given market. The FCC's rules also generally require persons or entities holding wireless construction permits or licenses to coordinate their proposed frequency usage with neighboring wireless licensees in order to avoid electrical interference between adjacent systems. The coordination process has become more complex as neighboring systems have begun to employ differing digital technologies. The height and power of base stations in wireless systems are regulated by FCC rules, as are the types of signals emitted by these stations. The FCC also regulates tower construction in accordance with its regulations, which carry out its responsibilities under the National Environmental Policy Act and Historic Preservation Act. In addition to regulation by the FCC, wireless systems are subject to certain Federal Aviation Administration ("FAA") regulations with respect to the siting, construction, painting and lighting of wireless transmitter towers and antennas as well as local zoning requirements.

Beginning in 1996, the FCC also imposed a requirement that all wireless licensees register and obtain FCC registration numbers for all of their antenna towers, which require prior FAA clearance. All new towers must be registered at the time of construction and existing towers were required to be registered by May 1998 on a staggered state-by-state basis. The Company believes that it is in compliance with the FCC's tower registration requirements.

Beginning in October 1997, wireless systems, which previously were "categorically excluded" from having to evaluate their facilities to ensure their compliance with federal "radio frequency" radiation requirements, were made subject to those requirements. As a result, all wireless towers of less than 10 meters in height, building-mounted antennas and wireless telephones must comply with radio frequency radiation guidelines. Since October 1997, all new wireless facilities have had to be in compliance when they are brought into service. Since September 1, 2000, all existing facilities have had to be brought into compliance. The Company believes that its facilities are in compliance with these requirements.

Pursuant to 1993 amendments to the Communications Act, cellular and PCS services are classified as Commercial Mobile Radio Service ("CMRS"), in that they are services offered to the public, for a fee, which is interconnected to the public switched telephone network. The FCC has determined that it will forebear from requiring such carriers to comply with a number of statutory provisions otherwise applicable to common carriers, such as the filing of tariffs.

All CMRS wireless licensees must satisfy specified coverage requirements. Cellular licensees were required, during the five years following the initial grant of the respective license, to construct their systems to provide service (at a specified signal strength) to the territory encompassed by

their service area. Failure to provide such coverage resulted in reduction of the relevant license area by the FCC. All 30 megahertz block PCS licensees must construct facilities that provide coverage to one-third of the population of the service area within five years of the initial license grants and to two-thirds of the population within ten years. All other licensees and certain 10 and 15 megahertz block licensees must construct facilities that provide coverage to one-fourth of the population of the licensed area or "make a showing of substantial service in their license area" within five years of the original license grants. Licensees that fail to meet the coverage requirements may be subject to forfeiture of the license.

Cellular and PCS licenses are granted for ten-year periods. The FCC has established standards for conducting comparative renewal proceedings between a cellular licensee seeking renewal of its license and challengers filing competing applications. The FCC has: (i) established criteria for comparing the renewal applicant to challengers, including the standards under which a renewal expectancy will be granted to the applicant seeking license renewal; (ii) established basic qualifications standards for challengers; and (iii) provided procedures for preventing possible abuses in the comparative renewal process. The FCC has concluded that it will award a renewal expectancy if the licensee has (i) provided "substantial" performance, which is defined as "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal," and (ii) complied with FCC rules, policies and the Communications Act. If renewal expectancy is awarded to an existing licensee, its license is renewed and competing applications are not considered. All of the Company's licenses which it applied to have renewed between 1994 and 2002 were renewed.

All of the Company's approximately 1,100 FCC licenses for the microwave radio stations it uses to link its cell sites with each other and with its MTSOs were required to be renewed in 2001. All of those licenses were renewed for ten-year terms. All newly obtained microwave licenses receive ten-year terms as well.

The Company conducts and plans to conduct its operations in accordance with all relevant FCC rules and regulations and anticipates being able to qualify for renewal expectancy in its upcoming renewal filings. Accordingly, the Company believes that current regulations will have no significant effect on the renewal of its licenses. However, changes in the regulation of wireless operators or their activities and of other mobile service providers could have a material adverse effect on the Company's operations.

Recent Events. There are certain regulatory proceedings currently pending before the FCC which are of particular importance to the wireless industry. In one proceeding, the FCC has imposed new "enhanced 911" regulations on wireless carriers. The rules require wireless carriers to provide increasingly detailed information about the location of wireless 911 callers in two phases. The obligation of a wireless carrier to provide this information is triggered by a qualifying request from state or local agencies that handle 911 calls in the markets served by the wireless carrier. In phase one, which has been required since April 1998, wireless carriers are required to identify the location of the cell site from which a wireless call has been made and the wireless 911 caller's phone number. The Company has timely provided this information in compliance with the FCC's rules in most but not all of its markets.

In 2001, the Company filed a request for a waiver of phase two of the FCC's E-911 rules that required wireless carriers to provide more precise latitude and longitude location information about wireless 911 callers by October 1, 2001. In July 2002, the FCC released an order that delayed until March 1, 2003, the deadline by which certain medium-sized wireless carriers, including the Company, were required to provide more precise phase two location information in response to qualifying requests from state or local 911 agencies. The Company is in compliance with the revised phase two enhanced 911 requirements in most of its markets. However, there is no guarantee that the Company will not be subject to sanctions, including monetary forfeitures, for failure to comply with the FCC's phase one or phase two requirements in all its markets.

The FCC has adopted a limited expansion of the obligation of cellular carriers to serve the roaming subscribers of broadband PCS providers, among others, even though the subscribers involved have no pre-existing service relationship with that carrier. Under these policies, broadband

PCS providers may offer their subscribers handsets which are capable of operating over broadband PCS and cellular networks so that when their subscribers are out of range of broadband PCS networks, they will be able to obtain non-automatic access to cellular networks. The FCC expects that implementation of these roaming capabilities will promote competition between broadband PCS and cellular service providers.

Currently pending before the FCC is a proposal to require all CMRS carriers to provide "automatic" roaming capabilities to customers of other systems, presumably with FCC regulation of rates and other terms and conditions. The Company, along with most wireless carriers, has opposed this proposal as presently unnecessary, though the Company has urged the FCC to scrutinize the roaming practices of large national carriers.

The FCC has adopted requirements which will make it possible for subscribers to retain, subject to certain geographic and other limitations, their existing telephone numbers when they switch from one service provider to another. This number portability will include switching between Local Exchange Carriers ("LECs") and other wireline providers, between wireless service providers and between LEC/wireline and wireless providers. LECs, in the 100 largest MSAs, had implementation deadlines by the end of 1998 at those switches which received specific requests for number portability. The FCC has extended the compliance date for cellular, broadband PCS, and certain other wireless providers to November 2003.

Cellular and broadband PCS providers also had to be capable, by November 2002, of receiving from the numbering authorities telephone numbers in "blocks" of 1,000, rather than 10,000, as has been the case previously. This action is intended to conserve telephone numbers and extend the life of the current numbering system.

The Company is now in compliance with the FCC's thousands block number "pooling" requirements and is working to comply with the FCC's number portability requirements. Both requirements are complex and will require extensive capital investment. A substantial portion of this investment has been made as of December 31, 2002.

In another proceeding, the FCC in 1996 adopted rules regarding the method by which wireless carriers and LECs shall compensate each other for interconnecting wireless and local exchange facilities. The FCC rules provided for symmetrical and reciprocal compensation between LECs and wireless carriers, and also prescribed interim interconnection proxy rates, which are much lower than the rates formerly paid by wireless carriers to LECs. Symmetrical and reciprocal compensation means wireless carriers and LECs must pay each other at the same rate. Interconnection rate issues will be decided by the states. Wireless carriers are now paying and in the future can be expected to pay lower rates to LECs than they previously paid. This result was favorable to the wireless industry and somewhat unfavorable to LECs.

The FCC is currently considering a proposal to eliminate reciprocal compensation between wireless carriers and LECs and to move toward a so-called "bill and keep" system. If adopted, this change in the rules would also be favorable to wireless carriers, as wireless customers currently make more calls to wireline customers than vice versa.

The primary purpose and effect of the new law is to open all telecommunications markets to competition. The Telecommunications Act makes most direct or indirect state and local barriers to competition unlawful. It directs the FCC to preempt all inconsistent state and local laws and regulations, after notice and comment proceedings. It also enables electric and other utilities to engage in telecommunications service through qualifying subsidiaries.

Only narrow powers over competitive entry are left to state and local authorities. Each state retains the power to impose competitively neutral requirements that are consistent with the Telecommunications Act's universal service provisions and necessary for universal services, public safety and welfare, continued service quality and consumer rights. While a state may not impose requirements that effectively function as barriers to entry, it retains limited authority to regulate certain competitive practices in rural telephone company service areas.

The Telecommunications Act establishes principles and a process for implementing a modified "universal service" policy. This policy seeks nationwide, affordable service and access to advanced telecommunications and information services. It calls for reasonably comparable urban and rural rates and services. The Telecommunications Act also requires universal service to schools, libraries and rural health facilities at discounted rates. Wireless carriers must provide such discounted rates to such organizations in accordance with federal regulations. The FCC has implemented the mandate of the Telecommunications Act to create a new universal service support mechanism "to ensure that all Americans have access to telecommunications services." The Telecommunications Act requires all interstate telecommunications providers, including wireless service providers, to "make an equitable and non-discriminatory contribution" to support the cost of providing universal service, unless their contribution would be de minimis. At present, the provision of landline telephone service in high cost areas is subsidized by support from the "universal service" fund, to which, as noted above, all carriers with interstate and international revenues must contribute. Such payments, based on a percentage of the total "billed revenue" of carriers for a given previous period of time, began in 1998.

Beginning in February 2003, such payments will be based on estimates of future revenues. Carriers are free to pass such charges on to their customers. Wireless carriers are also eligible to receive universal service support payments in certain circumstances under the new system if they provide specified services in "high cost" areas. The Company has sought designation as an "eligible telecommunications carrier" qualified to receive universal service support in certain states, has been designated as such a carrier in the states of Washington, Iowa, and Wisconsin and has received payments for services provided to high cost areas within the state of Washington.

Under a 1994 federal law, the Communications Assistance to Law Enforcement Act ("CALEA"), all telecommunications carriers, including the Company and other wireless licensees, have been required to implement certain equipment changes necessary to assist law enforcement authorities in achieving an enhanced ability to conduct electronic surveillance of those suspected of criminal activity. The Company is now substantially in compliance with CALEA requirements. The Company has, however, sought from the FCC an extension of time until July 1, 2003 to comply with certain CALEA requirements in its newly acquired PCS system in the Chicago MTA.

The FCC has recently taken action in proceedings: (1) to ensure that the customers of wireless providers, among other carriers, will receive complete, accurate, and understandable bills; (2) to establish safeguards to protect against unauthorized access to customer information; (3) to require improved access to telecommunications facilities by persons with disabilities; and (4) to set national policy for the allocation by state public utilities commissions of telephone numbers to wireline and wireless carriers.

The FCC also has pending a proceeding to implement requirements for wireless providers to set interstate interexchange rates in each state at levels no higher than the rates charged to subscribers in any other state. The Company will monitor that proceeding and comply with new federal requirements as they become applicable.

The FCC has pending two proceedings which may have a considerable impact on wireless carriers. In the first proceeding, the FCC is considering whether CMRS carriers may obtain the use of certain facilities from wireline carriers, (for example, for telephone lines linking cell sites), at the unbundled network element ("UNE") prices now charged to CLECs, which are lower than those charged to CMRS carriers. If the FCC determines that CMRS carriers may obtain the use of wireline facilities at UNE prices, that result would be favorable to wireless carriers. Currently, the Company predominantly employs microwave facilities, and not leased wireline facilities, to link its cell sites.

In the second proceeding, the FCC adopted an order in January 2003, pursuant to which the Mobile Satellite Service ("MSS") will permit its licensees to offer terrestrial wireless service in competition with CMRS carriers, provided the MSS licensees also offer satellite telephone service, which will involve building their proposed satellite networks. Assuming the MSS licensees do build their satellite networks and thus obtain "ancillary terrestrial authority," the increased competition could be unfavorable to existing CMRS carriers.

As noted previously, as of January 1, 2003, the FCC's "spectrum cap" has been repealed, with the exception that no one entity may control the two cellular licensees in a single RSA. With that exception, the FCC's rules impose no barrier to wireless acquisition in the same market or nationally. The FCC will now review wireless acquisitions on a case-by-case basis to determine whether they serve the public interest.

PCS technology is similar in many respects to cellular technology. Where it has become commercially available, this technology is capable of offering increased capacity for wireless two-way and one-way voice, data and multimedia communications services and has resulted in increased competition with the Company's operations in virtually all of its markets. The ability of these PCS licensees to complement or compete with existing cellular licensees will be affected by future FCC rule-makings. These and other future technological and regulatory developments in the wireless telecommunications industry and the enhancement of current technologies will likely create new products and services that are competitive with the services currently offered by the Company. There can be no assurance that the Company will not be adversely affected by such technological and regulatory developments.

In January 2000, the FCC took an action which may have an impact on both cellular and PCS licensees. Pursuant to a congressional directive, the FCC adopted service rules for licensing the commercial use of 30 MHz of spectrum in the 747-762 MHz and 777-792 MHz spectrum bands. Subsequently, the FCC adopted service rules for the 688-746 MHz band, a portion of which was auctioned in 2002. The majority of the spectrum in these bands is being auctioned in large regional service areas, although there is a portion available which covers individual MSA and RSA markets. The FCC conducted an auction for the MSA and RSA licensed spectrum and certain other portions of the 688-746 MHz spectrum which ended in September 2002. Additional auctions to license the 688-792 MHz spectrum are anticipated in 2003 and 2004.

There is also pending before the FCC a proceeding to develop licensing rules for additional spectrum in the 1700 MHz and 2100 MHz for third-generation wireless use. Third-generation wireless is intended to provide high-speed data services as well as full-motion video and other advanced wireless services. The FCC has projected that this spectrum will be auctioned in 2004.

In June of 2002, the FCC created a Spectrum Policy Task Force and commenced proceedings to review and make recommendations on broad categories of possible spectrum policy change. The allocation of additional spectrum for unlicensed services, which has been strongly promoted by various manufacturers of 802.11b devices and Wi-Fi service providers, has emerged from that review process as a potentially significant shift in FCC spectrum policy affecting wireless competition between carriers who paid for spectrum and those who plan to implement networks using unlicensed free spectrum. The FCC commenced proceedings in December 2002 to allocate additional spectrum in the television broadcast bands as well as the 3650-3700 MHz band for unlicensed services and is expected to propose a significant expansion of unlicensed spectrum uses above 5 gigahertz in 2003.

State and Local Regulation. The Company is also subject to state and local regulation in some instances. In 1981, the FCC preempted the states from exercising jurisdiction in the areas of licensing, technical standards and market structure. In 1993, Congress preempted states from regulating the entry of wireless systems into service and the rates charged by wireless systems to customers. The siting and construction of wireless facilities, including transmitter towers, antennas and equipment shelters are still subject to state or local zoning and land use regulations. However, in 1996, Congress amended the Communications Act to provide that states could not discriminate against wireless carriers in tower zoning proceedings and had to decide on zoning requests with reasonable speed. In addition, states may still regulate other terms and conditions of wireless service.

In 2000, the FCC ruled that the preemption provisions of the Communications Act do not preclude the states from acting under state tort, contract, and consumer protection laws to regulate the practices of CMRS carriers, even if such activities might have an incidental effect on wireless rates. This ruling has led to more state regulation of CMRS carriers, particularly from the standpoint of consumer protection.

The FCC is required to forbear from applying any statutory or regulatory provision that is not necessary to keep telecommunications rates and terms reasonable or to protect consumers. A state may not apply a statutory or regulatory provision that the FCC decides to forbear from applying. In addition, the FCC must review its telecommunications regulations every two years and change any that are no longer necessary. Further, the FCC is empowered under certain circumstances to preempt state regulatory authorities if a state is obstructing the Communications Act's basic purposes.

The Company and its subsidiaries have been and intend to remain active participants in proceedings before the FCC and state regulatory authorities. Proceedings with respect to the foregoing policy issues before the FCC and state regulatory authorities could have a significant impact on the competitive market structure among wireless providers and the relationships between wireless providers and other carriers. The Company is unable to predict the scope, pace or financial impact of policy changes which could be adopted in these proceedings.

The FCC has adopted rules specifying standards and the methods to be used in evaluating radio frequency emissions from radio equipment, including network equipment and handsets used in connection with commercial mobile radio service. These rules were upheld on appeal by the U.S. Court of Appeals for the Second Circuit. The U.S. Supreme Court declined to review the Second Circuit's ruling. The Company's network facilities and the handsets it sells to customers comply with these standards.

Media reports have suggested that radio frequency emissions from handsets, wireless data devices and cell sites may raise various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Although some studies have suggested that radio frequency emissions may cause certain biological effects, most of the expert reviews conducted to date have concluded that the evidence does not support a finding of adverse health effects but that further research is appropriate. Research and studies are ongoing. These concerns over radio frequency emissions may discourage the use of handsets and wireless data devices and may result in significant restrictions on the location and operation of cell sites, all of which could have a material adverse effect on the Company's results of operations. Several class action and single-plaintiff lawsuits have been filed against several other wireless service operators and several wireless phone manufacturers, asserting product liability, breach of warranty and other claims relating to radio frequency transmissions to and from handsets and wireless data devices. The lawsuits seek substantial monetary damages as well as injunctive relief. One important case in which the plaintiff alleged that his brain tumor had been caused by his wireless telephone use, Newman v. Verizon et al, was dismissed in the U.S. District Court in Maryland in October 2002. There can be no assurance, however, that the outcome of other lawsuits will not have a material adverse effect on the wireless industry, including the Company.

Competition

In markets where it owns and operates cellular licenses, the Company's principal competitors for wireless telephone service in each market are the licensees of the second cellular system in that market and the PCS and ESMR licensees. Since each of these competitors operates its system using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers between these systems in each market is principally on the basis of quality of service, price, size of area covered, services offered and responsiveness of customer service. The competing entities in many of the markets in which the Company has an interest have financial resources which are substantially greater than those of the Company and its partners in such markets.

The FCC's rules require all operational wireless systems to provide, on a nondiscriminatory basis, wireless service to resellers which purchase blocks of mobile telephone numbers from an operational system and then resell them to the public.

The Company expects wireless operators to continue deployment of PCS in all of the Company's licensed areas throughout 2003. In recent years, ESMR providers have initiated service in many of the Company's markets. Although less directly a substitute for other wireless services, wireless data services and paging services may be adequate for those who do not need full two-way voice service. Similar technological advances or regulatory changes in the future may make available other alternatives to wireless service, thereby creating additional sources of competition.

Continuing technological advances in the communications field make it difficult to predict the extent of additional future competition for wireless systems. For example, the FCC has allocated radio channels to mobile satellite systems in which transmissions from mobile units to satellites would augment or replace transmissions to cell sites. Such systems are designed primarily to serve the communications needs of remote locations and mobile satellite systems could provide viable competition for land-based wireless systems in such areas. Some initial deployments have been made and service is now being provided in certain areas. It is also possible that the FCC may in the future assign additional frequencies to wireless telephone service or ESMR service to provide for more competitors in each market.

Investments

The Company holds investments in certain publicly traded companies, the majority of which were the result of sales or trades of non-strategic assets. Minority positions are held in Vodafone AirTouch plc (ticker symbol "VOD") and Rural Cellular Corporation.

These assets are classified for financial reporting purposes as available-for-sale securities. The market value of these investments aggregated $186.0 million at December 31, 2002 and $272.4 million at December 31, 2001. As of December 31, 2002, the net unrealized holding gain, net of tax, included in accumulated other comprehensive income (loss) totaled $15.5 million. In June 2002, the Company recognized, in the statement of operations, losses of $145.6 million, net of tax, related to investments in marketable securities as a result of management's determination that unrealized losses with respect to the investments were "other than temporary." Management continues to review the valuation of the investments on a periodic basis. If management determines in the future that an unrealized loss is other than temporary, the loss will be recognized and recorded in the statement of operations.

The Company has entered into variable prepaid forward contracts ("forward contracts") related to the VOD marketable equity securities that it holds. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities to protect from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature in May 2007 and, at the Company's option, may be settled in shares of the respective security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. If shares are delivered in the settlement of the forward contract, the Company would incur current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized though maturity. If the Company elects to settle in cash it will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula. If the Company elects to settle in shares it will be required to deliver the number of shares of the contracted security determined pursuant to the formula.

The following table summarizes certain facts surrounding the contracted securities as of December 31, 2002.

				Collar
Security		Shares		Downside Limit (Floor)			Upside Potential (Ceiling)			Loan Amount (000s)
Vodafone		10,245,370		$	15.07-$16.07		$	22.22-$23.26		$	159,856

Employees

The Company had 6,100 employees as of December 31, 2002. None of the Company's employees is represented by a labor organization. The Company considers its relationship with its employees to be good.

Item 2. Properties

The properties for mobile telephone switching offices, cell sites and retail locations are either owned or leased under long-term leases by the Company, one of its subsidiaries or the partnership or corporation which holds the construction permit or license. The Company has not experienced major problems with obtaining zoning approval for cell sites or operating facilities and does not anticipate any such problems in the future which are or will be material to the Company and its subsidiaries as a whole. The Company's investment in property is small compared to its investment in licenses and wireless system equipment.

The Company leases an aggregate of approximately 150,000 square feet of office space for its headquarters buildings in Chicago, Illinois and Bensenville, Illinois.

The Company considers the properties owned or leased by it and its subsidiaries to be suitable and adequate for their respective business operations.

Item 3. Legal Proceedings

The Company is involved in a number of legal proceedings before the FCC and various state and federal courts. In some cases, the litigation involves disputes regarding rights to certain wireless telephone systems and other interests. The Company does not believe that any of these proceedings, individually or in the aggregate, should have a material adverse impact on the financial position or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of securities holders during the fourth quarter of 2002.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Incorporated by reference from Exhibit 13, Annual Report section entitled "United States Cellular Stock and Dividend Information."

Item 6. Selected Financial Data

Incorporated by reference from Exhibit 13, Annual Report section entitled "Selected Consolidated Financial Data," except for ratios of earnings to fixed charges, which are incorporated herein by reference from Exhibit 12 to this Annual Report on Form 10-K.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" under the caption "Market Risk."

Item 8. Financial Statements and Supplementary Data

Incorporated by reference from Exhibit 13, Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Changes in Common Shareholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Income Information (Unaudited)," "Report of Independent Accountants" and "Copy of Previously Issued Report of Independent Accountants."

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

This information was "previously reported" within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934, as amended, in the Company's Form 8-K dated May 23, 2002. The following repeats the disclosure set forth in Item 4 of such Form 8-K.

On May 23, 2002, United States Cellular Corporation ("U.S. Cellular") dismissed Arthur Andersen LLP ("Andersen") as U.S. Cellular's independent auditors, and engaged PricewaterhouseCoopers LLP ("PWC") to serve as its new independent auditors for 2002. The change in auditors will become effective May 24, 2002. This action was taken by the U.S. Cellular Board of Directors based on the recommendation of U.S. Cellular's audit committee, subject to the approval of such action by Telephone and Data Systems, Inc. ("TDS"), the parent company of U.S. Cellular, pursuant to the terms of an Intercompany Agreement between TDS and U.S. Cellular.

Andersen's reports on U.S. Cellular's consolidated financial statements for each of the years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended December 31, 2001 and 2000 and the interim period between December 31, 2001 and the date of this Form 8-K, there were no disagreements between U.S. Cellular and Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused Andersen to make reference to the subject matter of the disagreement in connection with their report for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

U.S. Cellular provided Andersen with a copy of the foregoing disclosures. Attached as Exhibit 16.1 is a copy of Andersen's letter, dated May 23, 2002, stating its agreement with the foregoing disclosures.

During U.S. Cellular's two most recent fiscal years and through the date of this Report on Form 8-K, U.S. Cellular did not consult PWC with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on U.S. Cellular's consolidated financial statements, or any other matters or reportable events listed in item 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

Item 10. Directors and Executive Officers of the Registrant

Incorporated by reference from Proxy Statement sections entitled "Election of Directors" and "Executive Officers."

Item 11. Executive Compensation

Incorporated by reference from Proxy Statement section entitled "Executive Compensation," except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference from Proxy Statement section entitled "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance under Equity Compensation Plans."

Item 13. Certain Relationships and Related Transactions

Incorporated by reference from Proxy Statement section entitled "Certain Relationships and Related Transactions."

Item 14. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the principal executive officer and principal financial officer of the Company have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

(b) Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

The following documents are filed as a part of this report:

(a): (1) Financial Statements

Consolidated Quarterly Income Information (Unaudited)		Annual Report*
Consolidated Statements of Operations		Annual Report*
Consolidated Statements of Cash Flows		Annual Report*
Consolidated Balance Sheets		Annual Report*
Consolidated Statements of Changes in Common Shareholders' Equity		Annual Report*
Notes to Consolidated Financial Statements		Annual Report*
Report of Independent Accountants for 2002—PricewaterhouseCoopers LLP		Annual Report*
Copy of Previously issued Report of Independent Accountants for years prior to 2002—Arthur Andersen LLP		Annual Report*

*

Incorporated by reference from Exhibit 13.

(2): Schedules

		Location
Report of Independent Accountants on Financial Statement Schedule for 2002—PricewaterhouseCoopers LLP		page 36
Copy of Previously Issued Report of Independent Accountants on Financial Statement Schedule for years prior to 2002—Arthur Andersen LLP		page 37
II.	Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended December 31, 2002	page 38

All other schedules have been omitted because they are not applicable or not required or because the required information is shown in the financial statements or notes thereto.

(3): Exhibits

The exhibits set forth in the accompanying Index to Exhibits are filed as a part of this Report. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(c) of this Report.

Exhibit Number		Description
10.8		Stock Option and Stock Appreciation Rights Plan is hereby incorporated by reference to Exhibit B to the Company's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.9		Summary of 2002 Bonus Program for Executive Vice Presidents of the Company.
10.10		Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.11		United States Cellular Corporation Compensation Plan for Non-Employee Directors.
10.12		United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-57063).
10.13		United States Cellular Corporation 1999 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-76455).
10.14		Retention Agreement for Kenneth R. Meyers dated September 13, 1999 is hereby incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

10.15		Terms of Offer Letter Between United States Cellular Corporation and John E. Rooney dated March 28, 2000 is hereby incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.
10.16		Deferred Compensation Agreement for Richard Goehring dated July 15, 1996 is hereby incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996.
10.22		United States Cellular Corporation 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-103543).
10.23		Form of Agreement and General Release for Richard W. Goehring dated March 4, 2002 is included as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

(b): Reports on Form 8-K filed during the quarter ended December 31, 2002.

The Company filed a Current Report on Form 8-K dated October 16, 2002 for the purpose of filing the news release issued by the Company reporting earnings for the third quarter of 2002.

The Company filed a Current Report on Form 8-K dated October 31, 2002 for the purpose of filing the news release issued by the Company relating to the announcement of the issuance of $115 million of 8.75% Senior Notes due 2032. The Form 8-K also included as exhibits certain agreements related to the Note offering.

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of United States Cellular Corporation:

Our audit of the consolidated financial statements referred to in our report dated February 3, 2003, except as to Note 17, as to which the date is March 10, 2003, appearing in the 2002 Annual Report to Shareholders of United States Cellular Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule for the year ended December 31, 2002 listed in Item 15(a)(2) of this Form 10-K. In our opinion, the financial statement schedule for the year ended December 31, 2002 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The 2001 and 2000 financial statement schedule information of United States Cellular Corporation was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statement schedules in their report dated January 25, 2002.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 3, 2003, except as to Note 17,
as to which the date is March 10, 2003

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT APPLIES TO SCHEDULE II FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000. THESE INDEPENDENT ACCOUNTANTS HAVE CEASED OPERATIONS, AND HAVE NOT REISSUED THEIR REPORT IN CONJUNCTION WITH THIS ANNUAL REPORT. THEIR REPORT IS INCLUDED IN THE ANNUAL REPORT AS PERMITTED BY RULE 2-02(E) OF REGULATION S-X OF THE SECURITIES AND EXCHANGE COMMISSION.

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of United States Cellular Corporation:

We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in United States Cellular Corporation and Subsidiaries Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 2002. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedule listed in Item 14(a)(2)* is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This financial statement schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP
Chicago, Illinois January 25, 2002

*: This reference refers to Item (14)(a)(2) of the Annual Report for the year ended
December 31, 2001.

UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Description		Balance at Beginning of Period			Charged to costs and expenses			Charged to other accounts			Deductions		Balance at end of Period
(Dollars in thousands)
For The Year Ended December 31, 2002
Deducted from deferred state tax asset:
	For unrealized net operating losses	$	(12,875	)	$	1,424		$	(1,773	)	$	—	$	(13,224	)
Deducted from accounts receivable:
	For doubtful accounts		(9,799	)		(63,657	)		—			55,590		(17,866	)
For The Year Ended December 31, 2001
Deducted from deferred state tax asset:
	For unrealized net operating losses		(12,015	)		217			(1,077	)		—		(12,875	)
Deducted from accounts receivable:
	For doubtful accounts		(9,678	)		(28,658	)		—			28,537		(9,799	)
For The Year Ended December 31, 2000
Deducted from deferred state tax asset:
	For unrealized net operating losses		(11,696	)		(319	)		—			—		(12,015	)
Deducted from accounts receivable:
	For doubtful accounts	$	(10,029	)	$	(24,304	)	$	—		$	24,655	$	(9,678	)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	UNITED STATES CELLULAR CORPORATION
	By:	/s/ JOHN E. ROONEY John E. Rooney President (Chief Executive Officer)
	By:	/s/ KENNETH R. MEYERS Kenneth R. Meyers Executive Vice President—Finance and Treasurer (Chief Financial Officer)
	By:	/s/ THOMAS S. WEBER Thomas S. Weber Vice President and Controller (Principal Accounting Officer)
Dated March 20, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ JOHN E. ROONEY John E. Rooney	Director	March 20, 2003
/s/ KENNETH R. MEYERS Kenneth R. Meyers	Director	March 20, 2003
/s/ LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.	Director	March 20, 2003
/s/ LEROY T. CARLSON LeRoy T. Carlson	Director	March 20, 2003
/s/ WALTER C.D. CARLSON Walter C. D. Carlson	Director	March 20, 2003
/s/ SANDRA L. HELTON Sandra L. Helton	Director	March 20, 2003
/s/ PAUL-HENRI DENUIT Paul-Henri Denuit	Director	March 20, 2003
/s/ J. SAMUEL CROWLEY J. Samuel Crowley	Director	March 20, 2003
/s/ BARRETT A. TOAN Barrett A. Toan	Director	March 20, 2003
/s/ HARRY J. HARCZAK, JR. Harry J. Harczak, Jr.	Director	March 20, 2003

Certification of Chief Executive Officer

I, John E. Rooney, certify that:

1.

I have reviewed this annual report on Form 10-K of United States Cellular Corporation;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ JOHN E. ROONEY

John E. Rooney
President and Chief Executive Officer

Certification of Chief Financial Officer

I, Kenneth R. Meyers, certify that:

1.

I have reviewed this annual report on Form 10-K of United States Cellular Corporation;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ KENNETH R. MEYERS

Kenneth R. Meyers
Executive Vice President—Finance
and Treasurer (Chief Financial Officer)

INDEX TO EXHIBITS

Exhibit No.		Description of Document
2.1		Purchase and Sale Agreement dated May 9, 2002 between U.S. Cellular and PrimeCo Wireless Communications, LLC. is hereby incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
2.2		Exchange Agreement dated March 7, 2003 between United States Cellular Corporation and AT&T Wireless Services, Inc.
3.1		Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to the Company's Amendment No. 2 on Form 8 dated December 28, 1992, to the Company's Report on Form 8-A.
3.2		Restated Bylaws, as amended, are hereby incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
4.1		Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to the Company's Amendment No. 2 on Form 8 dated December 28, 1992 to the Company's Report on Form 8-A.
4.2		Restated Bylaws, as amended, are hereby incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
4.4		Indenture dated June 1, 1995 between registrant and BNY Midwest Trust Company of New York as successor Trustee to Harris Trust and Savings Bank, as Trustee, relating to the LYONs is hereby incorporated by reference to the Company's Form 8-K dated June 16, 1995.
4.5		Form of Certificate for Liquid Yield Option Note (included in Exhibit 4.4).
4.6		Indenture dated July 31, 1997 between United States Cellular Corporation and the First National Bank of Chicago, as Trustee, relating to the Company's shelf registration of debt securities is hereby incorporated by reference to Exhibit 4 to the Company's Form 8-K dated August 26, 1997.
4.7		Revolving Credit Agreement dated August 19, 1997, among United States Cellular Corporation, BankBoston N.A. and Toronto Dominion (Texas), Inc., as agents, is hereby incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997.
4.8		Amendment No. 1 dated September 25, 1997, to the Revolving Credit Agreement dated August 19, 1997, is hereby incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.
4.9(a)		Revolving Credit Agreement dated as of June 26, 2002 among United States Cellular Corporation, the lenders named therein, Toronto Dominion (Texas), Inc., Wachovia Bank, N.A., Citibank, N.A. and LaSalle Bank N.A., is hereby incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.9(b)		Notice to Increase in Total Commitment under the Revolving Credit Agreement dated as of June 26, 2002, is hereby incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

4.10(a)		Indenture dated June 1, 2002 between U.S. Cellular and BNY Midwest Trust Company of New York, is hereby incorporated by reference to Exhibit 4.1 to Form S-3 (File No. 333-98921).
4.10(b)		First Supplemental Indenture of United States Cellular Corporation dated August 7, 2002 relating to its 9% Series A Notes due 2032, is hereby incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.10(c)		Second Supplemental Indenture of U.S. Cellular dated October 31, 2002, relating to its 8.75% Senior Notes due 2032, is hereby incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 31, 2002, filed November 1, 2002.
4.11		Note Purchase Agreement between United States Cellular Corporation and PrimeCo Wireless Communications LLC, is hereby incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.12		Registration Rights Agreement between United States Cellular Corporation and PrimeCo Wireless Communications LLC, is hereby incorporated by reference to Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.13		Note Purchase Agreement between United States Cellular Corporation and Telephone and Data Systems, Inc., is hereby incorporate by reference to Exhibit 4.6 to the Company's on Form 10-Q for the quarter ended June 30, 2002.
4.14		Subordination Agreement dated as of June 26, 2002 among Telephone and Data Systems, Inc., United States Cellular Corporation and Toronto Dominion (Texas), Inc. is hereby incorporated by reference to Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
9.1		Voting Trust Agreement, dated as of June 30, 1989, with respect to Series A Common Shares of TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-38644).
9.2		Amendment dated as of May 9, 1991, to the Voting Trust Agreement dated as of June 30, 1989, is hereby incorporated by reference to Exhibit 9.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
9.3		Amendment dated as of November 20, 1992, to the Voting Trust Agreement dated as of June 30, 1989, as amended is hereby incorporated by reference to Exhibit 9.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.
9.4		Amendment dated as of May 22, 1998, to the Voting Trust Agreement dated as of June 30, 1989, as amended is hereby incorporated by reference to Exhibit 99.3 to Telephone and Data Systems, Inc.'s Current Report on Form 8-K filed on June 5, 1998.
10.1		Tax Allocation Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.2		Cash Management Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.3		Registration Rights Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.4		Exchange Agreement, between the Company and TDS, as amended, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).

10.5		Intercompany Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.6		Employee Benefit Plans Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.7		Insurance Cost Sharing Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.8		Stock Option and Stock Appreciation Rights Plan is hereby incorporated by reference to Exhibit B to the Company's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.9		Summary of 2002 Bonus Program for Executive Vice Presidents of the Company.
10.10		Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.11		United States Cellular Corporation Compensation Plan for Non-Employee Directors.
10.12		United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-57063).
10.13		United States Cellular Corporation 1999 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-76455).
10.14		Retention Agreement for Kenneth R. Meyers dated September 13, 1999 is hereby incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
10.15		Terms of Offer Letter Between United States Cellular Corporation and John E. Rooney dated March 28, 2000 is hereby incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.
10.16		Deferred Compensation Agreement for Richard Goehring dated July 15, 1996 is hereby incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996.
10.17		Amended and Restated CDMA Master Supply Agreement between United States Cellular Corporation and Nortel Networks Inc., is hereby incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
10.18		Guaranty dated as of May 14, 2002 by United States Cellular Corporation in favor of Citibank N.A. is hereby incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.19		Guarantee dated as of May 10, 2002 by United States Cellular Corporation in favor of Credit Suisse First Boston International is hereby incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.20		Guaranty dated as of May 15, 2002 by United States Cellular Corporation in favor of Wachovia Bank, National Association is hereby incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

10.21		Guaranty dated as of May 15, 2002 by United States Cellular Corporation in favor of Toronto Dominion (New York), Inc. is hereby incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.22		United States Cellular Corporation 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-103543).
10.23		Form of Agreement and General Release for Richard W. Goehring dated March 4, 2002 is incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
12		Statement regarding computation of ratios.
13		Incorporated portions of 2002 Annual Report to Security Holders.
16.1		Letter from Arthur Andersen LLP to the Securities and Exchange Commission, dated May 23, 2002, is incorporated herein by reference to Exhibit 16.1 to the Current Form on Form 8-K, dated May 23, 2002.
18		Letter from PricewaterhouseCoopers LLP regarding change in accounting principle.
21		Subsidiaries of the Registrant.
23.1		Consent of independent public accountants.
23.2		Notice regarding consent of Arthur Andersen LLP.
99.1		Chief Executive Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
99.2		Chief Financial Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

8410 West Bryn Mawr
Suite 700
Chicago, Illinois 60631
(773) 399-8900

QuickLinks

PART I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Controls and Procedures

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

SIGNATURES
INDEX TO EXHIBITS
EX-2.2 3 a2103341zex-2_2.txt EXHIBIT 2.2 EXHIBIT 2.2 ================================================================================ EXCHANGE AGREEMENT between AT&T WIRELESS SERVICES, INC. and UNITED STATES CELLULAR CORPORATION Dated as of March 7, 2003 ================================================================================ TABLE OF CONTENTS

Section 4.15. Employment Matters...........................................................34 Section 4.16. Labor Matters................................................................35 Section 4.17. Environmental Matters........................................................36 Section 4.18. Agreements, Contracts and Commitments........................................37 Section 4.19. Books of Account.............................................................38 Section 4.20. Financial Statements.........................................................38 Section 4.21. Absence of Undisclosed Liabilities...........................................38 Section 4.22. Absence of Changes or Events.................................................39 Section 4.23. Accounts Receivable..........................................................39 Section 4.24. Inventories..................................................................39 Section 4.25. Machinery and Equipment......................................................40 Section 4.26. Cell Sites...................................................................40 Section 4.27. Litigation Regarding USCC Systems, USCC Assets...............................40 Section 4.28. Liability to Affiliates......................................................41 Section 4.29. CALEA........................................................................41 Section 4.30. Insurance....................................................................41 Section 4.31. Business Activity Restriction................................................41 Section 4.32. USCC Entities................................................................41 ARTICLE 5 COVENANTS AND AGREEMENTS...............................................................42 Section 5.1. Commercially Reasonable Efforts and Other Agreements.........................42 Section 5.2. Consents of Third Parties....................................................43 Section 5.3. Prohibited Transactions......................................................44 Section 5.4. Confidentiality..............................................................45 Section 5.5. Access and Information.......................................................46 Section 5.6. Conduct of Business..........................................................47 Section 5.7. Negative Covenants...........................................................48 Section 5.8. Risk of Loss.................................................................49 Section 5.9. Casualty Insurance Proceeds..................................................49 Section 5.10. Tax Matters..................................................................50 Section 5.11. Post-Execution Contracts.....................................................50 Section 5.12. Buildout Requirements........................................................51 Section 5.13. Microwave Clearing...........................................................51 Section 5.14. Acquisition of Non-AWS Entity Licenses.......................................52 ARTICLE 6 EMPLOYEES AND EMPLOYEE BENEFIT PLANS...................................................52 Section 6.1. Transitioned Employees.......................................................52 Section 6.2. Health, Welfare and Retirement Benefit Plans.................................54 Section 6.3. Employment Taxes.............................................................55 Section 6.4. WARN Act.....................................................................55 ARTICLE 7 CLOSING CONDITIONS.....................................................................55 Section 7.1. Conditions to Obligations of AWS.............................................55 Section 7.2. Conditions to Obligations of USCC............................................57 ARTICLE 8 INDEMNIFICATION........................................................................58 Section 8.1. Survival.....................................................................58

	Valuation of investments assuming indicated decrease		December 31, 2002		Valuation of investments assuming indicated increase
	-30%		-20%		-10%	Fair Value		+10%		+20%		+30%
	(Dollars in thousands)
Marketable Equity Securities	$	130,173		$	148,769	$	167,365		$	185,961		$	204,557		$	223,153		$	241,749
Derivative Instruments(1)	$	36,967		$	22,177	$	7,095		$	(8,709	)	$	(24,339	)	$	(40,303	)	$	(56,415	)

2 Section 8.2. Indemnification Obligation of USCC...........................................59 Section 8.3. Indemnification Obligation of AWS............................................60 Section 8.4. Limitations on Liability for Losses..........................................60 Section 8.5. Notice of Claims.............................................................62 Section 8.6. Third Party Claims...........................................................62 ARTICLE 9 TERMINATION............................................................................63 Section 9.1. Termination..................................................................63 Section 9.2. Effect of Termination........................................................64 ARTICLE 10 MISCELLANEOUS.........................................................................64 Section 10.1. Governing Law................................................................64 Section 10.2. Assignment...................................................................65 Section 10.3. Entire Agreement.............................................................65 Section 10.4. Amendments and Waivers.......................................................65 Section 10.5. Notices......................................................................66 Section 10.6. Headings.....................................................................67 Section 10.7. Severability.................................................................67 Section 10.8. No Third-Party Beneficiaries.................................................67 Section 10.9. Remedies Cumulative..........................................................67 Section 10.10. Expenses.....................................................................67 Section 10.11. Counterparts.................................................................68 Section 10.12. Specific Performance.........................................................68 Section 10.13. Further Assurances...........................................................68 Section 10.14. Retention of Assets Prior to Closing.........................................68 Section 10.15. Reformation..................................................................68 Section 10.16. Definitions..................................................................69 Section 10.17. No Set-Off...................................................................79

EXHIBITS Exhibit A - Form of License Exchange Agreement Exhibit B - Form of License Acquisition Agreement Exhibit C - Form of Instrument of Assignment (AWS Assigned Licenses) Exhibit D1 - Form of Assumption Agreement (AWS Assumed Liabilities) Exhibit D2 - Form of Assumption Agreement (USCC Assumed Liabilities) Exhibit E - Form of Instrument of Assignment (USCC Assigned Licenses) Exhibit F - Form of Bill of Sale and Assignment (USCC Assets) Exhibit G - Form of Assignment and Assumption Agreement (Section 1.5 Licenses) Exhibit H - Form of Instrument of Assignment (Partnership Interests) Exhibit I - Form of Post-Closing Master Lease Agreement Exhibit J - Form of USCC Brand License Agreement SCHEDULES Schedule I-A - AWS Entity Licenses Schedule I-B - AWS Non-Entity Licenses 3 Schedule II - Partnership Interests Schedule III - USCC Assigned Licenses Schedule IV - Knowledge (USCC) Schedule V - Knowledge (AWS) Schedule 1.1(a) - Certain USCC Assets Schedule 1.1(c) - Excluded Assets Schedule 1.2(a) - Non-Current Liabilities Schedule 1.6 - Working Capital Adjustment Schedule 1.7 - Certain Agreements Schedule 5.10(b) - Tax Allocation Schedule 6.1(a) - Designated Employees AWS Disclosure Schedule USCC Disclosure Schedule 4 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT, dated as of March 7, 2003, is made and entered into by and between AT&T Wireless Services, Inc., a Delaware corporation ("AWS"), and United States Cellular Corporation, a Delaware corporation ("USCC"). Capitalized terms used but not defined in the provision in which they first appear have the meanings ascribed thereto in Section 10.16(a). WHEREAS, (a) AWS holds, through one or more wholly-owned subsidiaries as set forth on SCHEDULE I-A, authorizations from the FCC to provide personal communications services ("PCS") in certain BTAs/MTAs, all as such authorizations (including the applicable point-to-point microwave licenses) are described on Part 1 of SCHEDULE I-A (the "AWS ENTITY LICENSES"), (b) the Persons listed on SCHEDULE I-B (each, a "NON-AWS ENTITY") hold authorizations from the FCC to provide PCS in certain BTAs/MTAs, all as such authorizations (including the applicable point-to-point microwave licenses) are described on SCHEDULE I-B (the "NON-AWS ENTITY LICENSES" and, together with the AWS Entity Licenses, the "AWS LICENSES"), and (c) AWS holds, directly or indirectly, the equity ownership interests in certain partnerships as set forth on SCHEDULE II (the "PARTNERSHIP INTERESTS"); WHEREAS, (a) USCC holds, through one or more wholly-owned subsidiaries as set forth on SCHEDULE III, authorizations from the FCC to provide cellular wireless communications services in certain RSAs/MSAs identified on SCHEDULE III (the "USCC SERVICE AREA"), all as such authorizations (including the applicable point-to-point microwave licenses) are described on SCHEDULE III (the "USCC ASSIGNED LICENSES"), (b) utilizing the USCC Assigned Licenses, USCC operates cellular wireless communications systems in each of the RSAs/MSAs set forth on SCHEDULE III (the "USCC SYSTEMS"), and (c) utilizing the USCC Systems, USCC is engaged in the business of marketing, selling and providing cellular wireless communications services in each of the RSAs/MSAs set forth in SCHEDULE III (the "USCC BUSINESS"); WHEREAS, as a condition to the consummation of the exchange, AWS shall acquire from the Non-AWS Entities the Non-AWS Entity licenses at or prior to the Closing such that one or more AWS Entities will deliver such Non-AWS Entity licenses to USCC or a designated Affiliate in accordance with this Agreement; and WHEREAS, the parties wish to effect, or cause to be effected, an exchange of (i) the AWS Assigned Licenses (as defined herein), the Partnership Interests and cash consideration for (ii) the USCC Assigned Licenses and certain assets of the USCC Systems and certain related liabilities, all to the fullest extent possible as a like-kind exchange of property under Section 1031 of the Code, and all on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants, conditions and agreements hereinafter set forth, the parties agree as follows: 5 ARTICLE 1 TRANSACTIONS Section 1.1. EXCHANGE OF ASSETS Upon the terms and subject to the conditions hereof, at Closing: (a) AWS will, and will cause each AWS Entity to, assign, transfer, deliver and convey to USCC, a designated Affiliate, or a "qualified intermediary" (within the meaning of Treasury Regulation Section 1.1031(k)-1(g)(4)) designated by USCC, free and clear of all Liens (other than Permitted Liens), and USCC or its designee will acquire, all right, title and interest of the applicable AWS Entity in and to (i) subject to Section 5.14, the AWS Assigned Licenses, (ii) the Partnership Interests and (iii) $30,750,000 in cash (the "CASH PAYMENT"), provided, that the amount of the Cash Payment shall be subject to adjustment at the Closing and after the Closing in accordance with the terms of Section 1.6; and (b) USCC will, and will cause each USCC Entity to, assign, transfer, deliver and convey to AWS or a designated Affiliate, free and clear of all Liens (other than Permitted Liens), and AWS (or its designee) will acquire, all right, title and interest of the applicable USCC Entity in and to (i) the USCC Assigned Licenses, and (ii) except for the Excluded Assets set forth in subsection (c) below and the USCC Assigned Licenses, all of each USCC Entity's right, title and interest in and to the following assets, principally used or held for use, in connection with the operation of the USCC Systems, and, with respect to tangible assets, that are located in the USCC Service Area (collectively, the "USCC ASSETS"): (i) (x) all Cell Sites, towers, transmitters, antennae, generators, wireless switches and related components used or held for use in connection with the operation of the USCC Systems and located in the USCC Service Area, and (y) test equipment, technical facilities, telephone handsets, computers and accessories to the extent principally used or held for use in connection with the operation of the USCC Systems and which are located in the USCC Service Area; (ii) all electronic serial numbers and mobile numbers associated with each subscriber of the USCC Systems, billing numbers, if any, associated with each such subscriber, sales records, credit data and other information and data relating to subscribers of the USCC Systems, images of all subscriber bills from January 1, 2001 through the Closing Date, any contracts with subscribers of the USCC Systems and the applicable USCC Entity's right to receive payments from such subscribers pursuant to any such contracts for service rendered on and after the Closing Date, and all claims, deposits, prepayments, prepaid assets, refunds, causes of action, rights of recovery, rights of setoff and rights of recoupment with respect to subscribers of the USCC Systems; 6 (iii) engineering plans, surveys and related information and data collected, held or owned by each USCC Entity, directly relating to the operation of the USCC Systems that are located in the USCC Service Area; (iv) copies of all subscriber lists and other documentation to the extent principally relating to subscribers of the USCC Systems; (v) all System Permits; (vi) copies of all information and data compiled by the applicable USCC Entity's customer service center(s) with respect to subscribers of the USCC Systems; (vii) all machinery, equipment (both fixed and mobile, including computer equipment), trucks and other vehicles, office equipment, furniture, furnishings, and fixtures, in each case to the extent principally used or held for use in connection with the operation of the USCC Systems and which are located in the USCC Service Area (collectively, the "MACHINERY AND EQUIPMENT"); (viii) all Inventory; (ix) all accounts receivable relating to subscribers of the USCC Systems, and rights to receive payment from such subscribers, in each case to the extent directly relating to or arising in connection with the operation of the USCC Systems (collectively, "ACCOUNTS RECEIVABLE"); (x) all rights of the applicable USCC Entity under the USCC System Contracts, together with all rights to assert claims and take other actions in respect of breaches, defaults and other violations of such USCC System Contracts; (xi) all warranties, indemnities, guarantees and similar rights to the extent principally relating to the operation of the USCC Systems; (xii) copies of all information, data and files to the extent principally used or held for use in connection with the operation of the USCC Systems, and copies of all Books and Records; (xiii) all rights of each USCC Entity under covenants not to compete or to solicit subscribers with respect to the USCC Systems, to the extent transferable; (xiv) all telephone and facsimile numbers to the extent principally used or held for use in connection with the operation of the USCC Systems; (xv) all credits, prepaid expenses, prepaid property taxes, prepaid rents, advances by each USCC Entity to its employees, deferred charges, advance payments, security deposits and other prepaid items, in each case to the extent principally used or held for use in connection with the operation of the USCC Systems (collectively, "USCC ADVANCE PAYMENTS"); 7 (xvi) all personnel records of the Transitioned Employees and all quality control records, business procedures, test information and technical information, in each case to the extent principally used or held for use in connection with the operation of the USCC Systems; (xvii) all of the goodwill as a going concern and other intangible property relating solely and directly to the USCC Assets or to the operation of the USCC Systems, with the exception of any goodwill related to any trademark, service mark or trade name used by USCC, to the extent transferable; (xviii) all rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by any USCC Entity with respect to the ownership, use, function or value of any USCC Asset, whether arising by way of counterclaim or otherwise, in each case principally related to or arising in connection with the operation of the USCC Systems; (xix) all Real Property Leases and all owned Real Property set forth on SCHEDULE 4.10(a); (xx) all USCC System Contracts (other than any Non-Assigned Contracts); (xxi) all right, title and interest of each USCC Entity, as lessee or sublessee, with respect to leased personal property (to the extent principally used or held for use in connection with the operation of the USCC Systems) and Leased Property; (xxii) all Current Assets identified in the column labeled "USCC Assets" on SCHEDULE 1.6; and (xxiii) all assets identified in the column labeled "USCC Assets" on SCHEDULE 1.1(a). (c) Notwithstanding anything to the contrary in Section 1.1(b) or any other provisions of this Agreement, the USCC Assets shall not include any of the following assets, properties and rights of any USCC Entity (collectively, the "EXCLUDED ASSETS"): (i) all cash and cash equivalents of USCC on hand as of the Closing Date, other than miscellaneous cash as indicated on SCHEDULE 1.6; (ii) all Intellectual Property excluding USCC Intellectual Property; (iii) all insurance policies and rights thereunder; (iv) all personnel and other records (originals or copies) that any USCC Entity is required by Law to retain in its possession (it being understood that (A) subject to the following clause (B), copies of each shall have been provided to AWS prior to Closing and (B) to the extent that copies may not be provided under applicable Law, USCC shall use its Commercially Reasonable Efforts to obtain 8 the Consent of its employees or former employees to the transfer of such materials to AWS); (v) all prepaid income Taxes and claims for refunds of Taxes and other governmental charges of whatever nature, to the extent based on revenues received or accrued during the period prior to Closing; (vi) all rights in connection with, and assets of, any of the System Employee Plans; (vii) the corporate minute books, stock books and other corporate and tax records of USCC and any Affiliate thereof, including the USCC Entities; (viii) interests in systems or businesses other than the USCC Systems, including permits and assets used in the provision of wireless service (cellular and PCS) to customers of USCC and its Affiliates located outside the USCC Service Area; (ix) all permits, assets, books, records, documents, written materials and operations used by or related to USCC or one or more Affiliates thereof, including the USCC Systems, that are located outside the USCC Service Area or that are not principally used or held for use in connection with the operation of the USCC Systems, including but not limited to all assets, books, records, documents, lists and written materials relating to any corporate or centralized services and functions, including management, finance, accounting, billing, accounts receivable, accounts payable, tax, information services, computer services, engineering, marketing, operations, customer relations, purchasing, inventory management, construction, insurance, human resources, payroll, employee benefit, computer, call center and other administrative services and functions; (x) all Current Assets identified in the column labeled "Excluded Assets" on SCHEDULE 1.6; (xi) all assets identified in the column labeled "Excluded Assets" on SCHEDULE 1.1(a); and (xii) such other assets, if any, as are set forth on SCHEDULE 1.1(c). Section 1.2. ASSUMPTION OF LIABILITIES (a) Upon the terms and subject to the conditions hereof, at Closing AWS will, or will cause the applicable AWS Entity (or an Affiliate thereof designated by AWS) to, assume from each of the applicable USCC Entities, as of the Closing Date, the payment, discharge and performance of the following liabilities and obligations (collectively, the "USCC ASSUMED LIABILITIES"): 9 (i) all Current Liabilities of each USCC Entity as of the Closing Date to the extent included in the calculation of the Closing Date Working Capital Amount; (ii) all liabilities and obligations (including Taxes and liabilities and obligations in connection with the matters disclosed in items 1 and 2 on SCHEDULE 4.27) arising out of the use, ownership or operation after the Closing Date of the USCC Business or the use, ownership or operation after the Closing Date of the USCC Systems, the USCC Assigned Licenses or USCC Assets, including the USCC System Contracts (other than any Non-Assigned Contracts), the Real Property Leases, the USCC Intellectual Property and the System Permits; (iii) liabilities and obligations, not to exceed $25,000 in the aggregate, arising in the ordinary course of the USCC Business out of (x) the operation prior to the Closing Date of the USCC Business or (y) the use, ownership or operation prior to the Closing Date of the USCC Systems, the USCC Assigned Licenses or USCC Assets, including the USCC System Contracts (other than any Non-Assigned Contracts), the Real Property Leases, the USCC Intellectual Property and the System Permits; (iv) all liabilities and obligations of AWS as provided in Article 6 with respect to Transitioned Employees; (v) all liabilities and obligations arising with respect to deposits or prepayments by subscribers for service on the USCC Systems; (vi) all liabilities and obligations (including, in connection with the matters disclosed on Schedule 4.6(d)) arising after the Closing Date out of any Law of the FCC or any other Governmental Authority to which the USCC Assigned Licenses, USCC Systems and USCC Assets are subject; and (vii) the non-current liabilities of the USCC Entities specified on SCHEDULE 1.2(a). (b) Neither AWS nor any of its Affiliates shall assume or undertake in any way to perform, pay, satisfy or discharge any liability or obligation of USCC or any of its Affiliates of any nature whatsoever, whether known or unknown, determined or undetermined, liquidated or unliquidated, direct or indirect, contingent or accrued, matured or unmatured, and whether or not relating to the USCC Assets, the USCC Systems or the USCC Business, other than the USCC Assumed Liabilities (each such liability being a "USCC EXCLUDED LIABILITY"), including the following: (i) any liabilities and obligations (including Taxes and liabilities and obligations in connection with the matters disclosed on SCHEDULE 4.8(e) and in items 1 and 2 on SCHEDULE 4.27) arising out of the operation prior to the Closing Date of the USCC Business or the use, ownership or operation prior to the Closing Date of the USCC Systems, the USCC Assigned Licenses or USCC Assets, including the USCC System Contracts, the Real Property Leases, the 10 USCC Intellectual Property and the System Permits, except for the liabilities and obligations assumed by AWS pursuant to Section 1.2(a)(iii); (ii) any liabilities and obligations (including in connection with the matters disclosed on SCHEDULE 4.6(d)) arising prior to the Closing Date out of any Law of the FCC or any other Governmental Authority to which the USCC Assigned Licenses, USCC Systems and USCC Assets are subject; (iii) any non-current liabilities of the USCC Entities that are not specified in SECTION 1.2(a); (iv) any liabilities and obligations arising at any time out of the matters disclosed in items 3 and 4 on SCHEDULE 4.27; or (v) any liabilities and obligations arising at any time out of any breach by any USCC Entity under this Agreement or any USCC System Contract. (c) Upon the terms and subject to the conditions hereof, at Closing USCC will, or will cause the applicable USCC Entity (or an Affiliate thereof designated by USCC) to, assume from each of the applicable AWS Entities, as of the Closing Date, the payment, discharge and performance of the following liabilities and obligations (collectively, the "AWS ASSUMED LIABILITIES"): (i) all liabilities and obligations (including Taxes) arising out of the use, ownership or operation after the Closing Date of the AWS Assigned Licenses or the Partnership Interests; and (ii) all liabilities and obligations arising after the Closing Date out of any Law of the FCC or any other Governmental Authority to which the AWS Assigned Licenses or the Partnership Interests are subject, except with respect to (x) any obligations owed to any Governmental Authority with respect to the purchase of the AWS Assigned Licenses from the FCC (including interest and penalties for late payment), and (y) any obligations owed with respect to AWS License Cost Sharing Obligations arising as a result of any prior coordination notice filed by any AWS Entity or any predecessor in interest in respect of the AWS Licenses prior to Closing. (d) Neither USCC nor any of its Affiliates shall assume or undertake in any way to perform, pay, satisfy or discharge any liability or obligation of AWS or any of its Affiliates of any nature whatsoever, whether known or unknown, determined or undetermined, liquidated or unliquidated, direct or indirect, contingent or accrued, matured or unmatured, and whether or not relating to the AWS Assigned Licenses or the Partnership Interests, other than the AWS Assumed Liabilities (each such liability being an "AWS EXCLUDED LIABILITY"), including the following: (i) any liabilities and obligations (including Taxes) arising out of the use, ownership or operation prior to the Closing Date of the AWS Licenses or the Partnership Interests; 11 (ii) any liabilities and obligations arising prior to the Closing Date out of any Law of the FCC or any other Governmental Authority to which the AWS Assigned Licenses or the Partnership Interests are subject; or (iii) any liabilities and obligations arising at any time out of any breach by any AWS Entity under this Agreement. Section 1.3. LIKE-KIND EXCHANGE (a) The parties shall cause the exchange of assets described in Section 1.1 to be treated in such a manner that such exchange qualifies as an exchange of multiple, like-kind assets to the maximum extent permitted by Section 1031 of the Code. Notwithstanding any other provision in this Agreement, including this Section 1.3, each party acknowledges and agrees that it (i) has obtained its own, separate tax advice with respect to the characterization of the exchanges hereunder as like-kind exchanges of property under Section 1031 of the Code, and (ii) is not relying on any representations of the other party with respect to the characterization of the exchanges hereunder as like-kind exchanges of property under Section 1031 of the Code. (b) In furtherance of Section 1.3(a) hereof, AWS shall cooperate, if requested, in enabling USCC or any USCC Entity to effectuate a like-kind exchange through the assignment of all or any portion of the rights of USCC or any such entity pursuant to this Agreement to a "qualified intermediary" as defined in Treasury Regulation Section 1.1031(k)-1(g)(4); provided, that none of AWS's rights and none of USCC's obligations to AWS in respect of this Agreement shall be diminished or otherwise affected by any such assignment. (c) Within 60 days following the date hereof, USCC and AWS shall in good faith negotiate and draft on a preliminary basis an allocation schedule (the "ALLOCATION SCHEDULE") that will allocate the relative fair market values of the assets to be exchanged pursuant to Section 1.1, which allocation shall take into account the Cash Payment. Within 30 days following the final determination of the Closing Date Working Capital Amount under Section 1.6, USCC and AWS shall in good faith negotiate and finalize the Allocation Schedule. The Allocation Schedule shall be reasonable and shall be prepared in accordance with Section 1060 of the Code and the Treasury Regulations thereunder, and in accordance with any appraisal that the parties mutually determine to obtain. If the parties mutually determine to obtain an appraisal in connection with the Allocation Schedule, USCC and AWS shall jointly appoint an independent appraiser to conduct and to deliver to USCC and AWS, as promptly as practicable, but no later than 60 days after the engagement of the appraiser, an appraisal of the fair market value at the time of the Closing of the exchanged assets, taking into account the Cash Payment, as adjusted under Section 1.6. The cost of any appraisal commissioned by the parties in order to value such assets for purposes of this paragraph shall be shared equally by the parties. AWS and USCC agree to cause all tax returns and reports relating to the Transactions, including Internal Revenue Service Form 8824 or Form 8594, as applicable, to be filed in accordance with the values set forth on the final Allocation Schedule and not to take any 12 position inconsistent therewith unless required to do so pursuant to a "determination" as such term is defined in Section 1313 of the Code. Section 1.4. LICENSE EXCHANGE OPTIONS (a) AWS shall have the right at any time during the period that begins on the Closing Date and ends on the second anniversary of the Closing Date (the "EXCHANGE OPTION PERIOD") to require USCC to exchange (i) (x) the ten MHz of broadband PCS spectrum covering Oklahoma City, OK (BTA 329) to be assigned by AWS to USCC hereunder (the "ORIGINAL OKLAHOMA SPECTRUM") for (y) ten MHz of broadband PCS spectrum (in the 1850-1990 MHz frequency range) covering Oklahoma City, OK (BTA 329), acquired by AWS during the Exchange Option Period, if any (the "OKLAHOMA EXCHANGE OPTION") and/or (ii) (x) the ten MHz of broadband PCS spectrum covering Portland, ME (BTA 357) to be assigned by AWS to USCC hereunder (the "ORIGINAL MAINE SPECTRUM") for (y) ten MHz of broadband PCS spectrum (in the 1850-1990 MHz frequency range) covering Portland, ME (BTA 357), acquired by AWS during the Exchange Option Period, if any (the "MAINE EXCHANGE OPTION" and, together with the Oklahoma Exchange Option, the "EXCHANGE OPTIONS"). (b) Each Exchange Option shall be exercisable by notice of election given to USCC within the Exchange Option Period. If AWS does not timely exercise an Exchange Option, such Exchange Option will terminate upon expiration of the Exchange Option Period. Promptly after receipt of a notice of election, AWS and USCC shall (subject to any necessary cooperation by AWS and USCC) prepare and file with the FCC one or more assignment applications in respect of the applicable spectrum, AWS shall prepare and deliver to USCC a License Exchange Agreement in substantially the form of EXHIBIT A hereto in respect of the applicable spectrum, and each party shall deliver to the other a duly executed counterpart thereof. USCC and AWS will cooperate and use Commercially Reasonable Efforts to consummate any such exchange as promptly as possible. AWS will reimburse USCC for its reasonable costs and expenses incurred in effecting any such exchange, including USCC's engineering costs and capital expenditures. (c) From the Closing Date until expiration of the Exchange Option Period, USCC shall and shall cause the applicable USCC Entity to (i) maintain the FCC Licenses for the Original Oklahoma Spectrum and the Original Maine Spectrum in full force and effect and (ii) maintain in full force and effect all Governmental Authorizations necessary to preserve the ability to construct and operate such FCC Licenses, as and when such Governmental Authorizations are or become necessary for such purposes; provided, that neither USCC nor such USCC Entity shall make, cause or permit to be made, any material commitments to any Governmental Authority relating to any Governmental Authorization affecting the FCC Licenses for the Original Oklahoma Spectrum and Original Maine Spectrum, without the AWS's prior written consent, which shall not be unreasonably withheld or delayed. Prior to the expiration of the Exchange Option Period, USCC shall not, and shall cause its Affiliates not to, Transfer (or enter into any agreement to Transfer) the Original Oklahoma Spectrum or the Original Maine Spectrum, except for Transfers (i) to a wholly-owned subsidiary or (ii) in connection with the 13 Transfer of all or substantially all of the assets of USCC in the State of Oklahoma or the State of Maine, as applicable, provided, that prior to the consummation of such Transfer, the purchaser or other transferee of such assets assumes USCC's obligations under this Section pursuant to documentation in form and substance reasonably satisfactory to AWS. USCC acknowledges that money damages would not be sufficient to compensate AWS for a breach by USCC of this paragraph, and accordingly agrees that AWS shall be entitled to seek specific performance of USCC's obligations under this paragraph and an injunction against any Transfer sought to be effected in violation of such provisions. Section 1.5. LICENSE CALL OPTIONS (a) Notwithstanding anything herein to the contrary, USCC may elect, by notice given to AWS no more than five Business Days after the date hereof, to defer assignment of one or more of the AWS Assigned Licenses designated as "SECTION 1.5 LICENSES" on Schedules I-A and I-B, in which event assignment applications relating to such Section 1.5 Licenses will not be filed with the FCC pursuant to Section 5.2(a), but such Section 1.5 Licenses shall be subject to the provisions of this Section 1.5. (b) At any time, and from time to time, during the period that begins on the Closing Date and ends on the fifth anniversary of the Closing Date (the "SECTION 1.5 OPTION PERIOD"), USCC may elect, by written notice given to AWS within the Section 1.5 Option Period (a "SECTION 1.5 EXERCISE NOTICE"), to require AWS to assign to USCC any or all of the Section 1.5 Licenses in accordance with this Section 1.5 (a "SECTION 1.5 OPTION"). If USCC fails to exercise its Section 1.5 Option with respect to any Section 1.5 License in compliance with this Section 1.5, AWS shall have no further obligation to USCC in respect of such Section 1.5 License. (c) Promptly after receipt of a Section 1.5 Exercise Notice in respect of any Section 1.5 License, AWS shall (subject to any necessary cooperation by USCC) prepare and file with the FCC an assignment application in respect of such Section 1.5 License. Within ten Business Days after the FCC's Consent to such assignment becomes a Final Order, AWS and USCC shall (or shall cause the applicable AWS Entity or USCC Entity to) execute and deliver to each other an instrument of assignment and assumption in substantially the form of EXHIBIT G. USCC and AWS will cooperate and use Commercially Reasonable Efforts to consummate any such assignment as promptly as possible. (d) During the Section 1.5 Option Period: (i) AWS shall, and shall cause the applicable AWS Entity to, maintain in full force and effect each Section 1.5 License (or the original AWS License from which such Section 1.5 License will be disaggregated and/or partitioned), and all Governmental Authorizations necessary to preserve the ability of USCC to construct and operate such Section 1.5 License (or original AWS License), as and when such Governmental Authorizations are or become necessary for such purposes; provided, that neither AWS nor such AWS Entity shall make, cause or permit to be made, any material commitments to any Governmental Authority relating to any Governmental Authorization affecting any Section 1.5 License without USCC's prior written consent, which shall not be unreasonably withheld or delayed; (ii) AWS shall satisfy, or cause to 14 be satisfied, the FCC's ten-year minimum build-out requirement, if any, and the FCC's ten-year license renewal standards; provided that AWS shall not be obligated to expend any funds to accomplish the same to the extent directly related to such AWS Assigned License unless USCC agrees in writing to reimburse AWS promptly for any reasonable out-of-pocket expenses that AWS may incur to satisfy the FCC's ten-year minimum build-out requirement and/or the FCC's ten-year license renewal standards directly related to an AWS Assigned License; and (iii) AWS shall not, and shall cause its Affiliates not to, Transfer (or enter into any agreement to Transfer) any Section 1.5 License, except for Transfers (x) in accordance with this Section 1.5, (y) to a wholly-owned subsidiary of AWS or (z) in connection with the Transfer of all or substantially all of the assets or stock of AWS, provided, that prior to the consummation of such Transfer, the purchaser or other transferee of such assets or stock assumes AWS's obligations under this Section 1.5 pursuant to documentation in form and substance reasonably satisfactory to USCC. AWS acknowledges that money damages would not be sufficient to compensate USCC for a breach by AWS of this paragraph, and accordingly agrees that USCC shall be entitled to seek specific performance of AWS's obligations under this paragraph and an injunction against any Transfer sought to be effected in violation of such provisions. Section 1.6. Working Capital Adjustment (a) USCC shall deliver to AWS no later than two Business Days prior to the Closing Date a statement in the format attached as SCHEDULE 1.6 setting forth amounts as of the most recent practicable date prior to the Closing Date, of all Current Assets and Current Liabilities, allocated between USCC and AWS in the manner set forth on such attachment, together with USCC's good faith estimate of the amount by which the Current Assets (defined below) of the USCC Business as of the Closing Date exceeds the Current Liabilities (defined below) of the USCC Business as of the Closing Date based on the methodology set forth on the attachment to this Schedule ("PRELIMINARY CLOSING DATE WORKING CAPITAL AMOUNT"). (For illustrative purposes, SCHEDULE 1.6 is a completed statement setting forth the Working Capital Amount as of January 31, 2003.) If the Preliminary Closing Date Working Capital Amount is positive, AWS shall pay to USCC, at the Closing, in addition to the Cash Payment, cash in an amount equal to such Preliminary Closing Date Working Capital Amount. If the Preliminary Closing Date Working Capital Amount is negative, the Cash Payment shall be reduced by an amount equal to the absolute value of such Preliminary Closing Date Working Capital Amount. (b) Following Closing, the Cash Payment shall be adjusted (i) downward, in the event the Closing Date Working Capital Amount (defined below) is less than the Preliminary Closing Date Working Capital Amount and (ii) upward, in the event that the Closing Date Working Capital Amount is greater than the Preliminary Closing Date Working Capital Amount, all as finally determined in accordance with the provisions set forth below. For purposes of this Agreement, "CLOSING DATE WORKING CAPITAL AMOUNT" means the amount by which the Current Assets (defined below) of the USCC Business as of the Closing Date exceeds the Current Liabilities (defined below) of the USCC Business as of the Closing Date based on the methodology set forth on the attachment to this Schedule. 15 (c) As promptly as practicable after the Closing Date (but in no event later than 60 days thereafter), AWS shall prepare and deliver to USCC for its review and comment a schedule of working capital dated as of the Closing Date setting forth the proposed Closing Date Working Capital Amount (the "WORKING CAPITAL SCHEDULE"). The Working Capital Schedule shall be prepared in accordance with the procedures set forth in this Schedule. For purposes of preparing the Working Capital Schedule, from and after the Closing Date, USCC shall provide AWS and its agents and representatives upon reasonable notice with access to the books and records of USCC relating to, and personnel of USCC knowledgeable about, the USCC Assets, the USCC Systems and the USCC Business to the extent reasonably necessary to permit AWS to prepare the Working Capital Schedule. If USCC objects to any amounts reflected on the Working Capital Schedule prepared by AWS, USCC must, within 60 days after its receipt of the Working Capital Schedule, give written notice (the "OBJECTION NOTICE") to AWS specifying in reasonable detail its objections. If USCC has not given such Objection Notice with respect to the Working Capital Schedule prepared by AWS within such time period, AWS's determination of the Closing Date Working Capital Adjustment shall be final, binding and conclusive on the parties. With respect to any disputed amounts concerning the Working Capital Schedule, the parties shall meet in person and negotiate in good faith during the 20 Business Day period (the "RESOLUTION PERIOD") after the date of AWS's receipt of the Objection Notice to resolve any such disputes. If the parties are unable to resolve all such disputes within the Resolution Period, then within five Business Days after the expiration of the Resolution Period, all disputes shall be submitted to a mutually acceptable Big-4 Accounting Firm other than PricewaterhouseCoopers (the "INDEPENDENT ACCOUNTANT") who shall be engaged to provide a final and conclusive resolution of all unresolved disputes within 45 days after such engagement. The determination of the Independent Accountant shall be final, binding and conclusive on the parties hereto, and the fees and expenses of the Independent Accountant shall be borne equally by the parties. From and after the Closing Date, AWS shall provide USCC and its agents and representatives upon reasonable notice with access to the books and records of AWS relating to, and personnel of AWS knowledgeable about, the USCC Assets, the USCC Systems and the USCC Business to the extent reasonably necessary to permit USCC to review the results of the Working Capital Schedule. (d) For purposes of preparing the Working Capital Schedule, "CURRENT ASSETS" shall include only the current assets identified on the attachment hereto in the column labeled "USCC Assets" and "CURRENT LIABILITIES" shall include only the current liabilities identified on the attachment hereto in the column labeled "USCC Assumed Liabilities". (e) If the Closing Date Working Capital Amount, as finally determined in accordance with the provisions set forth above, is less than the Preliminary Closing Date Working Capital Amount, the Cash Payment shall be adjusted downward and USCC shall promptly reimburse to AWS in cash the difference between the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount plus interest on such difference from the Closing Date to the date of payment at the Prime Rate on the Closing Date. If the Closing Date Working Capital Amount, as finally determined in accordance with the provisions set forth above, is greater than the 16 Preliminary Closing Date Working Capital Amount, the Cash Payment shall be adjusted upward and AWS shall promptly pay to USCC in cash the difference between the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount plus interest on such difference from the Closing Date to the date of payment at the Prime Rate on the Closing Date. For purposes hereof, "Prime Rate" shall mean the annual interest rate set forth as the Prime Rate in the Money Rates table of The Wall Street Journal. (f) The parties agree that all USCC Assets that are current shall be included in the amount of Current Assets for purposes of determining the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount, and that USCC Assets shall not include any current assets that are not included as Current Assets for purposes of determining the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount (it being understood that Current Assets shall not include any Excluded Assets). The parties further agree that all USCC Assumed Liabilities that are current shall be included in the amount of Current Liabilities for purposes of determining the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount, and that USCC Assumed Liabilities shall not include any current liabilities that are not included as Current Liabilities for purposes of determining the Preliminary Closing Date Working Capital Amount and the Closing Date Working Capital Amount (it being understood that Current Liabilities shall not include any USCC Excluded Liabilities). (g) Consistent with the foregoing, the parties agree that any accounts receivable or other current assets that have been written off by USCC in the ordinary course of business consistent with prior practice and/or which are not included in the amount of Current Assets for purposes of determining the Preliminary Closing Date Working Capital Amount or the Closing Date Working Capital Amount shall not be transferred to AWS and any recovery in respect thereof after the Closing shall be for the benefit of USCC. (h) Consistent with foregoing, (i) if either party receives or collects any assets that are for the benefit of the other party, such party shall hold such assets for the benefit of and promptly Transfer such assets to the other party and (ii) if either party pays or performs any liabilities that are for the account of the other party, such party shall promptly indemnify the other party subject to the terms and conditions of Article 8. Section 1.7. CERTAIN AGREEMENTS USCC shall have the rights described in SCHEDULE 1.7 with respect to certain spectrum held by AWS. ARTICLE 2 CLOSING Section 2.1. TIME AND PLACE OF CLOSING 17 Upon the terms and subject to the satisfaction or waiver by the appropriate party of the conditions set forth in Article 7, the closing of the Transactions (the "CLOSING") shall take place at the offices of Sidley Austin Brown & Wood, 10 South Dearborn Street, 55th Floor, Chicago, Illinois, 60603, at 10:00 a.m. Chicago time on the fifth Business Day after the date on which the last applicable condition under Section 7.1(c), Section 7.1(d), Section 7.1(e), Section 7.1(g), Section 7.2(c), Section 7.2(d), Section 7.2(e) and Section 7.2(g) has been satisfied or waived or at such other time and place as the parties hereto may mutually agree. The date on which the Closing occurs is called the "CLOSING DATE," and the Transactions shall be deemed to have closed simultaneously at 11:59 p.m. Chicago time on the Closing Date. Section 2.2. CLOSING ACTIONS AND DELIVERIES Upon the terms and subject to the satisfaction or waiver by the appropriate party of the conditions set forth in Article 7, the parties shall take the following actions on the Closing Date: (a) AWS shall, or shall cause the applicable AWS Entities to, execute and deliver to USCC: (i) one or more instruments of assignment, substantially in the form attached hereto as EXHIBIT C, sufficient to assign the AWS Assigned Licenses (other than the Section 1.5 Licenses and except as otherwise provided in Section 5.14) and the Partnership Interests to USCC or its designated Affiliate; (ii) one or more instruments of assumption, substantially in the form attached hereto as EXHIBIT D1, sufficient for the applicable AWS Entities to assume the USCC Assumed Liabilities from each applicable USCC Entity; (iii) evidence that AWS has made the Cash Payment by wire transfer to an account designated by USCC or by other delivery of immediately available funds; and (iv) the certificates and other documents required to be delivered by AWS at or prior to Closing under Section 7.2. (b) USCC shall, or shall cause the applicable USCC Entities to, execute and deliver to AWS: (i) one or more instruments of assignment, substantially in the form attached hereto as EXHIBIT E, sufficient to assign the USCC Assigned Licenses to AWS or its designated Affiliate; (ii) one or more bills of sale and other instruments of assignment and conveyance, substantially in the forms attached hereto as EXHIBIT F, sufficient to assign and transfer all right, title and interest of the applicable USCC Entities in and to the USCC Assets to AWS or its designated Affiliate; 18 (iii) one or more instruments of assumption, substantially in the form attached hereto as EXHIBIT D2, sufficient for the applicable USCC Entities to assume the AWS Assumed Liabilities from each applicable AWS Entity; and (iv) the certificates and other documents required to be delivered by USCC at or prior to Closing under Section 7.1. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF AWS AWS hereby represents and warrants to USCC as follows, except as set forth in the disclosure schedule attached hereto (the "AWS DISCLOSURE SCHEDULE"), which AWS Disclosure Schedule is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article 3 (it being understood that any item disclosed in one paragraph of the AWS Disclosure Schedule shall not be deemed to be disclosed with respect to any other paragraph of the AWS Disclosure Schedule unless otherwise indicated therein): Section 3.1. ORGANIZATION Each AWS Entity is a limited liability company or corporation, as the case may be, and is duly organized, in good standing and validly existing under the Laws of its jurisdiction of organization and has all requisite limited liability company or corporate, as the case may be, power and authority to enter into each Transaction Document to which it is or shall be a party and consummate the Transactions to which it is a party. Each AWS Entity is duly qualified as a foreign entity in each of the jurisdictions where such qualification is required by Law, except where the failure to be so qualified would not materially impair its ability to hold the applicable AWS Licenses or to consummate the Transactions to which it is a party. Section 3.2. AUTHORITY With respect to each AWS Entity, the execution and delivery of each Transaction Document to which such AWS Entity is or shall be a party, the consummation by it of the Transactions to which it is a party and the performance by it of each Transaction Document to which it is or shall be a party have been duly authorized and approved by all necessary limited liability company or corporate, as applicable, action, and no other proceedings on its part which have not been taken are necessary to authorize the execution, delivery and performance of the Transaction Documents to which it is or shall be a party or to consummate the Transactions to which it is a party. Section 3.3. EXECUTION AND ENFORCEABILITY Each Transaction Document to which an AWS Entity is a party has been, and each Transaction Document to which an AWS Entity shall be a party as of the Closing Date shall have been, duly executed and delivered by it and constitutes or shall constitute as of Closing, as applicable, its legal, valid and binding obligation, enforceable against it in accordance with its terms, except to the extent enforcement may be limited by 19 applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar Laws of general applicability affecting the rights of creditors and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). Section 3.4. NO CONFLICT OR CONSENTS Neither the execution, delivery and performance by any AWS Entity of the Transaction Documents to which it is or shall be a party, nor the consummation of the Transactions to which it is a party, will (i) conflict with, or result in a breach or violation of, or constitute a default under, any provision of its organizational documents; (ii) constitute, with or without the giving of notice or passage of time or both, a breach, violation or default by it, create a Lien, or give rise to any right of termination, modification, cancellation, prepayment or acceleration, or a loss of rights, under (A) any Law or Governmental Authorization or (B) any note, bond, mortgage, indenture, lease, agreement or other instrument, in each case which is applicable to or binding upon it or any of its assets; or (iii) require any action in respect of, or filing with, any Governmental Authority or any Consent, other than filings under the HSR Act, the Consent of the FCC and any applicable AWS State Consents, except, in the case of clauses (ii) and (iii), where such breach, violation, default, Lien, right or the failure to obtain or give such Consent would not have an AWS Material Adverse Effect. Section 3.5. NO BROKER Neither AWS nor any of its Affiliates has entered into any agreement, arrangement or understanding with any Person which will result in an obligation to pay any finder's fee, brokerage commission or similar payment in connection with the Transactions. Section 3.6. FCC MATTERS (a) Each AWS Entity listed on SCHEDULE I-A is the exclusive holder of, and has good title to, free and clear of all Liens (other than the options specifically identified in SCHEDULE 1.7), the AWS Entity License(s) set forth opposite its name on SCHEDULE I-A. Each Non-AWS Entity listed on SCHEDULE I-B is the exclusive holder of, and has good title, free and clear of all Liens, to the Non-AWS Entity License(s) set forth opposite its name on SCHEDULE I-B. No Person other than the applicable AWS Entity or Non-AWS Entity has any right, title or interest (legal or beneficial) in or to the AWS License(s) set forth opposite its name on SCHEDULE I-A or SCHEDULE I-B. Each AWS Entity License has been granted to the applicable AWS Entity by Final Order and is in full force and effect; as of the date hereof, each Non-AWS Entity License has been granted to the applicable Non-AWS Entity by Final Order and is in full force and effect; as of the Closing Date, each Non-AWS Entity License shall have been granted to the applicable AWS Entity by Final Order and shall be in full force and effect. No person other than the applicable AWS Entity is licensed to use, or otherwise has a right to use, the AWS Entity license(s) set forth opposite its name on SCHEDULE I-A. No person other than the applicable Non-AWS Entity is licensed to use, or otherwise has a right to use, the Non-AWS Entity 20 license(s) set forth opposite its name on SCHEDULE I-B. No AWS Entity or any Affiliate thereof has entered into any obligation, agreement, arrangement or understanding to Transfer the AWS Licenses or that would adversely affect USCC's ownership or use of the AWS Assigned Licenses after Closing. No Non-AWS Entity or any Affiliate thereof has entered into any obligation, agreement, arrangement or understanding to Transfer the Non-AWS Entity Licenses or that would adversely affect USCC's ownership or use of the AWS Assigned Licenses after Closing. There are no Interference Consents with respect to the AWS Licenses that are not terminable by either party thereto on less than 60 days' advance notice. (b) Except for proceedings affecting the wireless industry or wireless licenses generally and as set forth on SCHEDULE 3.6(b), there is not pending or, to the Knowledge of AWS, threatened against any AWS Entity, any Non-AWS Entity or any of the AWS Licenses, nor does AWS have Knowledge of any basis for, any application, action, complaint, claim, investigation, suit, notice of violation, petition, objection or other pleading, or any proceeding against any AWS Entity, the AWS Licenses, with the FCC or any other Governmental Authority, which questions or contests the validity of, or seeks the revocation, cancellation, forfeiture, non-renewal or suspension of, any of the AWS Licenses, or which seeks the imposition of any modification or amendment thereof, or the payment of a fine, sanction, penalty, damages or contribution in connection with the use of any of the AWS Licenses by any AWS Entity holding such license, except for any such application, action, complaint, claim, investigation, suit, notice of violation, petition, objection, pleading, or proceeding that would not have an AWS Material Adverse Effect. (c) All material documents required to be filed at any time by any AWS Entity or any Non-AWS Entity with the FCC or any other Governmental Authority pursuant to FCC Law with respect to each of the AWS Licenses held thereby have been timely filed or the time period for such filing has not lapsed. All of such filings are complete and correct in all material respects. None of the AWS Licenses is subject to any conditions other than those appearing on its face and those imposed by FCC Law. All amounts owed to the FCC in connection with the grant by the FCC of each of the AWS Licenses have been timely paid and no further amounts are due to the FCC in respect of such AWS Licenses. SCHEDULE 3.6(c) sets forth and describes all applications in respect of the AWS Licenses pending or on file with a Governmental Authority; the information contained in each such application is true and complete in all material respects. (d) No AWS Entity, any Affiliate of an AWS Entity, Non-AWS Entity or any Affiliate of a Non-AWS Entity is in conflict with, or in default or violation of, any Laws applicable to any AWS License (including, rules, regulations and orders regarding implementation of CALEA, E911, number portability, telephone service for the hearing impaired and other FCC Laws), and each has complied in all material respects with the terms and conditions of the AWS Licenses except where such conflict, default, violation or non-compliance would not have an AWS Material Adverse Effect. No AWS Entity, any Affiliate of an AWS Entity, Non-AWS Entity or any Affiliate of a Non-AWS Entity has received written notice of any formal or informal complaint or order filed against it 21 alleging any material non-compliance by it with respect to any such Laws, in each case to the extent applicable to the AWS Licenses. (e) No AWS Entity or Non-AWS Entity is in breach or otherwise in violation of any FCC buildout requirements with respect to the AWS Licenses held by it, and each of the AWS Licenses has been built out at least to the minimum extent required by 47 C.F.R. 24.203 or 47 C.F.R. 24.714, as applicable. Certification of such minimum buildouts has in each case been made to and granted by the FCC. (f) Each AWS Entity is legally qualified to acquire and hold the USCC License(s) to be acquired by such AWS Entity pursuant to this Agreement and to receive and hold any Governmental Authorization necessary for it to acquire and hold any such USCC License(s). (g) Attached as SCHEDULE 3.6(g) is a true and correct list of each and every microwave relocation agreement in respect of the AWS Licenses to which any AWS Entity is a party or in respect of the Non-AWS Entity Licenses to which an Non-AWS Entity is a party, and with respect to which either (x) the applicable AWS Entity or Non-AWS Entity has not fully completed performance or (y) the incumbent microwave licensee has not filed with the FCC (and provided to the applicable AWS Entity or Non-AWS Entity the ULS file numbers of) Applications or Notifications on Form 601 to relinquish its rights to the microwave path(s) that are the subject of such agreement. AWS has provided USCC with a complete copy of each microwave relocation agreement on SCHEDULE 3.6(g). AWS has paid all AWS License Cost-Sharing Obligations of which it has been notified by either of the two FCC sanctioned microwave reimbursement clearinghouses. Section 3.7. LITIGATION REGARDING THE AWS LICENSES There are no civil, criminal or administrative claims, actions, suits, demands, proceedings or investigations pending or, to the Knowledge of AWS, threatened against any AWS Entity or any of their respective Affiliates, or any Non-AWS Entity, relating to any of the AWS Licenses or any other properties or assets of any AWS Entity or any Non-AWS Entity, that would if determined adversely to such AWS Entity or Affiliate or Non-AWS Entity have an AWS Material Adverse Effect. There is no judgment, decree, injunction, rule or order outstanding against any AWS Entity or any of their respective Affiliates, or any Non-AWS Entity, relating to or involving any of the AWS Licenses, nor does AWS have Knowledge of any reasonable basis therefor, and there are no unsatisfied judgments against any AWS Entity or any of their respective Affiliates, or any Non-AWS Entity, with respect to any of the AWS Licenses or any other properties or assets of any AWS Entity or any Non-AWS Entity, in each case that could have an AWS Material Adverse Effect. Section 3.8. AWS ENTITIES AWS beneficially owns all of the outstanding equity interests of each AWS Entity. 22 Section 3.9. PARTNERSHIP INTERESTS Each AWS Entity is the exclusive holder of, and has good title, free and clear of all Liens, to the Partnership Interests set forth opposite its name on SCHEDULE II and, at the Closing, USCC (or its designated Affiliate) shall acquire good title to the Partnership Interests, free and clear of all Liens. Section 3.10. EMPLOYEE PLAN AND ERISA LIABILITIES AND LIENS No event has occurred nor shall any event occur as a result of the Transactions which could reasonably be expected to result in the imposition upon USCC or any Affiliate or ERISA Affiliate of USCC of any liability or any Lien against any of their assets, directly or indirectly attributable to any Employee Plan maintained or sponsored by, or contributed to by, AWS or any Affiliate or ERISA Affiliate of AWS, including any funding requirements under the Code or liabilities under Title IV of ERISA with respect to any such AWS Employee Plan. Section 3.11. TAX MATTERS (a) All material Tax Returns that are required to be filed with respect or relating to the AWS Licenses, and all material Tax Returns that are required to be filed by AWS or any Affiliate with respect or relating to the Partnership Interests, have been duly filed or, where not so filed, are covered under an extension that has been obtained therefor. (b) All Tax Returns referred to in Section 3.11(a) are accurate in all material respects. (c) All Taxes shown to be due on the Tax Returns referred to in Section 3.11(a) and in respect of the AWS Licenses, the Partnership Interests have been paid in full. With respect to all amounts in respect of Taxes imposed upon an AWS Entity or a Non-AWS Entity, or for which an AWS Entity or Non-AWS Entity, is or could be liable with respect to the AWS Licenses or the Partnership Interests, whether to taxing authorities or to other Persons (as, for example, under tax allocation agreements), and with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax Laws and agreements have been fully complied with, and all such amounts required to be paid by such AWS Entity to taxing authorities or others have been paid, or to the extent such Taxes or amounts are not yet payable, will be duly and timely paid by such AWS Entity. (d) All deficiencies asserted or assessments made as a result of the examinations of any Tax Returns referred to in Section 3.11(a) have been paid in full. (e) No issues that have been raised by the relevant taxing authority in connection with the examination of any of the Tax Returns referred to in Section 3.11(a) are currently pending. (f) No waivers of statutes of limitation have been given by or requested with respect to any Tax Return referred to in Section 3.11(a). 23 (g) There are no Liens (other than Permitted Liens) with respect to Taxes upon any of the AWS Licenses. (h) The applicable AWS Entity or Non-AWS Entity has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party involved with the AWS Licenses or the Partnership Interest. All Taxes that were required to be collected or withheld by such AWS Entity or Non-AWS Entity with respect to the operation of the AWS Licenses or the Partnership Interests have been duly collected or withheld, and all such amounts that were required to be remitted to any taxing authority have been duly remitted. (i) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transfer of the AWS Licenses contemplated hereby. Section 3.12. COMPLIANCE WITH LAWS None of AWS, any Affiliate thereof, any Non-AWS Entity or any Affiliate thereof is in conflict with, or in default or violation of, any Laws applicable to the AWS Licenses or the Partnership Interests, except where such conflict, default or violation would not reasonably be expected to have a AWS Material Adverse Effect. None of AWS, any Affiliate thereof, any Non-AWS Entity or any Affiliate thereof has received notice of any formal or informal complaint or order filed against AWS, any Affiliate, any Non-AWS Entity, or any Affiliate thereof alleging any material non-compliance by AWS, any Affiliate thereof, any Non-AWS Entity or any Affiliate thereof with respect to any such Laws, in each case to the extent applicable to the AWS Licenses or the Partnership Interests. Section 3.13. AGREEMENTS WITH NON-AWS ENTITIES AWS or an AWS Entity has entered into agreements to acquire 100% ownership of the Non-AWS Entity Licenses (the "NON-AWS LICENSE ACQUISITION AGREEMENTS"). Each of the Non-AWS License Acquisition Agreements has been duly executed and delivered by each of the parties thereto and constitutes their legal, valid and binding obligation, enforceable against them in accordance with its terms, except to the extent enforcement may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar Laws of general applicability affecting the rights of creditors and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). Each Non-AWS Entity that is a party to a Non-AWS Entity License Acquisition Agreement is duly organized and validly existing under the Laws of its jurisdiction of organization and has all requisite power and authority to enter into and consummate such Non-AWS Entity License Acquisition Agreement and is authorized to hold and assign to AWS the applicable Non-AWS Entity License. The execution, delivery and performance of each Non-AWS Entity License Acquisition Agreement has been duly authorized and approved by all necessary action on the part of the Non-AWS Entity that is a party thereto and does not and will not (i) constitute a breach, violation or default by it, create a Lien, or give rise to any right of 24 termination, modification, cancellation, prepayment or acceleration, or a loss of rights, under any Law or Governmental Authorization or require any action in respect of, or filing with, any Governmental Authority or any Consent, other than the Consent of the FCC except where such breach, violation, default, Lien, right or the failure to obtain or give such Consent would not have an AWS Material Adverse Effect, or (ii) violate or conflict with its organizational documents. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF USCC USCC hereby represents and warrants to AWS as follows, except as set forth in the disclosure schedule attached hereto (the "USCC DISCLOSURE SCHEDULE"), which USCC Disclosure Schedule is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article 4 (it being understood that any item disclosed in one paragraph of the USCC Disclosure Schedule shall not be deemed to be disclosed with respect to any other paragraph of the USCC Disclosure Schedule unless otherwise indicated therein): Section 4.1. ORGANIZATION Each USCC Entity is a limited liability company or corporation, as the case may be, and is duly organized, in good standing and validly existing under the Laws of its jurisdiction of organization and has all requisite limited liability company or corporate, as the case may be, power and authority to enter into each Transaction Document to which it is or shall be a party and consummate the Transactions to which it is a party. Each USCC Entity is duly qualified as a foreign entity in each of the jurisdictions where such qualification is required by Law, except where the failure to be so qualified would not materially impair its ability to hold the applicable USCC Assigned Licenses or to consummate the Transactions to which it is a party. Section 4.2. AUTHORITY With respect to each USCC Entity, the execution and delivery of each Transaction Document to which such USCC Entity is or shall be a party, the consummation by it of the Transactions to which it is a party and the performance by it of each Transaction Document to which it is or shall be a party have been duly authorized and approved by all necessary limited liability company or corporate, as applicable, action, and no other proceedings on its part which have not been taken are necessary to authorize the execution, delivery and performance of the Transaction Documents to which it is or shall be a party or to consummate the Transactions to which it is a party. Section 4.3. EXECUTION AND ENFORCEABILITY Each Transaction Document to which a USCC Entity is a party has been, and each Transaction Document to which a USCC Entity shall be a party as of the Closing Date shall have been, duly executed and delivered by it and constitutes or shall constitute as of Closing, as applicable, its legal, valid and binding obligation, enforceable against it in accordance with its terms, except to the extent enforcement may be limited by 25 applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar Laws of general applicability affecting the rights of creditors and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). Section 4.4. NO CONFLICT OR CONSENTS Except as disclosed on SCHEDULE 4.4, neither the execution, delivery and performance by any USCC Entity of the Transaction Documents to which it is or shall be a party, nor the consummation of the Transactions to which it is a party, will (i) conflict with, or result in a breach or violation of, or constitute a default under, any provision of its organizational documents; (ii) constitute, with or without the giving of notice or passage of time or both, a breach, violation or default by it, create a Lien, or give rise to any right of termination, modification, cancellation, prepayment or acceleration, or a loss of rights, under (A) any Law or Governmental Authorization or (B) any note, bond, mortgage, indenture, lease, agreement or other instrument, in each case which is applicable to or binding upon it or any of its assets; or (iii) require any action in respect of, or filing with, any Governmental Authority or any Consent, other than filings under the HSR Act, the Consent of the FCC, any applicable USCC State Consents and USCC System Consents, except, in the case of clauses (ii) and (iii), where such breach, violation, default, Lien, right or the failure to obtain or give such Consent would not have a USCC Material Adverse Effect. Section 4.5. NO BROKER Except for Falkenberg Capital Corporation, neither USCC nor any of its Affiliates has entered into any agreement, arrangement or understanding with any Person which will result in an obligation to pay any finder's fee, brokerage commission or similar payment in connection with the Transactions. Section 4.6. FCC MATTERS (a) Each USCC Entity listed in SCHEDULE III is the exclusive holder of, and has good title, free and clear of all Liens, to the USCC License(s) set forth opposite its name on SCHEDULE III. No Person other than the applicable USCC Entity has any right, title or interest (legal or beneficial) in or to the USCC License(s) set forth opposite its name on SCHEDULE III. Each USCC License has been granted to the applicable USCC Entity by Final Order and is in full force and effect. No Person other than such USCC Entity is licensed to use, or otherwise has a right to use, the USCC Assigned Licenses held by such USCC Entity. No USCC Entity or any Affiliate thereof has entered into any obligation, agreement, arrangement or understanding to Transfer the USCC Assigned Licenses or that would adversely affect AWS's ownership or use of the USCC Assigned Licenses after Closing. There are no Interference Consents with respect to the USCC Assigned Licenses that are not terminable by either party thereto on less than 60 days' advance notice. 26 (b) Except for proceedings affecting the wireless industry or wireless licenses generally and as set forth on SCHEDULE 4.6(b), there is not pending or, to the Knowledge of USCC, threatened against any USCC Entity or any of the USCC Assigned Licenses, nor does USCC have Knowledge of any basis for, any application, action, complaint, claim, investigation, suit, notice of violation, petition, objection or other pleading, or any proceeding against any USCC Entity or the USCC Assigned Licenses, with the FCC or any other Governmental Authority, which questions or contests the validity of, or seeks the revocation, cancellation, forfeiture, non-renewal or suspension of, any of the USCC Assigned Licenses, or which seeks the imposition of any modification or amendment thereof, or the payment of a fine, sanction, penalty, damages or contribution in connection with the use of any of the USCC Assigned Licenses by any USCC Entity holding such license, except for any such application, action, complaint, claim, investigation, suit, notice of violation, petition, objection, pleading, or proceeding that would not have a USCC Material Adverse Effect. (c) All material documents required to be filed at any time by any USCC Entity with the FCC or any other Governmental Authority pursuant to FCC Law with respect to each of the USCC Assigned Licenses held thereby have been timely filed or the time period for such filing has not lapsed. All of such filings are complete and correct in all material respects. None of the USCC Assigned Licenses is subject to any conditions other than those appearing on its face and those imposed by FCC Law. All amounts owed to the FCC in connection with the grant by the FCC of each of the USCC Assigned Licenses have been timely paid and no further amounts are due to the FCC in respect of such USCC Assigned Licenses. SCHEDULE 4.6(c) sets forth and describes all applications in respect of the USCC Assigned Licenses pending or on file with a Governmental Authority; the information contained in each such application is true and complete in all material respects. (d) Except as set forth on SCHEDULE 4.6(d), no USCC Entity or any Affiliate thereof is in conflict with, or in default or violation of, any Laws applicable to any USCC License (including, rules, regulations and orders regarding implementation of CALEA, E911, number portability, telephone service for the hearing impaired and other FCC Laws), and each has complied in all material respects with the terms and conditions of the USCC Assigned Licenses except where such conflict, default, violation or non-compliance would not have a USCC Material Adverse Effect. No USCC Entity or any Affiliate thereof has received written notice of any formal or informal complaint or order filed against it alleging any material non-compliance by it with respect to any such Laws, in each case to the extent applicable to the USCC Assigned Licenses. (e) Except as set forth on SCHEDULE 4.6(e), all buildout and coverage requirements under 47 C.F.R. 22.946 and 47 C.F.R. 22.947 in respect of the USCC Assigned Licenses have been satisfied in full and certification of such buildout and coverage has been made to the FCC. (f) Each USCC Entity is legally qualified to acquire and hold the AWS Assigned License(s) to be acquired by such USCC Entity pursuant to this Agreement and 27 to receive and hold any Governmental Authorization necessary for it to acquire and hold any such AWS Assigned License(s). Section 4.7. LITIGATION REGARDING USCC ASSIGNED LICENSES There are no civil, criminal or administrative claims, actions, suits, demands, proceedings or investigations pending or, to the Knowledge of USCC, threatened against any USCC Entity or any of their respective Affiliates relating to any of the USCC Assigned Licenses or any other properties or assets of any USCC Entity that could if determined adversely to such USCC Entity or Affiliate have a USCC Material Adverse Effect. Except as set forth on SCHEDULE 4.7, there is no judgment, decree, injunction, rule or order outstanding against any USCC Entity or any of their respective Affiliates relating to or involving any of the USCC Assigned Licenses, nor does USCC have Knowledge of any reasonable basis therefor, and there are no unsatisfied judgments against any USCC Entity or any of their respective Affiliates with respect to any of the USCC Assigned Licenses or any other properties or assets of any USCC Entity, in each case that could have a USCC Material Adverse Effect. Section 4.8. TAX MATTERS (a) All material Tax Returns that are required to be filed with respect or relating to the USCC Systems, the USCC Assets and the USCC Licenses have been duly filed or, where not so filed, are covered under an extension that has been obtained therefor. (b) All Tax Returns referred to in Section 4.8(a) are accurate in all material respects. (c) All Taxes shown to be due on the Tax Returns referred to in Section 4.8(a) and in respect of the USCC Systems, the USCC Assets and the USCC Licenses have been paid in full. With respect to all amounts in respect of Taxes imposed upon a USCC Entity, or for which a USCC Entity is or could be liable with respect to the USCC Systems, the USCC Assets or USCC Licenses, whether to taxing authorities or to other Persons (as, for example, under tax allocation agreements), and with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax Laws and agreements have been fully complied with, and all such amounts required to be paid by such USCC Entity to taxing authorities or others have been paid, or to the extent such Taxes or amounts are not yet payable, will be duly and timely paid by such USCC Entity. (d) Except as disclosed on SCHEDULE 4.8(d), all deficiencies asserted or assessments made as a result of the examinations of any Tax Returns referred to in Section 4.8(a) have been paid in full. (e) Except as disclosed on SCHEDULE 4.8(e), no issues that have been raised by the relevant taxing authority in connection with the examination of any of the Tax Returns referred to in Section 4.8(a) are currently pending. 28 (f) Except as disclosed on SCHEDULE 4.8(f), no waivers of statutes of limitation have been given by or requested with respect to any Tax Return referred to in Section 4.8(a). (g) There are no Liens (other than Permitted Liens) with respect to Taxes upon any of the USCC Systems, the USCC Assets or the USCC Licenses. (h) The applicable USCC Entity has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party involved with the USCC Systems, the USCC Assets or the USCC Licenses. All Taxes that were required to be collected or withheld by such USCC Entity with respect to the operation of the USCC Systems, the USCC Assets or the USCC Licenses have been duly collected or withheld, and all such amounts that were required to be remitted to any taxing authority have been duly remitted. (i) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transfer of the USCC Systems, USCC Assets or USCC Licenses contemplated hereby. Section 4.9. TITLE AND SUFFICIENCY OF USCC ASSETS The USCC Entities specified on SCHEDULE 4.9, collectively, are the owners (whether by leasehold or fee simple interest) of, and have good title to, all of the USCC Assets, free and clear of all Liens other than Permitted Liens. The USCC Assets are in satisfactory repair and operating condition (subject to normal wear and tear). The USCC Assets, together with the Excluded Assets and the services to be provided and assets to be made available to AWS pursuant to the Transition Services Agreement, constitute all of the rights, assets and properties required to operate the USCC Systems in all material respects as they are currently operated. Section 4.10. REAL PROPERTY (a) SCHEDULE 4.10(a) lists all Real Property owned by a USCC Entity and principally used or held for use in connection with the operation of the USCC Systems in the USCC Service Area, and specifies the address and/or legal description sufficient to identify the property and contains a reasonable description of the use of each property. With respect to each parcel of owned Real Property included in the USCC Assets, except as set forth on SCHEDULE 4.10(a): (i) the applicable USCC Entity has good title to the parcel of Real Property, free and clear of all Liens, except for Permitted Liens; (ii) except as set forth on SCHEDULE 4.10(b), there are no leases, subleases, licenses, concessions, or other agreements to which a USCC Entity is a party and which relate to the operation of the USCC Systems in the USCC Service Areas or, to the Knowledge of USCC, leases, subleases, licenses, concessions or other 29 agreements to which any USCC Entity is not a party, granting to any person the right of use or occupancy of any portion of the parcel of Real Property; (iii) there are no outstanding options or rights of first refusal to purchase the parcel of Real Property, or any portion thereof or interest therein; (iv) to the Knowledge of USCC, the applicable USCC Entity has physical and legal ingress and egress to and from such parcel; and (v) no USCC Entity has received any written notice of, and USCC has no Knowledge of, any material non-compliance with applicable building codes, zoning regulations, occupational health and safety Laws or any other Laws, applicable to such parcel or the applicable USCC Entity's use or occupancy thereof. (b) SCHEDULE 4.10(b) lists all Real Property leases and occupancy and/or use agreements (together with any amendments thereto) with respect to which a USCC Entity is tenant, lessee, licensee or grantee (the "REAL PROPERTY LEASES") and which cover Real Property principally used, or held for use, in connection with the operation of USCC Systems in the USCC Service Area (the "LEASED PROPERTY"). USCC has made available to AWS complete and correct copies of each of the Real Property Leases (together with any subleases granted with respect to the Real Property covered by the Real Property Leases). Each Real Property Lease that has not expired in accordance with its terms is legal, valid, binding and enforceable against the applicable USCC Entity in accordance with its terms, except to the extent enforcement may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar Laws of general applicability affecting the rights of creditors and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). Neither the USCC Entity party to any Real Property Lease nor, to the Knowledge of USCC, any other party thereto is in default, violation or breach of any material term of such Real Property Lease and no USCC Entity has received any written notice of default thereunder. Except as set forth on SCHEDULE 4.10(b), no USCC Entity has subleased, licensed or otherwise granted the right to use or occupy any Real Property leased by any USCC Entity or any portion thereof to any other Person. (c) No improvements on any Real Property owned by any USCC Entity encroach upon adjoining real estate, and all such improvements have been constructed in conformity with all "setback" lines, easements and other restrictions, or rights of record, that have been established by any applicable building or zoning ordinances, except those encroachments and violations which would not reasonably be expected to interfere in any material respect with the use, occupancy or operation of the USCC Assets as currently used, occupied or operated. Section 4.11. INTELLECTUAL PROPERTY (a) Except for (i) Intellectual Property made available to AWS, either directly or indirectly in connection with services provided to AWS, pursuant to the USCC Brand 30 License Agreement or the Transition Services Agreement, (ii) Intellectual Property (if any) used by the USCC Entities pursuant to any USCC System Contract, (iii) Intellectual Property (such as software) incorporated into tangible USCC Assets (such as switches), freely transferable to the AWS Entities without Consent of, or material payment to, any third party and (iv) incidental Intellectual Property used in the operation of the USCC Systems (such as standard shrink wrap licenses which typically accompany commercially available software), there is no Intellectual Property that is required to operate the USCC Systems in all material respects as they are currently operated. (b) SCHEDULE 4.11(b) contains a complete and correct list of all Intellectual Property to be transferred or otherwise made available by any USCC Entity to an AWS Entity in connection with the Transactions (the "USCC INTELLECTUAL PROPERTY"). The USCC Intellectual Property does not include any Intellectual Property which is solely owned by USCC or an Affiliate thereof, or any Intellectual Property owned or licensed by USCC or an Affiliate thereof which has been developed or customized, either by USCC or an Affiliate thereof or at its request. To the extent transferable, the USCC Entity which is the licensee, lessee or user thereof has the right to use pursuant to license, sublicense, agreement or permission, the USCC Intellectual Property set forth opposite its name on SCHEDULE 4.11(b), free and clear of all liens and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments, but subject to the terms of use and limitations in such licenses. (c) To the extent transferable by any USCC Entity, from and after Closing, AWS will have the right to use all of the incidental intellectual property used in the operation of the USCC Systems. In the case of any incidental intellectual property used in the operation of the USCC Systems which had been used by any USCC Entity as a licensee or lessee, AWS' use of said incidental intellectual property shall be in accordance with the terms and conditions of the applicable license or lease agreement free from any pre-existing payment restriction or liens. (d) Except as set forth on SCHEDULE 4.11(d), no claim or demand of any Person has been made nor is there any proceeding that is pending, or to the Knowledge of USCC, threatened, nor does USCC have Knowledge of any reasonable basis therefor, which (A) challenges the rights of any USCC Entity in respect of any USCC Intellectual Property, (B) asserts that any USCC Entity is infringing or otherwise in conflict with, or is required to pay any royalty, license fee, charge or other amount with regard to, any USCC Intellectual Property, or (C) claims that any default exists under any agreement or arrangement listed in SCHEDULE 4.11(d) with respect to USCC Intellectual Property which default would reasonably be expected to have, individually or in the aggregate result in a USCC Material Adverse Effect. Section 4.12. COMPLIANCE WITH LAWS Neither USCC nor any Affiliate thereof is in conflict with, or in default or violation of, any Laws applicable to the operation of the USCC Systems or the USCC Assets, except where such conflict, default or violation would not reasonably be expected to have a USCC Material Adverse Effect. Neither USCC nor any Affiliate thereof has 31 received notice of any formal or informal complaint or order filed against USCC or any Affiliate thereof alleging any material non-compliance by USCC or any Affiliate thereof with respect to any such Laws, in each case to the extent applicable to the operation of the USCC Systems or the USCC Assets. Section 4.13. GOVERNMENTAL AUTHORIZATIONS SCHEDULE 4.13 sets forth a true and complete list of all material Governmental Authorizations (other than FCC Licenses) relating solely and directly to the USCC Systems (collectively, the "SYSTEM PERMITS"). All System Permits are validly held by the USCC Entity specified on SCHEDULE 4.13 and in good standing and in full force and effect, such USCC Entity is in substantial compliance with each System Permit granted to or held by it (except for such instances of non-compliance that would not result in the loss or non-renewal of the applicable System Permit or a USCC Material Adverse Effect), and, except as set forth on SCHEDULE 4.13, the same are transferable to AWS pursuant to this Agreement and will not be subject to suspension, modification or revocation as a result of the consummation of the Transactions. No event has occurred with respect to any of the System Permits which permits, or after notice, or lapse of time (except for the expiration of a System Permit in accordance with its terms), or both, would permit, revocation or termination thereof or would reasonably be expected to have, individually or in the aggregate, a USCC Material Adverse Effect. Section 4.14. EMPLOYEE BENEFIT PLANS (a) Each Employee Plan maintained or sponsored by, or contributed to by, USCC or any ERISA Affiliate of USCC which covers any current or former employee, director or independent contractor involved in the operation of the USCC Systems (the "SYSTEM EMPLOYEE PLANS") has been in all material respects maintained and operated by USCC or its ERISA Affiliates in conformity with all applicable Laws, including but not limited to the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and in accordance with the terms of such System Employee Plan. For purposes of this Agreement, (A) "EMPLOYEE PLAN" means any "employee benefit plan," as defined in Section 3(3) of ERISA, and any other employee benefit plan, program, policy or arrangement, including any bonus plan, incentive, stock option or other equity or equity-based compensation, or deferred compensation arrangement, stock purchase, severance pay, sick leave, vacation pay, salary continuation for disability, hospitalization, medical insurance, life insurance, and scholarship program, and (B) "ERISA AFFILIATE" means any entity which, together with another entity, would be treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. (b) With respect to employees employed in operating the USCC Systems, neither USCC nor any ERISA Affiliate thereof sponsors, has sponsored, contributes to, has contributed to, or has or had an obligation to contribute to (A) a multiemployer plan, as defined in Section 3(37) of ERISA or (B) a multiple employer plan subject to Sections 4063 or 4064 of ERISA which could reasonably result in any liability to any AWS Entity. 32 (c) SCHEDULE 4.14(c) sets forth the name of each of the System Employee Plans material to the operation of the USCC Systems and indicates whether such System Employee Plan has been terminated. (d) With respect to each such System Employee Plan that is intended to be a qualified plan within the meaning of Section 401(a) of the Code, a favorable determination letter has been received from the IRS or a request for a determination letter has been or will be timely filed under applicable guidance from the IRS and is currently pending with the IRS. (e) All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the System Employee Plans or by law (without regard to any waivers granted under Section 412 of the Code) to any funds or trusts established thereunder or in connection therewith have been made by USCC or its ERISA Affiliates by the due date thereof (including any valid extension), and all contributions for any period which are not yet due will be paid by the required due date. No accumulated funding deficiencies exist in any System Employee Plan subject to Section 412 of the Code. (f) No event has occurred nor shall any event occur as a result of the Transactions which could reasonably be expected to result in the imposition upon AWS or any Affiliate or ERISA Affiliate of AWS of any liability or any lien against any of their assets, directly or indirectly, as a "successor employer" or otherwise, attributable to or relating to the System Employee Plans or any other Employee Plan maintained or sponsored by, or contributed to by, USCC or its ERISA Affiliates, including, without limitation, any funding requirements under the Code or liabilities under Title IV of ERISA with respect to any such plans. (g) There is no material violation of ERISA with respect to the filing of applicable reports, documents and notices regarding the System Employee Plans with the Secretary of Labor and the Secretary of the Treasury or the furnishing of such documents to the participants or beneficiaries of the System Employee Plans which could reasonably result in any liability to any AWS Entity. (h) There are no pending actions, claims or lawsuits with respect to the operation of the System Employee Plans (other than routine claims for benefits) which have been asserted or instituted against USCC or any of its ERISA Affiliates, the assets of any of the trusts under such plans or the plan sponsor, plan administrator, or any fiduciary of the System Employee Plans, nor does USCC or its ERISA Affiliates have Knowledge of any threatened litigation or Knowledge of facts which could form the basis for any such claim or lawsuit and which could reasonably result in any liability to any AWS Entity. (i) Neither USCC nor, to USCC's Knowledge, any "party in interest" or "disqualified person" with respect to the System Employee Plans has engaged in a non-exempt "prohibited transaction" within the meaning of Section 4975 of the Code or Section 406 of ERISA which could reasonably result in any liability to any AWS Entity. 33 (j) USCC and any ERISA Affiliate of USCC which maintains a "group health plan" within the meaning of Section 5000(b)(1) of the Code that is a System Employee Plan has complied in all material respects with the notice and coverage continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (and any similar state law), Section 4980B of the Code, and Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder. (k) No USCC Entity nor any Affiliate thereof has any formal plan or commitment, whether or not legally binding, to create any additional Employee Plan or modify or change any existing System Employee Plan in a manner that would impose liability on any AWS Entity or any Affiliate thereof, nor has any intention to do so been communicated to any employees of USCC who perform services for the USCC Systems or their dependents, survivors or beneficiaries. Section 4.15. EMPLOYMENT MATTERS (a) Each USCC Entity (A) is in compliance in all material respects with all applicable foreign, federal, state and local Laws respecting employment, employment practices, terms and conditions of employment and wages and hours with respect to employees employed in operating the USCC Systems or former employees employed in operating the USCC Systems; (B) has withheld all amounts required by Law or by agreement to be withheld from the wages, salaries and other payments to such employees; (C) is not liable for any arrears of wages, any other compensation or benefits (including but not limited to vacation or severance pay) or any taxes related to the USCC Systems or any penalty for failure to comply with any of the foregoing; and (D) is not liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for such employees (other than routine payments to be made in the normal course of business and consistent with past practice). To the best of USCC's Knowledge, there are no pending claims, charges, actions or lawsuits filed against any USCC Entity with any court or any Governmental Authority involving the employment of or termination of any current or former employees of any USCC Entity who were or are involved in the operation of the USCC Systems. To the best of USCC's Knowledge: (i) there are no such claims, charges, actions or lawsuits threatened, and (ii) no facts exist which could give rise to liability to any current or former employees involved in the operation of the USCC Systems. (b) SCHEDULE 4.15(b) sets forth the name, position, date of hire, current annual salary and/or hourly rate of pay (if applicable), service credited for purposes of vesting and eligibility under any System Employee Plan, the current status of the employee as either active or on leave and if on leave, the type of leave, and the amount of the last salary or rate of pay increase and the date thereof of all regular employees of each USCC Entity and all inactive employees of such USCC Entity on leave or other inactive status. No USCC Entity is a party to and no USCC Entity is bound by any contracts or employment agreements with respect to employees or officers engaged, to any extent, in the operation of the USCC Systems. 34 (c) To the best of USCC's Knowledge: (i) any individual engaged by any USCC Entity as an independent contractor in connection with the USCC Systems has been accurately classified as an independent contractor for all purposes, including payroll tax, withholding, unemployment insurance and benefits, and (ii) no USCC Entity has notice of any pending or threatened inquiry from any Governmental Authority concerning such independent contractor status, or any pending or threatened claim by any party that any such independent contractor be reclassified as an employee for any purpose. (d) On or prior to the Closing Date, USCC shall provide AWS with a list of the former employees of any USCC Entity who performed services for the USCC Systems and have terminated employment due to lay-off or position elimination during the 90 calendar day period preceding the Closing Date with their work location at time of termination, except for terminations of employment pursuant to Section 6.1(a). (e) There are no employment or severance agreements which are binding on AWS (as a successor employer or otherwise) or which will create any obligation whatsoever on the part of AWS after the Closing in regard to any employee, manager, agent, contractor or officer of USCC. Section 4.16. LABOR MATTERS No USCC Entity is presently a party to or bound by any collective bargaining agreement or union contract, including but not limited to, a card check, neutrality or other type of labor agreement with respect to employees employed in operating the USCC Systems and no collective bargaining agreement with respect to employees employed in operating the USCC Systems is being negotiated by USCC. To the Knowledge of USCC, no union organizational campaign or effort presently exists or is being threatened with respect to any employees of the USCC Systems. To the Knowledge of USCC, no question concerning representation presently exists with respect to any employees of the USCC Systems. No charges with respect to or relating to, directly or indirectly, the USCC Systems are pending before any Governmental Authority and no USCC Entity has received, with respect to the USCC Systems, notice of the intent of any federal, state or local agency responsible for the enforcement of labor or employment Laws to conduct an investigation, audit or review and no such investigation, audit or review is in progress. To the Knowledge of USCC, no wage investigations have been made of any USCC Entity with respect to employees of the USCC Systems, or its independent contractors and no USCC Entity has received notice of the intent of any Governmental Authority to conduct such an investigation, audit or review. To the Knowledge of USCC, there are no controversies, grievances or arbitrations pending or threatened between any USCC Entity and any of its current or former employees or any labor or other collective bargaining unit representing any current or former employees, in each case to the extent relating to employees who perform services for the USCC Systems. To the Knowledge of USCC, no work stoppage, picketing, hand billing, consumer boycott, labor strike, dispute or slow-down exists or has been threatened against any USCC Entity with respect to the USCC Systems. Each USCC Entity is in compliance in all material respects with all applicable federal, state, and local Laws in respect of the USCC Systems respecting 35 employment, fair employment practices and fair labor standards, including such Laws that prohibit discrimination based on race, age, sex, religion, color, national origin, disability and sexual orientation. Each USCC Entity is in compliance with the requirements of the National Labor Relations Act, as such Act relates to the USCC Systems, and to the Knowledge of USCC, no unfair labor practice charges or complaints against any USCC Entity are pending or threatened before the National Labor Relations Board in respect of the USCC Systems. Section 4.17. ENVIRONMENTAL MATTERS Except as would not have a USCC Material Adverse Effect: (a) Each USCC Entity has obtained all environmental, health and safety permits, licenses and other authorizations which are required under Environmental Laws in connection with the USCC Assets or the operation of the USCC Systems. Each of such permits, licenses and other authorizations is valid and enforceable and in full force and effect, and each USCC Entity is in compliance with the material terms and conditions of all such permits, licenses and other authorizations and with each Environmental Law. Except as set forth on SCHEDULE 4.17(a), there are no pending applications for any permits, licenses or other authorizations under any Environmental Law in connection with the conduct of the USCC Systems or the operation or ownership of the USCC Assets where failure to grant or approve would have a material adverse affect on the operation of the USCC Systems. (b) (i) No Hazardous Substances generated by, used by, or originating from activities of the USCC Systems or the USCC Assets have been Released or, to the Knowledge of USCC, threatened to be Released into the environment, whether by a USCC Entity, or to the Knowledge of USCC, third parties, at any site, facility or location whether or not now or previously owned, operated, occupied, utilized or leased by such USCC Entity and (ii) no oral or written notification of a Release of a Hazardous Substance has been filed by or on behalf of any USCC Entity with any Governmental Authority and no site or facility now or, to the Knowledge of USCC, previously owned, operated, occupied, utilized or leased by any USCC Entity relating to the USCC Systems is subject to investigation or clean-up under any Environmental Law. USCC has provided AWS access to copies of all material environmental investigations, studies, audits, tests, reviews and other analyses conducted by or on behalf of, and that are in the possession of, any USCC Entity in relation to any USCC Asset now or previously owned, operated, occupied, utilized or leased by such USCC Entity. No USCC Entity has received any notice of intention to commence suit under any Environmental Law with respect to the USCC Systems or the USCC Assets (and to the Knowledge of USCC, there is no reasonable basis for any such suit), nor has any USCC Entity received any request for information from any Governmental Authority under any Environmental Law with respect to the USCC Systems or the USCC Assets. With respect to the USCC Systems, there is no existing, pending or, to the Knowledge of USCC, threatened action, suit, investigation, inquiry or proceeding under Environmental Laws by or before any Governmental Authority, nor any remedial obligations, arising under any Environmental Laws. 36 (c) Each USCC Entity has complied and is in compliance in all material respects with all Environmental Permits and all applicable Environmental Laws pertaining to the USCC Assets and the USCC Systems, and, to the Knowledge of USCC, no USCC Entity has any liability, contingent or otherwise, under any Environmental Law which, individually or in the aggregate could have a USCC Material Adverse Effect. To the Knowledge of USCC, no Person has alleged any violation by any USCC Entity of any applicable Environmental Law relating to the operation of the USCC Systems or the use, ownership, operation or transferability of any USCC Assets. No USCC Entity has caused or permitted the use, management, generation, manufacture, refining, transportation, treatment, storage, handling, disposal, production or processing of any Hazardous Substances in connection with the operation of the USCC Systems or any USCC Asset except in compliance with Environmental Law, and no USCC Entity has caused or permitted, and USCC has no Knowledge of, the Release or threatened Release of any Hazardous Substances generated, used or originating from the operations of the USCC Systems or any USCC Asset. (d) The assets, property and equipment of each USCC Entity and Real Property now or previously owned, operated, occupied, utilized or leased by such USCC Entity with respect to the USCC Systems transferred to AWS or an Affiliate thereof in accordance with this Agreement are not subject to any Liens under any Environmental Law, and to the Knowledge of USCC no basis exists for any such Liens. (e) To the extent applicable, each USCC Entity's operations of the USCC Systems and the USCC Assets are in compliance in all material respects with the applicable requirements of OSHA and any state and local occupational safety and health Laws, and all regulations promulgated thereunder and there are no pending or, to the Knowledge of USCC, threatened safety and/or health citations, complaints, lawsuits or orders issued with respect to any of the foregoing Laws. There have been no citations, notices or complaints issued to any USCC Entity or any Affiliate thereof with respect to the USCC Systems or the USCC Assets by OSHA or any state occupational safety and health administration which could individually or in the aggregate result in a USCC Material Adverse Effect. Section 4.18. AGREEMENTS, CONTRACTS AND COMMITMENTS (a) USCC has made available to AWS a correct and complete copy of each contract, agreement, arrangement, commitment, understanding, lease, license or other instrument to which a USCC Entity or an Affiliate thereof is a party (or in the case of (i) any oral USCC Contract, a true, complete, and correct summary thereof, and (ii) each individual Subscriber Agreement between the applicable USCC Entity and the applicable subscriber, true, complete and correct copies of the standard forms of Subscriber Agreements), in each case principally related and material to the operation of the USCC Systems, together with any and all amendments or modifications thereto through and including the date hereof (each, a "USCC CONTRACT"). Each USCC Contract is valid, binding, enforceable and in full force and effect; the applicable USCC Entity or Affiliate is not in breach or default under any such USCC Contract; and, to the Knowledge of USCC, no event has occurred which, with notice or lapse of time or both, would 37 constitute a breach or default, or permit termination, modification or acceleration, under such USCC Contract, except where the failure to be so valid, binding, enforceable or in full force and effect or such breach or default, termination, modification or acceleration would not reasonably be expected to have, individually or in the aggregate, a USCC Material Adverse Effect. (b) SCHEDULE 4.18(b) sets forth each USCC Contract included in the USCC Assets (the "USCC SYSTEM CONTRACTS"). SCHEDULE 4.18(b) also sets forth all necessary Consents (including Consents to assignment) of parties to all USCC System Contracts which are required in connection with the consummation of the Transactions (collectively, the "USCC SYSTEM CONSENTS"). Section 4.19. BOOKS OF ACCOUNT All financial, business and accounting books, ledgers, accounts and official and other records relating to the USCC Systems and the USCC Assets (collectively, the "BOOKS AND RECORDS") (i) have been properly and accurately kept and maintained in accordance with applicable Law, (ii) are true, complete and correct in all material respects and do not contain or reflect any material inaccuracies or discrepancies and (iii) fairly reflect in reasonable detail the material assets, liabilities and transactions relating to the USCC Systems. Section 4.20. FINANCIAL STATEMENTS USCC has delivered to AWS complete and correct copies of (i) the unaudited financial statements of the USCC Systems as of, and for the periods ended December 31, 2000 and December 31, 2001, each of which include balance sheet and related statement of income for the year then ended (the "FINANCIAL STATEMENTS") and (ii) the unaudited financial statements of the USCC Systems at December 31, 2002 (the "BALANCE SHEET DATE") including a balance sheet and related statements of income for the twelve (12) month period then ended (the "INTERIM FINANCIAL STATEMENTS"). The Financial Statements and the Interim Financial Statements fairly present in all material respects, in accordance with GAAP, the financial position of the USCC Systems and the results of their operations for the periods specified therein (subject to the absence of footnotes and, in the case of the Interim Financial Statements, to normal year end audit adjustments.) Section 4.21. ABSENCE OF UNDISCLOSED LIABILITIES No USCC Entity has any liabilities or obligations of any nature, whether known or unknown, absolute, accrued, contingent or otherwise, and whether due or to become due, arising out of or relating to the USCC Systems or any of the USCC Assets, except as reflected or reserved for, and only to the extent reflected or reserved for, in the Financial Statements and the Interim Financial Statements and except (i) as set forth in SCHEDULE 4.21, (ii) for liabilities incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and in each case to the extent permitted to be incurred in accordance with the terms hereof and (iii) executory obligations under any USCC Contract. 38 Section 4.22. ABSENCE OF CHANGES OR EVENTS Since the Balance Sheet Date, there has not been any (i) USCC Material Adverse Effect; and (ii) except as set forth in SCHEDULE 4.22, none of USCC or any Affiliate thereof has (with respect to the USCC Business): (A) discharged or satisfied any Lien or paid any liabilities other than in the ordinary course of the operation of the USCC Business consistent with past practice, or failed to pay or discharge when due any liabilities; (B) sold, encumbered, assigned, transferred or otherwise disposed of any assets or properties (including rights or interests with respect to such assets or properties) which any USCC Entity purported to own as of the Balance Sheet Date or on any date since such date, except in the ordinary course of the operation of the USCC Business consistent with past practice; (C) incurred any indebtedness (or made any guaranties in respect thereof) for which a AWS Entity will be liable following the Closing Date or subjected any of the assets or properties owned by a USCC Entity to any Lien other than a Permitted Lien; (D) made or suffered any amendment or termination of any USCC Contract, or canceled, modified or waived any substantial debts or claims held by it or waived any rights of substantial value, except in the ordinary course of the operation of the USCC Business consistent with past practice; (E) changed any of the accounting principles followed by any USCC Entity relating to the operation of the USCC Systems or the methods of applying such principles or made or changed any Tax elections relating to the operation of the USCC Systems; (F) entered into any transaction, except in the ordinary course of the operation of the USCC Business consistent with past practice; or (G) agreed, orally or in writing, or granted any other person an option, to do any of the things specified in subparagraphs (A) through (F) above. Section 4.23. ACCOUNTS RECEIVABLE The Accounts Receivable as of January 31, 2003 are set forth on SCHEDULE 1.6, which sets forth a calculation of the reserves in respect of such Accounts Receivable and the USCC methodology used in such calculation. All Accounts Receivable, whether reflected on the Financial Statements, the Interim Financial Statements or SCHEDULE 1.6 or subsequently created, have arisen from bona fide transactions in the ordinary course of business. The reserves in respect thereof reflected on the Financial Statements and the Interim Financial Statements are appropriate in accordance with GAAP applied on a basis consistent with prior periods. No USCC Entity has taken any actions with the intended effect of accelerating and has not sought to accelerate the payment of any of the Accounts Receivable in a manner inconsistent with USCC's practice during prior periods. No USCC Entity has settled or compromised any Accounts Receivable except in the ordinary course of business consistent with USCC's practice during prior periods. Section 4.24. INVENTORIES The Inventories as of the Balance Sheet Date, together with the locations thereof, are set forth in SCHEDULE 4.24. Except as set forth on SCHEDULE 4.24, all Inventories are of good, usable and merchantable quality in all material respects and, except to the extent adequately reserved for, do not include items which have been discontinued or are off specification, damaged, dormant, obsolete, non-salable, non-usable or not first quality. 39 All Inventories are of such quality as to meet the quality control standards of USCC. All Inventories are recorded on SCHEDULE 1.6 at the lower of cost or market value determined in accordance with GAAP. No mobile phones included in Inventory are system operator code (SOC) "locked" to search for a system operator code on a preferred or exclusive basis, and the intercarrier roamer data base (IRDB) for all mobile phones included in Inventory is reprogrammable by any wireless carrier assuming such carrier has over the air programming capabilities and uses time division multiple access (TDMA) technology. Section 4.25. MACHINERY AND EQUIPMENT Except as set forth on SCHEDULE 4.25, all items of Machinery and Equipment are in good operating condition, ordinary wear, tear and natural depreciation excepted. To the Knowledge of USCC, there are no material repairs necessary with respect thereto other than routine maintenance in the ordinary course. Section 4.26. CELL SITES SCHEDULE 4.26 lists each cell site (including each cell site on which a USCC Entity has placed one or more antennas) (a "CELL SITE") currently operated or used by each USCC Entity in respect of the USCC Systems as of the date hereof, indicating the address of such Cell Site, whether such USCC Entity is the owner of such Cell Site, and whether any other Person is permitted to co-locate towers or antennas thereon or has any other rights with respect thereto. SCHEDULE 4.26 also sets forth (i) each instance where a USCC Entity co-locates its antennas relating to the USCC Systems on another Person's tower or antenna structure and (ii) whether any antenna structure on which a USCC Entity locates antennas is one which requires notification to the FAA under 47 C.F.R. 17.17 and, if so, the Antenna Structure Registration Number thereof. Each of the Cell Sites has been constructed, and is operating, substantially in compliance with the terms and conditions of the USCC Assigned Licenses and the rules and regulations of all applicable Governmental Authorities, including the FCC and the FAA, and each USCC Entity has made all filings, tower registrations and reports relating to each Cell Site, except where the failure to make such filings, tower registrations or reports would not reasonably be expected to have, individually or in the aggregate, a USCC Material Adverse Effect, and all such filings, reports and registrations are accurate in all material respects. Section 4.27. LITIGATION REGARDING USCC SYSTEMS, USCC ASSETS Except as set forth on SCHEDULE 4.27, there are no civil, criminal or administrative claims, actions, suits, demands, proceedings or investigations pending or, to the Knowledge of USCC, threatened against USCC or any Affiliate thereof relating to the USCC Systems or any USCC Assets that would, if determined adversely to USCC or such Affiliate, reasonably be expected to have a USCC Material Adverse Effect. Except as set forth on SCHEDULE 4.27, there is no judgment, decree, injunction, rule or order outstanding against USCC or any Affiliate thereof relating to or involving the USCC Systems or any of the USCC Assets, nor does USCC have Knowledge of any reasonable basis therefor, and there are no unsatisfied judgments against USCC or any Affiliate 40 thereof with respect to the USCC Systems or any of the USCC Assets, in each case that would reasonably be expected to have a USCC Material Adverse Effect. Section 4.28. LIABILITY TO AFFILIATES Neither the USCC Assets nor the USCC Assumed Liabilities include any agreements, arrangements or understandings with, or rights or obligations in favor of, any USCC Entity, except (i) as expressly contemplated by this Agreement or the other Transaction Documents, (ii) as disclosed on SCHEDULE 4.28 or (iii) as may be terminated at will or upon no more than 90 days' notice as of the Closing Date without Consent of, or material payment to, any third party, and without impairing in any material respect the operation of the USCC Assets or the USCC Systems after the Closing. Section 4.29. CALEA Except as set forth in SCHEDULE 4.29 with respect to the USCC Systems, there has been validly and timely filed a Flexible Deployment Submission with the Federal Bureau of Investigation (the "FBI") in accordance with the FBI's Flexible Deployment Assistance Guide, and a Petition for Extension with the FCC requesting an extension of the current CALEA capability compliance deadline with respect to the USCC Systems until the applicable dates set forth on SCHEDULE 4.29. Section 4.30. INSURANCE The USCC Assets will be covered until Closing by commercially reasonable policies of casualty, liability, and other forms of insurance owned or held by USCC or an Affiliate thereof. Such policies are in full force and effect and will remain in full force and effect through the Closing Date in accordance with their terms (and AWS acknowledges that no USCC Entity shall have any obligation to continue any such insurance or self-funding arrangements following Closing). No notice of cancellation has been received, and there is no existing default, or event which, with the giving of notice or lapse of time or both, would constitute a default thereunder by USCC or an Affiliate thereof. All premiums to date have been, and all premiums due and payable as of the Closing Date will be, paid in full. Section 4.31. BUSINESS ACTIVITY RESTRICTION Except as set on SCHEDULE 4.31, there is no non-competition or other agreement, commitment, judgment, injunction, order or decree to which USCC or an Affiliate thereof is a party or subject that does or would reasonably be expected to interfere in any material respect with the use, occupancy or operation of the USCC Assets. Section 4.32. USCC ENTITIES USCC directly, or indirectly, beneficially owns all of the outstanding equity interests of each USCC Entity. 41 ARTICLE 5 COVENANTS AND AGREEMENTS Section 5.1. COMMERCIALLY REASONABLE EFFORTS AND OTHER AGREEMENTS Each party covenants and agrees from and after the execution and delivery of this Agreement until the Closing Date, as follows: (a) It shall use its Commercially Reasonable Efforts to take, or cause to be taken, promptly all actions and to do, or cause to be done, promptly all things necessary, proper or advisable to consummate and make effective the Transactions and to fulfill its obligations hereunder, including causing to be satisfied at the earliest practical date all conditions contained in Article 7 to be satisfied by it. (b) It shall, and shall cause its respective Affiliates to, refrain from taking any action which could be reasonably expected to render any of its representations or warranties contained in this Agreement or any other Transaction Document incorrect or inaccurate in any material respect. (c) It shall, and shall cause, in the case of AWS, each applicable AWS Entity to and in the case of USCC, each applicable USCC Entity to, comply in all material respects with all applicable Laws and Governmental Authorizations relating to the USCC Assigned Licenses and the USCC Systems, in the case of USCC, and the AWS Licenses and Partnership Interests, in the case of AWS. (d) USCC shall, and shall cause each applicable USCC Entity to, in the case of the USCC Assigned Licenses and the USCC Systems, and AWS shall, and shall cause each applicable AWS Entity to, in the case of the AWS Licenses, (A) maintain such FCC Licenses in full force and effect and (B) maintain in full force and effect all Governmental Authorizations necessary to preserve the ability to construct and operate such FCC Licenses and, in the case of USCC, the USCC Systems, as and when such Governmental Authorizations are or become necessary for such purposes; provided, that neither USCC, in the case of any USCC Entity, nor AWS, in the case of any AWS Entity, shall make, cause or permit to be made, any material commitments to any Governmental Authority relating to any Governmental Authorization affecting, in the case of USCC, the USCC Assigned Licenses or the USCC Systems, and in the case of AWS, the AWS Licenses, without the other party's prior written consent, which shall not be unreasonably withheld or delayed; provided, however, that the foregoing shall not prohibit AWS from taking any action or omitting to take any action with respect to any frequencies which are not included in any AWS Assigned License created by disaggregating an AWS License, or any service areas which are not covered by any AWS Assigned License created by partitioning an AWS License, so long as the taking of such action or omission to take such action does not otherwise result in a breach by AWS of this Section 5.1(d). (e) It shall: (i) Give written notice to the other party promptly upon the commencement of, or upon obtaining Knowledge of any facts that would give rise 42 to a threat of, any claim, action or proceeding commenced against or relating to it, its Affiliates or its or their properties or assets which would reasonably be expected to have a USCC Material Adverse Effect (in the case of USCC) or an AWS Material Adverse Effect (in the case of AWS); (ii) After obtaining Knowledge of the occurrence of any event, or any occurrence which would reasonably be expected to give rise to an event, which could cause or constitute a material breach of any of its warranties, representations, covenants or agreements contained in this Agreement or any other Transaction Document, promptly give notice in writing of such occurrence or event to the other party and use Commercially Reasonable Efforts to prevent or to promptly remedy such breach; and (iii) Advise the other party promptly in writing of (x) any event, condition or state of facts known to it, which, after the date hereof, would reasonably be expected to have a USCC Material Adverse Effect (in the case of USCC) or an AWS Material Adverse Effect (in the case of AWS) or (y) any claim, action or proceeding which seeks to enjoin or otherwise challenge the consummation of the Transactions. Notwithstanding the foregoing, no disclosure by a party pursuant to this Section 5.1(e) shall be deemed to amend or supplement this Agreement or any other Transaction Document or to cure any misrepresentation or breach of warranty, representation, covenant or agreement contained in this Agreement or any other Transaction Document. Section 5.2. CONSENTS OF THIRD PARTIES Each party covenants and agrees, from and after the execution and delivery of this Agreement until the Closing Date, as follows: (a) Promptly following execution of this Agreement (but in no event later than 15 Business Days after the date hereof), it shall file or cause to be filed with the FCC all appropriate applications for Consent to the assignment of the FCC License(s) (other than the Section 1.5 Licenses) and the USCC Assets contemplated hereby. It shall cooperate with the other party and use its Commercially Reasonable Efforts to prosecute or cause to be prosecuted all such applications to a favorable conclusion, and shall work with the other party to file or cause to be filed all required notices of consummation with the FCC. No party shall take or cause to be taken any action before the FCC which is inconsistent with or intended to delay action on such applications or consummation of the Transactions. Each AWS Entity and each USCC Entity, respectively, shall bear its own costs associated with the preparation and submission of such filings. (b) AWS, on behalf of the AWS Entities, and USCC, on behalf of the USCC Entities, shall use its Commercially Reasonable Efforts to secure before the Closing Date any Consent (other than the Consent of the FCC), in form and substance reasonably satisfactory to the other party, from any Governmental Authority as is necessary to be obtained by it in order to consummate the Transactions. AWS, on behalf of the AWS 43 Entities, and USCC, on behalf of the USCC Entities, shall use its Commercially Reasonable Efforts to cooperate with the other party, as reasonably requested, to obtain such Consents. (c) USCC shall use its Commercially Reasonable Efforts to obtain all of the USCC System Consents prior to Closing. If any USCC System Consent is not obtained prior to Closing, and Closing occurs, the applicable USCC System Contract (a "NON-ASSIGNED CONTRACT") shall not be assigned, but (A) USCC shall continue to use its Commercially Reasonable Efforts following Closing to obtain such USCC System Consent, whereupon, once obtained, the applicable Non-Assigned Contract shall be deemed automatically assigned to AWS without any further action required of the parties hereto and (B) until such Non-Assigned Contract is assigned to AWS or such Non-Assigned Contract's expiration, whichever occurs first, USCC shall cause such Non-Assigned Contract to be kept in effect and shall cause the benefit of such Non-Assigned Contract to be provided to the applicable AWS Entity to the same extent as if it had been assigned including (x) causing any rights of the applicable USCC Entity arising from such Non-Assigned Contract to be enforced against the issuers thereof or the other party or parties thereto; (y) causing to be taken all such actions and causing to be done all such things at the request and (to the extent AWS would have been responsible for such costs had the applicable Non-Assigned Contract been assigned to AWS at Closing) cost of AWS as shall be reasonably necessary and proper in order that the value of any Non-Assigned Contract shall be preserved and shall inure to the benefit of AWS; and (z) causing to be paid over to AWS all monies or other assets collected by or paid to the applicable USCC Entity in respect of such Non-Assigned Contract. AWS shall be responsible for the performance of all obligations under any such Non-Assigned Contract that AWS would have been responsible therefor had Consent to assignment of the Non-Assigned Contract been obtained, but only to the extent that AWS receives the benefits under any such Non-Assigned Contract that AWS would have received had Consent to assignment of the Non-Assigned Contract been obtained. Nothing in this Agreement or any other Transaction Document shall be construed as an attempt to assign any agreement or other instrument that is by its terms non-assignable without the consent of the other party. (d) USCC and AWS shall each cooperate and use their Commercially Reasonable Efforts to prepare and file with the Federal Trade Commission ("FTC") and the United States Department of Justice ("DOJ") within 10 Business Days after the date hereof, all requisite applications and amendments thereto together with related information, data and exhibits necessary to satisfy the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT") (if applicable to the transactions contemplated by this Agreement). USCC and AWS shall each pay their own filing fees in connection with any filings pursuant to this Section 5.2(d). Section 5.3. PROHIBITED TRANSACTIONS The parties agree that between the date of execution of this Agreement and the earlier to occur of the Closing or the termination of this Agreement pursuant to Section 9.1, none of the parties, or their respective Representatives, will directly or indirectly 44 solicit, encourage or initiate the submission of proposals or offers from, provide any confidential information to, or participate in discussions or negotiations or enter into any agreement, arrangement or understanding with any Person concerning the Transfer of, or create, incur or suffer to exist any Lien of any nature whatsoever in respect of, in the case of (i) USCC, the USCC Assigned Licenses or the USCC Assets (other than solely in the case of the USCC Assets, Permitted Liens or as otherwise permitted by Section 5.6) and (ii) AWS, the AWS Licenses; provided, that the foregoing shall not prohibit AWS from taking any action or omitting to take any action with respect to any frequencies which are not included in any AWS Assigned License created by disaggregating an AWS License, or any service areas which are not covered by any AWS Assigned License created by partitioning an AWS License, so long as the taking of such action or omission to take such action does not otherwise result in a breach by AWS of this Section 5.3. Notwithstanding the foregoing, nothing in this Agreement shall limit or restrict a party from the Transfer of the assets which are otherwise required to be conveyed by it at Closing to a third party, provided, that any such Transfer must be pursuant to another transaction in which (x) such assets, taken as a whole, constitute an immaterial or incidental portion of the assets being transferred, assigned or disposed of pursuant to such other transaction and (y) the acquirer or the assignee or transferee of such assets (whether by operation of law or otherwise) expressly agrees and is obligated to consummate or cause the consummation of the Transactions in accordance with the terms hereof, without delay or impairment to the Transactions. Section 5.4. CONFIDENTIALITY (a) Each party shall, and shall cause each of its Representatives to, (A) retain in strictest confidence any and all Confidential Information relating to the other party that it receives in connection with the negotiation or performance of this Agreement and each other Transaction Document (whether received prior to or after the date of this Agreement), and (B) not disclose such Confidential Information to anyone except (x) the receiving party's Affiliates and Representatives and (y) any other Person that needs to know such Information for purposes of performance of this Agreement and each other Transaction Document and who agrees to keep in confidence all Confidential Information in accordance with the terms of this Section 5.4 as if it were the receiving party hereunder. Each party agrees to use Confidential Information received from the other party only in furtherance of the performance of this Agreement, and not for any other purpose. All Confidential Information furnished pursuant to this Agreement and each other Transaction Document shall either be returned promptly to the party to whom it belongs, or destroyed and such destruction certified, in either case upon request made prior to Closing by such party. (b) The obligations set forth in paragraph (a) above shall not apply to Confidential Information that (A) is or becomes generally available to the public other than as a result of disclosure by the receiving party or its Affiliates or its Representatives in violation of this Section 5.4, (B) was available to the receiving party on a non-confidential basis prior to its disclosure to the receiving party, or (C) becomes available to the receiving party on a non-confidential basis from a source other than the providing party or its Representatives, provided, that such source is not known by the receiving 45 party to be bound by a confidentiality agreement with the providing party or its Representatives. Confidential Information with respect to the USCC Assets shall be deemed to be Confidential Information of AWS, from and after the Closing. (c) Anything else in this Agreement or any other Transaction Document notwithstanding, each party shall have the right to disclose any information, including Confidential Information of the other party or such other party's Affiliates: (A) to its Representatives (such Representatives to acknowledge that any such Confidential Information disclosed to them is subject to the provisions hereof); (B) in any filing with any regulatory agency, court, or other authority (in confidence where a procedure for confidential disclosure exists) or any disclosure to a trustee of public debt of a party to the extent that the disclosing party determines in good faith that it is required by Law or the terms of such debt to do so; provided, that any such disclosure shall be as limited in scope as possible and shall be made only after giving the other party as much notice as practicable of such required disclosure and an opportunity to contest such disclosure, or seek confidential treatment, if possible; (C) as required by its existing or potential lending sources (such lending sources to acknowledge that any such Confidential Information disclosed to them is subject to the provisions hereof); or (D) as required to enforce its rights under this Agreement or any Transaction Document. (d) The parties agree that except as may be necessary to comply with the requirements of applicable Law or the rules and regulations of any national securities exchange upon which the securities of one of the parties or its Affiliates is listed, no press release or similar public announcement or communication will be made or caused to be made concerning the execution of this Agreement or any other Transaction Document or the consummation of the Transactions, provided, that in the case of any disclosure permitted under this paragraph (d), the disclosing party shall (A) prior to the proposed disclosure, permit the non-disclosing party to review and comment on such proposed disclosure and (B) not publish or otherwise release to the public any proposed disclosure unless the non-disclosing party has first approved the same, which approval shall not be unreasonably withheld. Section 5.5. ACCESS AND INFORMATION (a) From the date hereof until Closing, USCC shall, and shall cause the USCC Entities to, give AWS and its Representatives reasonable access, during normal business hours and upon reasonable prior notice, to the USCC Assets, and to records, books, contracts and documents related to the USCC Assets or the USCC Systems, and to such other information related to the USCC Assets or the USCC Systems as AWS may reasonably request, and in each case to the extent reasonably necessary to Transfer to AWS the ownership of the USCC Assets and the operation of the USCC Systems. Any such access shall be coordinated through Mark Wierzbinski, USCC Director of Partner Relations (office telephone: (773) 399-4951) or another individual appointed by USCC to AWS in writing. Neither AWS nor its Representatives shall contact any employees of the USCC Systems without first obtaining the consent of Mr. Wierzbinski or any other appointed individual. USCC shall cause the appropriate officers, employees, consultants, agents, accountants and attorneys of the USCC Entities to cooperate with AWS and its 46 Representatives in connection with such access. This Section 5.5(a) shall not entitle AWS to receive or review, or have access to, information that (x) is subject to a confidentiality agreement with a third party, provided, that USCC shall use Commercially Reasonable Efforts to obtain the Consent of any such third party to permit AWS to receive and review such information or (y) USCC reasonably believes to be competitively sensitive. (b) From the date hereof until Closing, AWS shall, and shall cause the AWS Entities to, give USCC and its Representatives reasonable access, during normal business hours and upon reasonable prior notice, to the AWS Licenses, and to records, books, contracts and documents related to the AWS Licenses, and such other information related to the AWS Licenses as USCC may reasonably request, and in each case to the extent reasonably necessary to Transfer to USCC the AWS Assigned Licenses. Any such access shall be coordinated through Carol Dellecker (office telephone: (425) 580-8007) or another individual appointed by AWS to USCC in writing. Neither USCC nor its Representatives shall contact any employees of AWS without first obtaining the consent of Ms. Dellecker or any other appointed individual. AWS shall cause the appropriate officers, employees, consultants, agents, accountants and attorneys of the AWS Entities to cooperate with USCC and its Representatives in connection with such access. This Section 5.5(b) shall not entitle USCC to receive or review, or have access to, information that (x) is subject to a confidentiality agreement with a third party, provided, that AWS shall use Commercially Reasonable Efforts to obtain the Consent of any such third party to permit USCC to receive and review such information or (y) AWS reasonably believes to be competitively sensitive. Section 5.6. CONDUCT OF BUSINESS During the period from the date hereof until the earlier of the Closing or the termination of this Agreement, except as otherwise expressly provided in this Agreement, USCC covenants and agrees that it shall, and shall cause each USCC Entity to, operate the USCC Systems in the ordinary course of business consistent with past practice. In furtherance, but without limitation, of the foregoing, USCC shall, and shall cause each USCC Entity to: (a) maintain the USCC Assets and operate the USCC Systems in the ordinary course of business consistent with past practice, including making all repairs with respect thereto consistent with past practice and maintaining a level of technical performance of the USCC Systems which is consistent with past practice; (b) with respect to the USCC Systems, use its Commercially Reasonable Efforts to preserve its goodwill and maintain its relationships with the suppliers, employees, agents, subscribers and others having material business relations with it consistent with past practice; (c) with respect to the USCC Systems, solicit new subscribers and provide services to existing subscribers generally consistent with past practice; 47 (d) preserve in full force and effect, as necessary and consistent with past practice, all Governmental Authorizations relating to the operation of the USCC Systems, including the timely renewal thereof, in each case where the failure to so preserve such Governmental Authorizations in full force and effect would, individually or in the aggregate, be reasonably expected to have a USCC Material Adverse Effect; (e) use its Commercially Reasonable Efforts to preserve its relationships with all parties to the USCC System Contracts, and perform in all material respects all of its obligations thereunder, according to the terms and conditions thereof; (f) comply in all material respects with all Laws; (g) maintain in accordance with past practice the Books and Records related to the USCC Systems; (h) (i) adhere to current practice with respect to bad debt of the USCC Systems, collection of accounts and deactivation of delinquent account service; and (ii) collect Accounts Receivable only in the ordinary course consistent with past practices; (i) maintain all Inventory and expendable supplies at levels consistent with past practices, current business plans and reasonably expected customer demand and maintain its working capital at reasonable levels necessary to operate the USCC Systems in a commercially reasonable manner and consistent with past practices; and (j) maintain in full force and effect, and with existing coverage, the existing insurance policies for the USCC Systems (or comparable policies), except for any changes to such policies that are made in the ordinary course of business; provided that nothing herein shall obligate USCC to obtain or to continue any insurance coverage for any period after the Closing. USCC will provide AWS with information and records that AWS may reasonably request that are material to such claims now pending or made hereafter with respect to the USCC Assets. Section 5.7. NEGATIVE COVENANTS With respect to the USCC Systems, during the period from the date hereof until the earlier of the Closing or the termination of this Agreement, except as otherwise contemplated by this Agreement, USCC shall not take, and shall cause each USCC Entity not to take, any of the following actions relating to the USCC Assets or USCC Systems without the prior written consent of AWS: (a) enter into any agreement, arrangement or understanding involving payments, projected revenues, assets, or liabilities with a value in excess of $250,000 in the aggregate, or materially alter, amend, or modify or terminate, or exercise any option under, any existing agreement involving payments, projected revenues, assets, or liabilities with a value in excess of $250,000 in the aggregate, other than in the ordinary course of business consistent with past practice; 48 (b) except in the ordinary course of business consistent with past practice, dispose of assets for consideration in excess of $250,000 in the aggregate; (c) except in the ordinary course of business consistent with past practice, incur or assume any indebtedness for borrowed money or guarantee any such obligations; (d) make or agree to make any material change in the employment arrangements of any Designated Employee or enter into any new agreement with any Designated Employee which would create or impose any liability or obligation on the part of AWS (other than the customary annual increases in the base rate of pay of Designated Employees); (e) enter into any contracts with any Affiliate which will be binding upon AWS after Closing; (f) fail to pay when due any liability or obligations that, if unpaid, would become a Lien upon any of the USCC Assets; (g) with the exception of any changes required by Law or affecting all or substantially all of the wireless systems owned by USCC nation-wide, implement any material change in (x) the terms and conditions of any Subscriber Agreements or (y) the types or quality of products and services provided to subscribers; (h) except as required by Law, enter into any collective bargaining agreement, or make any commitment whatsoever to any union or other representative or party which intends to represent any employees of the USCC Systems; (i) change its accounting practices except as required by GAAP or, subject to contemporaneous written notice, affecting all or substantially all of the wireless systems owned by USCC nationwide; or (j) authorize or enter into an agreement in contravention of any of the foregoing. USCC shall use Commercially Reasonable Efforts to give AWS contemporaneous notice of any material action relating to the USCC Assets or USCC Systems taken prior to Closing pursuant to paragraph (g), (h) or (i) above. Section 5.8. RISK OF LOSS Risk of loss with respect to the USCC Assets shall not pass to AWS until Closing has occurred. Section 5.9. CASUALTY INSURANCE PROCEEDS In the event that any of the USCC Assets have been damaged prior to the Closing Date by a casualty covered by insurance ("DAMAGED ASSETS"), USCC shall (prior to and following Closing) use Commercially Reasonable Efforts to collect amounts due (if any) 49 in respect of such Damaged Assets under applicable insurance policies, which amounts, (i) if collected prior to Closing, will be used to repair or replace the Damaged Assets and (ii) if collected following Closing, will be remitted to AWS. Section 5.10. TAX MATTERS (a) At Closing or, if due thereafter, promptly when due, Taxes arising out of or imposed upon the Transactions, other than income taxes and franchise taxes ("TRANSACTION TAXES") shall be paid as follows: (i) USCC shall pay, or cause to be paid, Transaction Taxes, if any, assessed on any USCC Entity, as the seller of the USCC Assets, the USCC Systems or the USCC Business and any Transaction Taxes, if any, assessed on any USCC Entity, as the buyer of the AWS Assigned Licenses or the Partnership Interests; (ii) AWS shall pay, or cause to be paid, Transaction Taxes, if any, assessed on any AWS Entity, as the seller of the AWS Assigned Licenses and the Partnership Interests, and Transaction Taxes, if any, assessed on any AWS Entity, as the buyer of the USCC Assets, the USCC System or the USCC Business; and (iii) all other Transaction Taxes, whether assessed on any USCC Entity or any AWS Entity, shall be paid one-half by AWS, or a designated Affiliate, and paid one-half by USCC, or a designated Affiliate. The parties agree to cooperate with each other to take advantage of all applicable Transaction Tax exemptions and provide all documentation and information reasonably necessary to obtain such exemptions. (b) Except as set forth on SCHEDULE 5.10(b), all Taxes, including real estate, personal property, public service company taxes and any special taxes or assessments attributable to the USCC Assets for the fiscal year during which the Closing Date occurs, that are by their nature attributable to the entire fiscal year or a period that includes but does not end on the Closing Date, shall be allocated proportionately to the portion of such fiscal year or other period ending on the Closing Date and the portion of such fiscal year or other period after the Closing Date. In the case of any Taxes attributable to taxable periods beginning on or before and ending after the Closing Date (the "STRADDLE PERIOD"), the amount of (A) personal, real and intangible property Taxes for the pre-Closing period shall be equal to the amount of such property Taxes attributable to the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the pre-Closing period and the denominator of which is the number of days in the entire Straddle Period, and (B) Taxes (other than property Taxes) for the pre-Closing period shall be computed as if such period ended on the Closing Date. Any such Taxes allocated to the pre-Closing period, to the extent such Taxes remained unpaid as of the Closing Date shall be paid by USCC when and as due. Any such Taxes allocated to the post-Closing period shall be paid by AWS when and as due. The amount of any pre-payment by USCC in respect of such Taxes shall be reimbursed promptly to USCC to the extent such pre-payment is allocated to the post-Closing period. Section 5.11. POST-EXECUTION CONTRACTS In the event that, following the date hereof and prior to Closing, USCC enters into a contract or other agreement material to the operation of the USCC Systems (in each case, a "POST-EXECUTION CONTRACT"), USCC shall immediately provide AWS with a fully 50 executed copy of such Post-Execution Contract whereupon AWS may, in its reasonable discretion, designate in writing such Post-Execution Contract as a USCC System Contract to be included in the USCC Assets. In the event AWS does not so designate such Post-Execution Contract a USCC System Contract it shall be deemed an Excluded Asset for all purposes of this Agreement. For purposes of clarification, AWS acknowledges and agrees that it would not be reasonable for it to reject a Post-Execution Contract which contains commercially reasonable terms. Section 5.12. BUILDOUT REQUIREMENTS Notwithstanding anything in Section 1.2 to the contrary, with respect to the AWS Assigned Licenses that have been, or will be, established by disaggregating and/or partitioning A and B block AWS Licenses (a) AWS shall satisfy, or cause to be satisfied, the ten-year coverage requirement under 47 C.F.R. 24.203 or 47 C.F.R. 24.714, as applicable, for the entire A or B block license area with respect to each A and B block AWS License, whether disaggregated and/or partitioned prior to or after the date of this Agreement (including the partitioned license area with respect to each AWS Assigned License established by such disaggregating and/or partitioning; it being understood, however, that AWS shall not have any obligation to construct any facilities in, or provide any RF coverage to, the partitioned license area with respect to any AWS Assigned License established by such disaggregating and/or partitioning), and (b) with respect to each AWS Assigned License assigned to any USCC Entity in accordance with this Agreement prior to the end of the initial ten-year license term with respect to such AWS Assigned License, USCC shall satisfy the substantial service requirement for license renewal expectancy for the partitioned license area with respect to each such AWS Assigned License prior to the end of such initial ten-year license term, and (c) AWS shall not, and shall cause its Affiliates and each Non-AWS Entity not to, take any action to establish a Section 1.5 License by disaggregating and/or partitioning A and B block AWS Licenses, except in furtherance of the assignment of such Section 1.5 License to a USCC Entity pursuant to USCC's exercise of its Section 1.5 Option with respect to such Section 1.5 License or unless AWS agrees to satisfy at AWS's expense the substantial service requirement for license renewal expectancy for the partitioned license area with respect to such Section 1.5 License until the earlier of (x) the assignment of such Section 1.5 License to USCC in accordance with Section 1.5 and (y) the expiration of the Section 1.5 Option in respect of such Section 1.5 License. In furtherance of the foregoing, the parties agree to select Option 2 in response to Question 6, and Option 3 in response to Question 7, on Schedule B to each Form 603 filed with the FCC in respect of each such AWS Assigned Licenses. Section 5.13. MICROWAVE CLEARING (a) AWS shall be entitled to receive and retain all cost-sharing reimbursement payments made by third parties after Closing with respect to any microwave relocation costs incurred in respect of the AWS Licenses by any AWS Entity. USCC shall be entitled to receive and retain all cost-sharing reimbursement payments made by third parties after Closing with respect to any microwave relocation costs incurred in respect of the AWS Assigned Licenses by any USCC Entity. 51 (b) AWS agrees that it will promptly pay all AWS License Cost-Sharing Obligations arising as a result of any prior coordination notice filed by any AWS Entity or any predecessor in interest in respect of the AWS Licenses. USCC agrees that it will promptly pay all AWS License Cost-Sharing Obligations arising as a result of any prior coordination notice filed by any USCC Entity in respect of the AWS Assigned Licenses. (c) AWS will reimburse USCC promptly upon presentation by USCC of a reasonably detailed invoice for (i) any reasonable out-of-pocket microwave relocation costs incurred by any USCC Entity in respect of the AWS Assigned Licenses during the period that begins on the Closing Date and ends on the fifth anniversary of the Closing Date, and (ii) subject to the second sentence of Section 5.13(b) above, for all cost sharing reimbursement payments incurred by any USCC Entity in respect of the AWS Assigned Licenses during the period that begins on the Closing Date and ends on the fifth anniversary of the Closing Date. Section 5.14. ACQUISITION OF NON-AWS ENTITY LICENSES (a) Prior to the Closing Date, AWS or an AWS Entity shall use Commercially Reasonable Efforts to acquire each of the Non-AWS Entity Licenses pursuant to the Non-AWS Entity License Acquisition Agreements. If AWS is for any reason unable to acquire any Non-AWS Entity License prior to the Closing Date, AWS shall assign or cause to be assigned to USCC, in lieu of such Non-AWS Entity License, alternate broadband PCS spectrum in the same market and with the same bandwidth (in the frequency range of 1850-1990 MHz). In such event, AWS shall prepare and promptly file with the FCC an assignment application in respect of such alternate spectrum and AWS and USCC shall cooperate and use Commercially Reasonable Efforts to consummate the assignment to USCC of such alternate spectrum in accordance with this Agreement. (b) SCHEDULE I-A identifies the AWS Assigned Licenses that will not be assigned by AWS to USCC at the Closing, but will be assigned at a subsequent closing, which shall take place no later than six months from the date of this Agreement and shall be effected in accordance with the terms and conditions provided in Section 2.2, to the same extent as if such assignment had been effected on the Closing Date. ARTICLE 6 EMPLOYEES AND EMPLOYEE BENEFIT PLANS Section 6.1. TRANSITIONED EMPLOYEES (a) SCHEDULE 6.1(a) contains a list of all persons employed by USCC in the operation of the USCC Systems as of the date of this Agreement. AWS will be obligated to offer employment in accordance with the terms of this Article 6 to all of the persons listed on SCHEDULE 6.1(a) who are still employed as of the Closing Date and any additional persons who are hired by USCC prior to the Closing Date to replace any persons listed on Schedule 6.1(a) who are separated from employment prior to the Closing Date and are still employed as of the Closing Date (all of such persons herein 52 referred to as the "DESIGNATED EMPLOYEES"). Effective as of the Closing Date, USCC shall terminate the employment of, and AWS shall offer employment to, all Designated Employees who are actively at work or ready to return to work as of the Closing Date (an "ACTIVE EMPLOYEE"). Any Designated Employee who is not actively at work and not ready to return to work as of the Closing Date (an "INACTIVE EMPLOYEE") shall not be offered employment by AWS, nor be deemed to be a Transitioned Employee as defined below, unless and until he or she is ready to return to active work within 180 days of the Closing Date and gives notice to AWS in writing thereof. AWS shall promptly offer such Inactive Employee employment following receipt of such notice on substantially the same terms as similarly situated Transitioned Employees, the start-date of such Inactive Employee to be within ten work days (the actual start date to be at the discretion of AWS) after AWS has received the Inactive Employee's acceptance of AWS's employment offer. For purposes of this Agreement, all Active Employees who accept an employment offer from AWS and all Inactive Employees who subsequently become ready to return to active work within 180 days of the Closing Date who accept AWS's employment offer are herein collectively referred to as the "TRANSITIONED EMPLOYEES." Each such Transitioned Employee shall be employed by AWS at substantially the same base rate of pay (which excludes, among other types of pay, sales commissions, bonuses, extraordinary pay and any other type of pay not included as part of the base salary rate or hourly rate of pay) received by such Transitioned Employee immediately prior to the Closing Date or immediately prior to becoming an Inactive Employee. The other terms and conditions of employment of the Transitioned Employee shall be substantially similar to the terms and conditions of employment provided to similarly situated employees of AWS. Notwithstanding the above, nothing in this Agreement limits the rights of AWS to eliminate or change the conditions of employment, for any reason after hiring the Transitioned Employee, as AWS may, in its sole discretion, unilaterally implement. (b) The participation of each Transitioned Employee in the System Employee Plans will terminate effective upon the Closing Date, except with respect to compensation and benefits that remain payable or due under the terms of such System Employee Plans, or except as otherwise required by Law or such System Employee Plans. Nothing in this Agreement creates or is intended to create any rights in third parties or third party beneficiaries, including, without limitation, any rights to be employed or respecting the terms and duration of employment. (c) USCC shall be responsible for any and all salaries, wages, benefits, notices and other compensation or payments (including commissions and bonuses, if any) payable to each Designated Employee for services attributable to, and claims and expenses incurred during, the period ending as of 11:59 p.m. Chicago time on the Closing Date, in accordance with the terms and conditions of the USCC compensation arrangements and policies and the System Employee Plans, and AWS shall not be responsible for any such obligations as a "successor employer" or otherwise. AWS shall be responsible for any and all salaries, wages, benefits, notices and other compensation or payments payable to each Transitioned Employee for services rendered to AWS for the period commencing as of 11:59 p.m. Chicago time on the Closing Date. 53 Section 6.2. HEALTH, WELFARE AND RETIREMENT BENEFIT PLANS (a) For the period commencing as of 11:59 p.m. Chicago time on the Closing Date, AWS will cover each Transitioned Employee under its own "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and other fringe benefit plans, programs or arrangements (collectively "AWS WELFARE PLANS"), so that each such Transitioned Employee is entitled to benefits under such AWS Welfare Plans comparable to those provided to similarly situated employees of AWS, including specifically any applicable state mandated coverage for medical, dental, vision, prescription drug and short-term disability. The AWS Welfare Plans, as well as AWS's paid time off or vacation plans and programs, as the case may be, shall provide that each Transitioned Employee's period of employment recognized by USCC prior to the Closing Date shall be credited under such AWS Welfare Plans and paid time off or vacation plans and programs, for purposes of eligibility to participate, waiting periods, vacation or paid time off accrual levels. AWS shall cause all Transitioned Employees to be credited with any amounts paid under the System Employee Plans prior to the Closing Date toward satisfaction of deductible amounts and copayments, coinsurance and out of pocket maximums under any corresponding AWS Welfare Plans, but only to the extent such payments would have been taken into account under the System Employee Plans and such crediting is approved by AWS's insurers and service providers, as reasonably needed. Nothing contained herein shall prevent AWS from making changes to AWS Welfare Plans with respect to any Transitioned Employee after the Closing Date. With respect to worker's compensation benefits, USCC accepts continuing responsibility after the Closing Date for payment of all benefits to or on behalf of workers for (a) claims accepted or in process on or prior to the Closing Date, and (b) claims related to industrial injuries or occupational diseases for which a right to file for worker's compensation benefits existed or accrued on or prior to the Closing Date; provided that USCC is provided notice of such claim and the opportunity to manage or defend such claim. (b) For the period commencing as of 11:59 p.m. Chicago time on the Closing Date, AWS will cover each Transitioned Employee under the AT&T Wireless 401(k) Savings Plan, or a comparable plan, so that each such Transitioned Employee is entitled to benefits under AWS Pension Plans comparable to those provided to similarly situated employees of AWS. (c) Nothing contained herein shall be construed to restrict AWS from operating its existing employee benefit plans, including full authority to amend or terminate such plans in accordance with their respective terms and applicable Laws. (d) USCC agrees to provide or cause to be provided to AWS all such records and information as AWS may reasonably request in order to carry out the intent of, and to meet AWS's obligations under, this Section 6.2. (e) On or before the date required by Law, USCC shall cash out all accrued and unused vacation days of Transitioned Employees. AWS shall use Commercially Reasonable Efforts to allow each employee to utilize the equivalent amount of such vacation days as paid out by USCC, on an unpaid basis, up to ten working days 54 maximum. The use of this unpaid vacation days shall be based on management discretion and subject to business needs and normal scheduling practices. (f) USCC shall remain solely responsible for any and all liabilities relating to or arising in connection with the requirements of Section 4980B of the Code, to provide continuation of health care coverage in respect of Transitioned Employees and their covered dependents due to coverage under the System Employee Plans. (g) On or before the date required by Law, USCC shall contribute to the accounts of the applicable Transitioned Employees under the applicable System Employee Plan all amounts required by such System Employee Plan to be contributed with respect to such Transitioned Employee on account of any period prior to Closing. Section 6.3. EMPLOYMENT TAXES USCC and AWS will (i) treat AWS as a "successor employer" and USCC or the applicable Affiliate thereof as a "predecessor" within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code with respect to Transitioned Employees for purposes of taxes imposed under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act and (ii) cooperate with each other to avoid, to the extent possible, the filing of more than one IRS Form W-2 with respect to each Transitioned Employee for the calendar year within which the Closing occurs. Section 6.4. WARN ACT USCC shall comply and cause compliance with the provisions of the WARN Act and any other federal, state, or local Laws regarding "plant closings," "mass layoffs" (or similar triggering event), or change of control, with respect to any employment loss (as defined in the WARN Act) to employees employed in operating the USCC Systems that occurs on or before 11:59 p.m. Chicago time on the Closing Date. AWS shall comply and cause compliance with the provisions of the WARN Act and any other Laws regarding "plant closings," "mass layoffs" (or similar triggering event), or change of control, as they relate to Transitioned Employees with respect to any employment loss (as defined in the WARN Act) that occurs after 11:59 p.m. Chicago time on the Closing Date. USCC further covenants to comply and cause compliance with any notice obligations under any applicable state unemployment insurance Law with respect to non-Transitioned Employees who were employed in operating the USCC Systems whose employment is terminated by an USCC Entity on or before the Closing Date. ARTICLE 7 CLOSING CONDITIONS Section 7.1. CONDITIONS TO OBLIGATIONS OF AWS The obligation of AWS to consummate the Transactions shall be conditioned upon the satisfaction or fulfillment, at or prior to Closing, of the following conditions, unless waived in writing by AWS: 55 (a) The representations and warranties of USCC set forth herein (without duplication of any materiality qualifications included in such representations for all purposes of this Section 7.1(a)) shall be true and correct as of the Closing as if made as of the Closing Date (except that representations and warranties that are made as of a specific date need be so true and correct only as of such date), except as would not, individually or in the aggregate, be reasonably expected to have a USCC Material Adverse Effect, and AWS shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of USCC. (b) The covenants and agreements of USCC to be performed under this Agreement on or prior to the Closing Date shall have been duly performed in all material respects, and AWS shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of USCC. (c) The Consent of the FCC required for the consummation of the Transactions to be consummated on the Closing Date (or thereafter pursuant to Section 5.14(b)) shall have been obtained pursuant to a Final Order, free of any conditions materially adverse to AWS or the AWS Entities (other than AWS) taken as a whole or which would reasonably be expected to have a USCC Material Adverse Effect. (d) All applicable waiting periods under the HSR Act (if applicable to the transactions contemplated by this Agreement) shall have expired or been terminated and no objection shall have been made by the FTC or the DOJ. (e) The USCC State Consents, if any, shall have been obtained free of any conditions materially adverse to AWS or the AWS Entities (other than AWS) taken as a whole or which would reasonably be expected to have a USCC Material Adverse Effect. (f) All Governmental Authorizations required to be obtained prior to Closing by either party in order to consummate the Transactions (other than in respect of the Consent of the FCC, the HSR Act and the USCC State Consents), shall have been made or obtained free of any conditions materially adverse to AWS or the AWS Entities (other than AWS) taken as a whole or which would reasonably be expected to have a USCC Material Adverse Effect. (g) No preliminary or permanent injunction or other order, decree or ruling issued by a Governmental Authority, nor any Law promulgated or enacted by any Governmental Authority, shall be in effect that as a result of the Transactions would impose material limitations on, or impair in any material respect, the operations of any AWS Entity or materially adversely affect AWS's ownership and operation of the USCC Assigned Licenses or USCC Assets on and after the Closing Date. (h) USCC shall have executed and delivered, or caused to be executed and delivered, to AWS the documents and instruments required pursuant to Section 2.2. (i) Each Transaction Document to be executed and delivered in connection with Closing (including each of the Transition Services Agreement, the USCC Brand 56 License Agreement and the Post-Closing Master Lease Agreement) shall have been executed by the USCC Entities party thereto and delivered to AWS. (j) USCC shall have obtained and furnished AWS with copies of Consents from the applicable landlords to assign at least 80% of the cell site Real Property Leases identified on SCHEDULE 4.10(b) as requiring Consent to assignment, including the "Required Consents" identified as such on SCHEDULE 4.10(b); (k) AWS shall have received copies of all USCC System Contracts to the extent not previously delivered to AWS. (l) AWS shall have received copies of all records and information described in Section 6.2(d) and as otherwise reasonably necessary for AWS to satisfy its obligations under ARTICLE 6. On or immediately before the Closing Date, AWS shall have received (i) documents that contain the amounts paid under the System Employee Plans prior to the Closing Date toward satisfaction of deductible amounts and copayments, coinsurance and out of pocket maximums under the terms of such Plans and (ii) any updates or changes to any information contained in SCHEDULE 4.15(b) which is needed to bring the information in SCHEDULE 4.15(b) current as of the Closing Date. Section 7.2. CONDITIONS TO OBLIGATIONS OF USCC The obligation of USCC to consummate the Transactions shall be conditioned upon the satisfaction or fulfillment, at or prior to Closing, of the following conditions, unless waived in writing by USCC: (a) The representations and warranties of AWS set forth herein (without duplication of any materiality qualifications included in such representations for all purposes of this Section 7.2(a)) shall be true and correct as of the Closing as if made as of the Closing Date (except that representations and warranties that are made as of a specific date need be so true and correct only as of such date), except as would not, individually or in the aggregate, be reasonably expected to have an AWS Material Adverse Effect, and USCC shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of AWS. (b) The covenants and agreements of AWS to be performed under this Agreement on or prior to the Closing Date shall have been duly performed in all material respects, and USCC shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of AWS. (c) The Consent of the FCC required for the consummation of the Transactions to be consummated on the Closing Date (or thereafter pursuant to Section 5.14(b)) shall have been obtained pursuant to a Final Order, free of any conditions materially adverse to USCC, or the other USCC Entities taken as a whole, or which would reasonably be expected to have an AWS Material Adverse Effect. 57 (d) All applicable waiting periods under the HSR Act (if applicable to the transactions contemplated by this Agreement) shall have expired or been terminated and no objection shall have been made by the FTC or the DOJ. (e) The AWS State Consents, if any, shall have been obtained free of any conditions materially adverse to USCC or the USCC Entities (other than USCC) taken as a whole or which would reasonably be expected to have a AWS Material Adverse Effect. (f) All Governmental Authorizations required to be obtained prior to Closing by either party in order to consummate the Transactions (other than in respect of the Consent of the FCC, the HSR Act and the AWS State Consents), shall have been made or obtained free of any conditions materially adverse to USCC or the USCC Entities (other than USCC) taken as a whole or which would reasonably be expected to have an AWS Material Adverse Effect. (g) No preliminary or permanent injunction or other order, decree or ruling issued by a Governmental Authority, nor any Law promulgated or enacted by any Governmental Authority, shall be in effect that as a result of the Transactions would impose material limitations on, or impair in any material respect, the operations of any USCC Entity or materially adversely affect USCC's ownership and operation of the AWS Licenses on and after the Closing Date. (h) AWS shall have executed and delivered, or caused to be executed and delivered, to USCC the documents and instruments required pursuant to Section 2.2. (i) Each Transaction Document to be executed and delivered in connection with Closing (including each of the Transition Services Agreement, the USCC Brand License Agreement and the Post-Closing Master Lease Agreement) shall have been executed by the AWS Entities party thereto and delivered to USCC. ARTICLE 8 INDEMNIFICATION Section 8.1. SURVIVAL (a) All of the representations and warranties of the parties contained in this Agreement, and in the certificates delivered pursuant to Sections 7.1(a) and 7.2(a), shall survive the Closing Date and continue in full force and effect for 18 months thereafter, except that: (i) the representations and warranties set forth in Sections 3.6(a), 3.6(e), 3.6(f), 3.9, 4.6(a), 4.6(e), 4.6(f), and 4.9 (the first sentence only) (each, a "TYPE 1 REPRESENTATION") shall survive the Closing Date and continue in full force and effect for three years thereafter; and (ii) the representations and warranties set forth in Sections 3.2, 3.3, 3.11, 4.2, 4.3, 4.8 and 4.14 (each a "TYPE 2 REPRESENTATION") shall survive the Closing Date and continue in full force and effect until the 60th day following the 58 expiration date of the relevant statute of limitations period (without regard to any extension thereof by action or agreement of the party seeking indemnification); provided, that if any claim, action, suit or proceeding, arising out of facts or circumstances constituting a breach of a Type 1 Representation, is brought or commenced by any third party or Governmental Authority (including an FCC enforcement action), whether before or after the third anniversary of the Closing Date, such Type 1 Representation (solely with respect to such claim, action, suit or proceeding) shall survive until the earlier to occur of the 60th day following the expiration date of the relevant statute of limitations period (without regard to any extension thereof by action or agreement of the party seeking indemnification) and the fifth anniversary of the Closing Date. (b) All indemnification obligations with respect to representations and warranties under this Agreement shall terminate as of the expiration of the survival period applicable to such representation and warranty, provided, that the applicable survival period shall be extended automatically to include any time period necessary to resolve a claim for indemnification that was made prior to the expiration of such survival period and not resolved prior to such expiration, but any such extension shall apply only as to such claims expressly made in writing prior to such expiration. (c) Except as otherwise expressly provided in Section 10.12, following the Closing the indemnification provided for by this Article 8 shall be the parties' sole and exclusive remedy in connection with any breach or alleged breach of any representation or warranty contained herein. Section 8.2. INDEMNIFICATION OBLIGATION OF USCC From and after the Closing, USCC shall indemnify AWS and its Affiliates, and its and their respective successors and assigns, and the shareholders, members, directors, managers, officers, employees and agents of any of the foregoing (each, an "AWS INDEMNITEE"), on an After-Tax Basis, against, and hold each harmless from, any and all demands, claims, losses, liabilities, actions or causes of action, assessments, damages, fines, taxes (including excise and penalty taxes), penalties, reasonable costs and expenses (including interest, reasonable expenses of investigation, reasonable fees and disbursements of counsel, accountants and other experts, whether the same relate to claims, actions or causes of action asserted by any indemnified Person against the indemnitor or asserted by third parties) (collectively, "LOSSES") incurred or suffered by any AWS Indemnitee arising out of: (a) any misrepresentation or breach of warranty on the part of any USCC Entity under this Agreement or any Transaction Document, or any misrepresentation in or omission from any schedule (including without limitation the USCC Disclosure Schedule), exhibit, certificate, instrument or other document furnished to AWS pursuant hereto or thereto; 59 (b) any breach of any agreement or covenant on the part of any USCC Entity under this Agreement or any Transaction Document; (c) any claims, actions, suits or proceedings by third parties or Governmental Authority (including an FCC enforcement action) relating to or arising out of or in connection with the ownership or operation by any USCC Entity or any Affiliate thereof (i) prior to Closing, of the USCC Assigned Licenses, the USCC Assets or the USCC Systems and (ii) after the Closing, of the AWS Assigned Licenses and the Partnership Interests (other than, in respect of this clause (ii), any of the foregoing in respect of which AWS has an indemnification obligation under Section 8.3); or (d) any AWS Assumed Liabilities, USCC Excluded Liabilities or Excluded Assets (including the ownership or operation of such Excluded Assets at any time by USCC or any Affiliate thereof). Section 8.3. INDEMNIFICATION OBLIGATION OF AWS From and after the Closing, AWS shall indemnify USCC and its Affiliates, and its and their respective successors and assigns, and the shareholders, members, directors, managers, officers, employees and agents of any of the foregoing (each, a "USCC INDEMNITEE"), on an After-Tax Basis, against, and hold each harmless from, any and all Losses incurred or suffered by any USCC Indemnitee arising out of: (a) any misrepresentation or breach of warranty on the part of any AWS Entity under this Agreement or any Transaction Document, or any misrepresentation in or omission from any schedule (including without limitation the AWS Disclosure Schedule), exhibit, certificate, instrument or other document furnished to USCC pursuant hereto or thereto; (b) any breach of any agreement or covenant on the part of any AWS Entity under this Agreement or any Transaction Document; (c) any claims, actions, suits or proceedings by third parties or Governmental Authority (including an FCC enforcement action) relating to or arising out of or in connection with the ownership or operation by any AWS Entity or any Affiliate thereof (i) prior to Closing, of the AWS Licenses or the Partnership Interests, or (ii) after the Closing, of the USCC Assigned Licenses, USCC Assets or the USCC Systems (other than, in respect of this clause (ii), any of the foregoing in respect of which USCC has an indemnification obligation under Section 8.2); or (d) any USCC Assumed Liabilities or AWS Excluded Liabilities. Section 8.4. LIMITATIONS ON LIABILITY FOR LOSSES (a) In no event shall either party hereto be liable for indirect, special, consequential or punitive damages arising out of this Agreement, regardless of the form of action, whether in contract, warranty, strict liability or tort, including negligence of 60 any kind, whether active or passive, and regardless of whether the other party knew of or was advised at the time of breach of the possibility of such damages. (b) No indemnification under Section 8.2(a) for any Losses suffered by the AWS Indemnitees shall be required to be made by USCC until the aggregate amount of the Losses suffered by the AWS Indemnitees exceeds $1,250,000 (the "DEDUCTIBLE"), and then indemnification shall be required to be made by USCC for all such Losses in excess of the Deductible, but subject to the other provisions of this Section 8.4; provided that the foregoing limitation shall not apply to any intentional breach of a representation or warranty, or to any breach of a Type 1 Representation or a Type 2 Representation. (c) No indemnification under Section 8.3(a) for any Losses suffered by the USCC Indemnitees shall be required to be made by AWS until the aggregate amount of the Losses suffered by the USCC Indemnitees exceeds the Deductible, and then indemnification shall be required to be made by AWS for all such Losses in excess of the Deductible, but subject to the other provisions of this Section 8.4; provided that the foregoing limitation shall not apply to any intentional breach of a representation or warranty, or to any breach of a Type 1 Representation or a Type 2 Representation. (d) The maximum amount of Losses for which a party may be obligated to provide indemnification with respect to any breach of a representation or warranty shall be $65,000,000 in the aggregate; provided that the foregoing limitation shall not apply to any intentional breach of a representation or warranty, or to any breach of a Type 1 Representation or Type 2 Representation. (e) USCC shall not be liable for any Losses pursuant to Section 8.2(a) or (c) arising from a USCC Material Adverse Effect, but only if USCC discloses to AWS such USCC Material Adverse Effect in writing promptly after USCC becomes aware of such USCC Material Adverse Effect, and AWS waives such USCC Material Adverse Effect in writing and consummates the Closing; provided, that the foregoing limitation shall not apply to any intentional breach of a representation or warranty made by USCC on the date hereof. (f) AWS shall not be liable for any Losses pursuant to Section 8.3(a) or (c) arising from an AWS Material Adverse Effect, but only if AWS discloses to USCC such AWS Material Adverse Effect in writing promptly after AWS becomes aware of such AWS Material Adverse Effect, and USCC waives such AWS Material Adverse Effect in writing and consummates the Closing; provided, that the foregoing limitation shall not apply to any intentional breach of a representation or warranty made by AWS on the date hereof. (g) In connection with any claim for indemnification under this Article 8, there shall be a presumption, as between the parties, that the Indemnified Party did not, prior to Closing, have Knowledge of the facts giving rise to such claim, which presumption may be rebutted only by clear and convincing evidence to the contrary. 61 Section 8.5. NOTICE OF CLAIMS Any party (the "INDEMNIFIED PARTY") seeking indemnification under this Article 8 shall give to the party obligated to provide indemnification to such Indemnified Party (the "INDEMNITOR") a written notice (a "CLAIM NOTICE") describing in reasonable detail the facts giving rise to any claim for indemnification hereunder (a "CLAIM") and shall include in such Claim Notice (if then known) the amount, or the method of computation of the amount, of such Claim and a reference to the provision of this Agreement or any agreement, document or instrument executed pursuant hereto or in connection herewith upon which such Claim is based; provided, that a Claim Notice in respect of any action at law or suit in equity by or against a third party as to which indemnification will be sought must be given promptly after the action or suit is commenced; provided, further that if such Claim Notice is given prior to the expiration of the applicable survival period, failure to promptly give such Claim Notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it shall have been materially prejudiced by such failure. Section 8.6. THIRD PARTY CLAIMS (a) If any claim, action or suit by a third party arises after execution and delivery of this Agreement for which a Claim is made, then the Indemnified Party shall notify the Indemnitor in accordance with Section 8.5 and shall give the Indemnitor a reasonable opportunity (i) to conduct any proceedings or negotiations in connection therewith and necessary or appropriate to defend the Indemnified Party, (ii) to employ counsel to contest any such claim, action or suit in the name of the Indemnified Party or otherwise and (iii) to take all other required steps or proceedings to settle or defend any such claim, action or suit. (b) The expenses of all proceedings, contests or lawsuits with respect to any claims, actions or suits for which a Claim is made shall be borne by the Indemnitor. If the Indemnitor wishes to assume the defense of any such claim, action or suit, then it shall give written notice to the Indemnified Party within 30 days after delivery of the Claim Notice (unless the claim, action or suit reasonably requires a response in less than 30 days after the Claim Notice is given to the Indemnitor, in which event the Indemnitor shall notify the Indemnified Party at least 10 days prior to such reasonably required response date), and the Indemnitor shall thereafter assume the defense of any such claim, action or suit, through counsel reasonably satisfactory to the Indemnified Party; provided, that the Indemnified Party may participate in such defense at its own expense. The Indemnified Party shall have the right to control the defense of the claim, action or suit unless and until the Indemnitor shall (i) assume the defense of such claim, action or suit, and (ii) acknowledge in writing to the Indemnified Party that the Indemnitor shall be obligated under the terms of its indemnity hereunder to the Indemnified Party in connection with such claim, action or suit, in which event the Indemnitor shall have the right to control such defense; provided, that the Indemnitor may not settle or compromise such claim, action or suit without the Indemnified Party's prior written consent unless the terms of such settlement or compromise unconditionally discharge and release the Indemnified Party from any and all liabilities and obligations thereunder and do not 62 involve any remedy other than the payment of money solely by the Indemnitor. Notwithstanding the foregoing, if (i) the defendants in any action shall include both an Indemnitor and an Indemnified Party, and (ii) such Indemnified Party shall have reasonably concluded that counsel selected by Indemnitor has a material conflict of interest because of the availability of different or additional defenses to such Indemnified Party, and (iii) either (A) counsel shall have advised Indemnified Party that the conflict of interest cannot be resolved by the consent of Indemnitor and Indemnified Party to the joint representation, or (B) Indemnitor or Indemnified Party shall fail to give any required consent, which consent will not be unreasonably withheld or delayed, then such Indemnified Party shall have the right to select separate counsel to participate in the defense of such action on its behalf, at the reasonable expense of the Indemnitor. (c) If the Indemnitor does not assume the defense of, or if after so assuming, the Indemnitor fails to defend, any such claim, action or suit, then the Indemnified Party may defend such claim, action or suit in such manner as the Indemnified Party may deem appropriate (provided that the Indemnitor may participate in such defense at its own expense), and the Indemnitor shall promptly reimburse the Indemnified Party for the amount of all fees and expenses, legal and other, reasonably incurred by the Indemnified Party in connection with the defense and settlement of such claim, action or suit. If no settlement of such claim, action or suit is made, the Indemnitor shall satisfy any judgment rendered with respect to such claim, or in such action or suit, before the Indemnified Party is required to do so, and pay all fees and expenses, legal or other, reasonably incurred by the Indemnified Party in the defense of such claim, action or suit. (d) If a final and non-appealable decision or court order is rendered against the Indemnified Party in any claim, action or suit covered by the indemnification hereunder, or any Lien in respect of such decision or court order attaches to any of the assets of the Indemnified Party, the Indemnitor shall immediately upon such entry or attachment pay in full any amount required by such decision or court order, or discharge such Lien, before the Indemnified Party is compelled to do so. ARTICLE 9 TERMINATION Section 9.1. TERMINATION Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated: (a) by the mutual written consent of the parties; (b) by either party (provided that such party is not otherwise in material breach) if the other party has breached a representation, warranty, covenant or agreement set forth herein, and such breach could reasonably be expected to have an AWS Material Adverse Effect (in the case of a breach by AWS) or a USCC Material Adverse Effect (in the case of a breach by USCC), and the breaching party fails to cure such breach within thirty (30) days of written notice thereof; 63 (c) by either party upon written notice to the other party, upon the other party's filing, or the other party having filed against it and remaining pending for more than thirty (30) days, a petition under Title 11 of the United States Code or similar state law provision seeking protection from creditors or the appointment of a trustee, receiver or debtor in possession; (d) by either party upon written notice to the other party if a court of competent jurisdiction or Governmental Authority shall have issued an order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the Transactions, and such order, decree, ruling or other action shall have become final and non-appealable; or (e) by either party upon written notice to the other party if the Closing shall not have occurred on or before the first anniversary of the date hereof. Section 9.2. EFFECT OF TERMINATION In the event of termination of this Agreement in accordance with Section 9.1, all rights and obligations of the parties under this Agreement shall terminate without any liability to the other party except that (a) nothing herein shall relieve a party from any liability for any breach of its covenants, representations or warranties hereunder and (b) this Section 9.2 and the provisions of Section 5.4 and Article 8 and Article 10 shall survive the termination of this Agreement for any reason. ARTICLE 10 MISCELLANEOUS Section 10.1. GOVERNING LAW (a) This Agreement shall be construed in accordance with, and governed by, the internal Laws of the State of Delaware without giving effect to principles of conflicts of law. Each party agrees that it shall bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the Transactions, whether in tort or contract or at law or in equity, exclusively in the United States District Court for the District of Delaware or the courts of the State of Delaware (the "CHOSEN COURTS") and (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts for purposes of any such action or proceedings, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding shall be effective if notice, including the original or a copy of such process, is given and receipt thereof evidenced in accordance with Section 10.5. (b) The parties hereby irrevocably waive any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement or the Transactions. 64 Section 10.2. ASSIGNMENT (a) Except as otherwise provided under Section 10.2(b) and Section 10.2(c), neither this Agreement nor any of the rights or obligations hereunder may be assigned by either party without the prior written consent of the other party, and any purported assignment without consent or not in accordance with Section 10.2(b) and Section 10.2(c), as applicable, shall be null and void. (b) Subject to its obligations under Section 1.3(a), AWS may without USCC's consent assign its rights hereunder to receive all or any portion of the USCC Assigned Licenses and all or any portion of the USCC Assets to any direct or indirect wholly-owned subsidiary of AWS; provided, that (i) AWS furnishes USCC with reasonably satisfactory assurance of performance of this Agreement by AWS's assignee, (ii) the assignment will not materially delay the FCC's approval of the Transactions and (iii) no such assignment shall relieve AWS of any of its obligations to USCC hereunder. (c) Subject to its obligations under Section 1.3(a), USCC may without AWS' consent assign its rights hereunder to receive all or any portion of the AWS Licenses to any direct or indirect wholly-owned subsidiary of USCC; provided, that (i) USCC furnishes AWS with reasonably satisfactory assurance of performance of this Agreement by USCC's assignee, (ii) the assignment will not materially delay the FCC's approval of the Transactions and (iii) no such assignment shall relieve USCC of any of its obligations to AWS hereunder. (d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (e) Nothing in this Section 10.2 shall prohibit the Transfer by either party of any assets received from the other party upon the consummation of one or more of the Transactions. Section 10.3. ENTIRE AGREEMENT This Agreement (including the Schedules and Exhibits attached hereto), the AWS Disclosure Schedule, the USCC Disclosure Schedule and the Transaction Documents constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, arrangements and understandings of the parties with respect to such subject matter. Section 10.4. AMENDMENTS AND WAIVERS Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed (in the case of an amendment) by both parties or (in the case of a waiver) by the party granting the waiver. No failure or delay by any party in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 65 Section 10.5. NOTICES All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given or made (a) upon delivery if delivered personally (by courier service or otherwise), as evidenced by written receipt or other written proof of delivery (which may be a printout of the tracking information of a courier service that made such delivery), or (b) upon confirmation of dispatch if sent by facsimile transmission (which confirmation shall be sufficient if shown by evidence produced by the facsimile machine used for such transmission), in each case to the applicable addresses or facsimile numbers set forth below (or such other address or facsimile number which either party may from time to time specify in accordance with this Section 10.5): If to AWS, to: AT&T Wireless Services, Inc. 7277 164th Avenue N.E. Redmond, Washington 98052 Attention: Joshua M. King Facsimile: (425) 580-8405 With a copy (which shall not constitute notice) to: Friedman Kaplan Seiler & Adelman LLP 1633 Broadway, 46th Floor New York, New York 10019 Attention: Matthew S. Haiken Facsimile: (212) 833-1250 If to USCC: United States Cellular Corporation c/o Telephone and Data Systems, Inc. 30 North LaSalle St., 40th Floor Chicago, Illinois 60602 Attention: Scott H. Williamson Facsimile: (312) 630-9299 With a copy (which shall not constitute notice) to: United States Cellular Corporation 8410 West Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Kenneth R. Meyers Facsimile: (773) 399-8959 66 And a copy (which shall not constitute notice) to: Sidley Austin Brown & Wood 10 South Dearborn St. Bank One Plaza Chicago, Illinois 60603 Attention: William S. DeCarlo, Esq. Facsimile: (312) 853-7036 Section 10.6. HEADINGS The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. Section 10.7. SEVERABILITY Each term or provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent but only to the extent of such invalidity, illegality or unenforceability, without rendering invalid or unenforceable the remainder of such provision or provisions of this Agreement; provided, however, that if the removal of such offending provision materially alters the burdens or benefits of either of the parties under this Agreement, the parties agree to negotiate in good faith such modifications to this Agreement, if any, as are appropriate to ensure that the burdens and benefits of each party under such modified Agreement are reasonably comparable to the burdens and benefits originally contemplated herein. Section 10.8. NO THIRD-PARTY BENEFICIARIES With the exception of the parties to this Agreement and their respective successors and permitted assigns, and any Indemnified Party, there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights arising out of this Agreement. Section 10.9. REMEDIES CUMULATIVE Except as otherwise provided herein, all rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any right, power or remedy by a party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. Section 10.10. EXPENSES Except as otherwise expressly provided in this Agreement, whether or not the Transactions are consummated, the parties shall bear their own expenses (including all 67 time and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement and the Transactions. Section 10.11. COUNTERPARTS This Agreement may be executed in one or more counterparts, which may be delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 10.12. SPECIFIC PERFORMANCE The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or any covenant set forth in this Agreement is otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to enforce specifically the performance of this Agreement in accordance with its terms and provisions and to prevent breaches of covenants set forth in this Agreement. The foregoing right is in addition to, and not in lieu of, any other rights a party hereto may have in respect of a breach of this Agreement, whether at law or in equity. Section 10.13. FURTHER ASSURANCES At and following Closing, (a) USCC shall execute and deliver to AWS, or cause to be executed and delivered to AWS, such other instruments of conveyance and transfer as AWS may from time to time reasonably request or as may be otherwise necessary to more effectively convey and transfer the USCC Assigned Licenses and USCC Assets, and (b) AWS shall execute and deliver to USCC, or cause to be executed and delivered to USCC, such other instruments of conveyance and transfer as USCC may from time to time reasonably request or as may be otherwise necessary to more effectively convey and transfer the AWS Assigned Licenses and Partnership Interests. Section 10.14. RETENTION OF ASSETS PRIOR TO CLOSING Notwithstanding any other term hereof, until Closing each party shall retain control over, in the case of USCC, the USCC Assigned Licenses and the USCC Assets and, in the case of AWS, the AWS Licenses and the Partnership Interests, at all times in accordance with FCC Law. Nothing in this Agreement shall give USCC or AWS, prior to Closing, the right to control or direct the other's exercise of ultimate authority over, in the case of USCC, the USCC Assigned Licenses and the USCC Assets and, in the case of AWS, the AWS Licenses and the Partnership Interests. Section 10.15. REFORMATION If the FCC should (a) change its rules in a manner that would adversely affect the enforceability of this Agreement, (b) directly or indirectly reject or take action to challenge the enforceability of this Agreement, or (c) take any other steps whatsoever, on its own initiative or by petition from a third party, to directly or indirectly challenge this Agreement or any provision hereof, then the parties hereto shall promptly negotiate in 68 good faith to attempt to reform and amend this Agreement so as to eliminate or amend to make unobjectionable any portion that is the subject of any FCC action, provided, that neither party shall be obligated to reform or amend this Agreement under the foregoing circumstances if any such amendment or modification, in the reasonable judgment of such party, would not provide to or afford such party substantially the same rights, duties and obligations such party has under this Agreement as of the date hereof. Section 10.16. DEFINITIONS (a) For purposes of this Agreement, the following terms shall have the following meanings: "ACCOUNTS RECEIVABLE" shall have the meaning set forth in item (ix) of the definition of "USCC ASSETS" set forth in Section 1.1(b). "ACTIVE EMPLOYEE" shall have the meaning set forth in Section 6.1(a). "AFFILIATE" shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Person. For purposes of this definition, "control" (including the terms "controlling" and "controlled") means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of equity interests, by contract or otherwise. "AFTER-TAX BASIS" means that, in determining the amount of the payment necessary to indemnify any Person against, or reimburse any party for, Losses, the amount of such Losses shall be determined net of any Tax detriment borne by the indemnified Person as a result of receiving such payment and any Tax benefit derived by the indemnified Person as the result of sustaining such Losses. Such Tax consequences shall be computed assuming that the indemnified Person is subject to taxation at the highest applicable marginal regular federal and state tax rates. "AGREEMENT" shall mean this Exchange Agreement, together with all of the Schedules and Exhibits referred to herein, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "ALLOCATION SCHEDULE" shall have the meaning set forth in Section 1.3(c). "AWS" shall have the meaning set forth in the preamble. "AWS ASSIGNED LICENSES" means, collectively, (i) the AWS Entity Licenses that are being assigned in their entirety to the USCC Entities as set forth on Part 1 of SCHEDULE I-A, (ii) the FCC Licenses created by disaggregating certain of the AWS Entity Licenses as set forth on Part 2 of SCHEDULE I-A and (iii) the Non-AWS Entity Licenses. "AWS ASSUMED LIABILITIES" shall have the meaning set forth in Section 1.2(c). 69 "AWS DISCLOSURE SCHEDULE" shall have the meaning set forth in the first paragraph of Article 3. "AWS ENTITIES" shall mean AWS and each Person listed on SCHEDULE I-A. "AWS ENTITY LICENSES" shall have the meaning set forth in the first recital. "AWS EXCLUDED LIABILITIES" shall have the meaning set forth in Section 1.2(d). "AWS INDEMNITEE" shall have the meaning set forth in Section 8.2. "AWS LICENSE COST-SHARING OBLIGATIONS" shall mean microwave relocation cost-sharing obligations in respect of the AWS Licenses within the meaning of 47 C.F.R. 24.239 through 24.253. "AWS LICENSES" shall have the meaning set forth in the first recital. "AWS MATERIAL ADVERSE EFFECT" shall mean any change, event, occurrence, fact, condition, effect or development that is materially adverse to (i) the AWS Licenses and the Partnership Interests, taken as a whole, (ii) the ability of AWS to consummate, or cause the AWS Entities to consummate, the Transactions or (iii) USCC's ownership and operation of the AWS Assigned Licenses or USCC's ownership of the Partnership Interests, taken as a whole, following the Closing, but (x) in each case shall exclude any change, event, occurrence, fact, condition, effect or development resulting from changes affecting the wireless communications industry generally or general economic conditions in the United States, and (y) in the case of the Partnership Interests shall exclude any change, event, occurrence, fact, condition, effect or development resulting from any act or omission by USCC or any of its Affiliates. "AWS STATE CONSENTS" shall mean the Consents, if any, listed on SCHEDULE 3.4. "AWS WELFARE PLANS" shall have the meaning set forth in Section 6.2(a). "BALANCE SHEET DATE" shall have the meaning set forth in Section 4.20. "BOOKS AND RECORDS" shall have the meaning set forth in Section 4.19. "BTAS/MTAS" shall mean Basic Trading Areas/Major Trading Areas as designated by the FCC. "BUSINESS DAY" shall mean any day, other than a Saturday or Sunday, on which commercial banks and foreign exchange markets are open for business in the City of New York and Chicago, Illinois. "CALEA" shall mean the Communications Assistance for Law Enforcement Act of 1994, as amended. "CASH PAYMENT" shall have the meaning set forth in Section 1.1(a). 70 "CELL SITES" shall have the meaning set forth in Section 4.26. "CHOSEN COURTS" shall have the meaning set forth in Section 10.1. "CLAIM" shall have the meaning set forth in Section 8.5. "CLAIM NOTICE" shall have the meaning set forth in Section 8.5. "CLOSING" shall have the meaning set forth in Section 2.1. "CLOSING DATE" shall have the meaning set forth in Section 2.1. "CLOSING DATE WORKING CAPITAL AMOUNT" shall have the meaning set forth in Section 1.6(b). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMERCIALLY REASONABLE EFFORTS" means a party's efforts in accordance with reasonable commercial practices and without the payment of any money to any third party except the incurrence of reasonable costs and expenses that are not material in the context of the commercial objectives to be achieved by the subject effort of such Party. "CONFIDENTIAL INFORMATION" of a Person shall mean any and all non-public information regarding the business, finances, operations, products, services and subscribers of the Person specified and its Affiliates in written or oral form or in any other medium. "CONSENTS" shall mean all Governmental Authorizations and consents, approvals or waivers of other third parties. "CURRENT ASSETS" shall have the meaning set forth in Section 1.6. "CURRENT LIABILITIES" shall have the meaning set forth in Section 1.6. "DAMAGED ASSETS" shall have the meaning set forth in Section 5.9. "DEDUCTIBLE" shall have the meaning set forth in Section 8.4(b). "DESIGNATED EMPLOYEES" shall have the meaning set forth in Section 6.1(a). "DOJ" shall have the meaning set forth in Section 5.2(d). "EMPLOYEE PLAN" shall have the meaning set forth in Section 4.14(a). "ENVIRONMENTAL LAW" shall mean any and all statutes, regulations, ordinances, rules, orders, directives, requirements, common law claims or adjudications of any Governmental Authority, without limitation in time or scope, which regulate or govern or are related in any way to the protection of the environment, or are related in any way to Hazardous Substances, including the following: the National Environmental Policy Act 71 of 1999 and applicable FCC implementing regulations 42 U.S.C. Section 4321 et seq. (NEPA), the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. Section 9601 et seq. (CERCLA), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq. (RCRA), the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq. (CAA), the Emergency Planning and Community Right to Know Act, as amended, 42 U.S.C. Section 11001 et seq. (EPCRA), the Safe Drinking Water Act, as amended, 42 U.S.C. Section 300 et seq. (SDWA), the Pollution Prevention Act of 1990, as amended, 42 U.S.C. Section 13101 et seq. (PPA), the Clean Water Act, as amended, 33 U.S.C. Section 1251 et seq. (CWA), the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. Section 136 et seq. (FIFRA), the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq. (TSCA), and any and all state and local statutes, Laws, or ordinances corresponding to the foregoing federal statutes. "ENVIRONMENTAL PERMIT" shall mean all Governmental Authorizations required by any Governmental Authority under any applicable Environmental Law. "ERISA" shall have the meaning set forth in Section 4.14(a). "ERISA AFFILIATE" shall have the meaning set forth in Section 4.14(a). "EXCHANGE OPTIONS" shall have the meaning set forth in Section 1.4(a). "EXCHANGE OPTION PERIOD" shall have the meaning set forth in Section 1.4(a). "EXCLUDED ASSETS" shall have the meaning set forth in Section 1.1(c). "FAA" shall mean the Federal Aviation Administration. "FBI" shall have the meaning set forth in Section 4.29. "FCC" shall mean the Federal Communications Commission. "FCC LAW" shall mean the Communications Act of 1934, as amended, including as amended by the Telecommunications Act of 1996, and the rules and regulations adopted by the FCC thereunder. "FCC LICENSES" shall mean, as the context requires, the AWS Licenses or the USCC Assigned Licenses, or both. "FINAL ORDER" shall mean an action or decision that has been granted by the FCC as to which (i) no request for a stay or similar request is pending, no stay is in effect, the action or decision has not been vacated, reversed, set aside, annulled or suspended and any deadline for filing such request that may be designated by statute or regulation has passed, (ii) no petition for rehearing or reconsideration or application for review is pending and the time for the filing of any such petition or application has passed, (iii) the FCC does not have the action or decision under reconsideration on its own motion and the time within which it may effect such reconsideration has passed, and (iv) no appeal is 72 pending, including other administrative or judicial review, or in effect and any deadline for filing any such appeal that may be designated by statute or rule has passed. "FINANCIAL STATEMENTS" shall have the meaning set forth in Section 4.20. "FTC" shall have the meaning set forth in Section 5.2(d). "GAAP" shall mean United States generally accepted accounting principles in effect from time to time. "GOVERNMENTAL AUTHORITY" shall mean a Federal, state or local court, legislature, governmental agency, commission or regulatory (including any state public utilities commission) or administrative authority or instrumentality. "GOVERNMENTAL AUTHORIZATION" shall mean any license, permit, certificate of authority, waiver, variance, order, operating rights, approval, certificate of public convenience and necessity, registration or other authorization, consent or clearance to construct or operate a facility, including any emissions, discharges or releases therefrom, or to transact an activity or business, to construct a tower, or to use an asset or process, in each case issued or granted by a Governmental Authority. "HAZARDOUS SUBSTANCE" shall mean and includes any element, material, compound, mixture, chemical, substance, toxic substance, hazardous substance, toxic waste, hazardous waste, pollutant or contaminant, including asbestos, defined as a hazardous substance, pollutant or contaminant (or words of similar connotation, import or meaning) or otherwise regulated under or pursuant to any Environmental Law, but shall exclude electromagnetic radiation, whether or not it is determined to be hazardous. "HSR ACT" shall have the meaning set forth in Section 5.2(d). "INACTIVE EMPLOYEE" shall have the meaning set forth in Section 6.1(a). "INDEPENDENT ACCOUNTANT" shall have the meaning set forth in Section 1.6(c). "INDEMNIFIED PARTY" shall have the meaning set forth in Section 8.5. "INDEMNITOR" shall have the meaning set forth in Section 8.5. "INTELLECTUAL PROPERTY" shall mean (i) any and all patents (including without limitation design patents, industrial designs and utility models) and patent applications (including docketed patent disclosures awaiting filing, reissues, divisions, continuations, continuations-in-part and extensions), patent disclosures awaiting filing determination, inventions and improvements thereto, (ii) trademarks, service marks, certification marks, trade names, brand names, trade dress, logos, business and product names, slogans, and registrations and applications for registration thereof, (iii) copyrights (including software) and registrations thereof, (iv) inventions, processes, designs, formulae, trade secrets, know-how, industrial models, confidential and technical information, manufacturing, engineering and technical drawings, product specifications, domain names, discoveries 73 and confidential business information, (v) mask work and other semiconductor chip rights and registrations thereof, (vi) intellectual property rights similar to any of the foregoing, (vii) computer software and (viii) copies and tangible embodiments thereof (in whatever form or medium, including electronic media). "INTERFERENCE CONSENT" shall mean any agreement or arrangement between a party and any Person, including any present or proposed PCS, cellular, or microwave system operator or any PCS, cellular, or microwave licensee, conditional licensee or applicant with respect to co-channel and/or adjacent channel interference, the coordination of adjacent market channel use or other matters concerned with the operation of adjacent markets, allowing interference, restricting station operations, licensing or location, or limiting transmission time. "INTERIM FINANCIAL STATEMENTS" shall have the meaning set forth in Section 4.20. "INVENTORY" shall mean all inventory held by a USCC Entity for consumption by or sale to the public, including, mobile phones, spare parts and supplies, and reflected as a Current Asset on SCHEDULE 1.6. "IRS" shall mean the Internal Revenue Service. "KNOWLEDGE", "KNOWN", "TO THE KNOWLEDGE OF" (or similar words or phrases) shall mean the actual knowledge of (i) in the case of USCC, each Person set forth on SCHEDULE IV and (ii) in the case of AWS, each Person set forth on SCHEDULE V. "LAW" shall mean applicable common law and any statute, ordinance, code or other law, rule, permit, permit condition, regulation, order enacted, adopted, promulgated by any Governmental Authority. "LEASED PROPERTY" shall have the meaning set forth in Section 4.10(b). "LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest, preemptive right, existing or claimed right of first refusal, right of first offer, right of consent, put right, or right of a third party or other adverse claim of any kind or nature whatsoever (including any conditional sale or other title retention agreement). "LOSSES" shall have the meaning set forth in Section 8.2. "MACHINERY AND EQUIPMENT" shall have the meaning set forth in paragraph (vii) of the definition of the "USCC Assets" set forth in Section 1.1(b). "MAINE EXCHANGE OPTION" shall have the meaning set forth in Section 1.4(a). "NON-ASSIGNED CONTRACTS" shall have the meaning set forth in Section 5.2(c). "NON-AWS ENTITY" shall have the meaning set forth in the first recital. 74 "NON-AWS ENTITY LICENSES" shall have the meaning set forth in the first recital. "NON-AWS LICENSE ACQUISITION AGREEMENTS" shall have the meaning set forth in Section 3.13. "OBJECTION NOTICE" shall have the meaning set forth in Section 1.6(c). "OKLAHOMA EXCHANGE OPTION" shall have the meaning set forth in Section 1.4(a). "ORIGINAL MAINE SPECTRUM" shall have the meaning set forth in Section 1.4(a). "ORIGINAL OKLAHOMA SPECTRUM" shall have the meaning set forth in Section 1.4(a). "OSHA" shall mean the Occupational Health and Safety Administration or any successor agency or body having jurisdiction over the matters formerly considered by such Administration. "PARTNERSHIP INTERESTS" shall have the meaning set forth in the first recital. "PCS" shall have the meaning set forth in the first recital. "PERMITTED LIENS" shall mean (i) statutory Liens for taxes, assessments or other governmental charges not yet due or payable, or that are being contested in good faith by appropriate proceedings; (ii) leases and subleases disclosed on SCHEDULE 4.10(b) and landlord Liens arising thereunder; (iii) statutory Liens of mechanics, materialmen, landlords, carriers, warehousemen, repairmen and contractors and other Liens imposed by law and on a basis consistent with past practice which are incurred in the ordinary course of business for sums not yet due and payable; (iv) Liens and easements due to zoning and subdivision laws and regulations; (v) with respect to Real Property or Leased Property, defects of title, easements, rights-of-way, restrictions and other similar charges or encumbrances that would not, individually or in the aggregate, reasonably be expected to interfere in any material respect with the use, occupancy or operation of the Real Property or Leased Property as currently used, occupied or operated by USCC; (vi) Liens not created by any USCC Entity that affect the underlying fee interest of any Leased Property; (vii) Liens incurred in the ordinary course of business and on a basis consistent with past practice securing obligations or liabilities that are not individually or in the aggregate material to the relevant USCC Assets; (viii) with respect to Real Property or Leased Property, any exceptions an accurate up-to-date survey would show, provided such exceptions would not, individually or in the aggregate, reasonably be expected to interfere in any material respect with the use, occupancy or operation of the Real Property or Leased Property as currently used, occupied or operated by USCC; and (ix) with respect to USCC Assets that are not Real Property or Leased Property, any deficiencies in title which (x) would not, individually or in the aggregate, reasonably be expected to interfere in any material respect with the use, occupancy or operation of the USCC Assets as currently used, occupied or operated by USCC and (y) will be curable by AWS after the Closing without material payment to any third party. 75 "PERSON" shall mean an individual, corporation, general partnership, limited partnership, limited liability company, joint venture, trust, business trust, association, joint stock company, Governmental Authority, unincorporated organization, or other legal entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person as the context may require. "PRELIMINARY CLOSING DATE WORKING CAPITAL AMOUNT" shall have the meaning set forth in Section 1.6(a). "POST-CLOSING MASTER LEASE AGREEMENT" shall mean the Master Lease Agreement to be dated as of the Closing Date between USCC and AWS, in substantially the form attached hereto as EXHIBIT I. "POST-EXECUTION CONTRACT" shall have the meaning set forth in Section 5.11. "PRE-CLOSING MASTER LEASE AGREEMENT" shall mean the Master Lease Agreement of even date herewith between USCC and AWS. "REAL PROPERTY" shall mean all realty, fixtures, easements, rights-of-way, leasehold, and other interests in Real Property, buildings and improvements. "REAL PROPERTY LEASES" shall have the meaning set forth in Section 4.10(b). "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration into the environment. "REPRESENTATIVES" shall mean, with respect to any Person, its Affiliates, and its and their respective shareholders, members, managers, directors, officers, employees, attorneys, auditors and agents. "SECTION 1.5 LICENSES" shall have the meaning set forth in Section 1.5(a). "SECTION 1.5 OPTION" shall have the meaning set forth in Section 1.5(b). "SECTION 1.5 OPTION PERIOD" shall have the meaning set forth in Section 1.5(b). "STRADDLE PERIOD" shall have the meaning set forth in Section 5.10(b). "SUBSCRIBER AGREEMENT" shall mean, in respect of each subscriber for service on the USCC Systems, a written agreement pursuant to which a USCC Entity provides wireless service to such subscriber. "SYSTEM EMPLOYEE PLAN" shall have the meaning set forth in Section 4.14(a). "SYSTEM PERMITS" shall have the meaning set forth in Section 4.13. "TAX" shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, 76 capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, Real Property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not. "TAX RETURN" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "TRANSACTIONS" shall mean the transactions contemplated by this Agreement and each of the other Transaction Documents. "TRANSACTION DOCUMENTS" shall mean, collectively, this Agreement, the Transition Services Agreement, the Pre-Closing Master Lease Agreement, License Exchange Agreement, License Acquisition Agreement, Instrument of Assignment (AWS Assigned Licenses), Assumption Agreement (AWS Assumed Liabilities), Assumption Agreement (USCC Assumed Liabilities), Instrument of Assignment (USCC Assigned Licenses), Bill of Sale and Assignment (USCC Assets), Assignment and Assumption Agreement (Section 1.5 Licenses), the Post-Closing Master Lease Agreement, the USCC Brand License Agreement and the Instrument of Assignment of Partnership Interests. "TRANSACTION TAXES" shall have the meaning set forth in Section 5.10(a). "TRANSFER" shall mean to sell, transfer, deliver, convey, assign or otherwise dispose of the applicable asset. "TRANSITIONED EMPLOYEES" shall have the meaning set forth in Section 6.1(a). "TRANSITION SERVICES AGREEMENT" shall mean the Transition Services Agreement of even date herewith between USCC and AWS. "TYPE 1 REPRESENTATION" shall have the meaning set forth in Section 8.1. "TYPE 2 REPRESENTATION" shall have the meaning set forth in Section 8.1. "USCC" shall have the meaning set forth in the preamble. "USCC ADVANCE PAYMENTS" shall have the meaning set forth in item (xv) of the definition of "USCC Assets" set forth in Section 1.1(b). "USCC ASSETS" shall have the meaning set forth in Section 1.1(b). "USCC ASSIGNED LICENSES" shall have the meaning set forth in the second recital. "USCC ASSUMED LIABILITIES" shall have the meaning set forth in Section 1.2(a). 77 "USCC BRAND LICENSE AGREEMENT" means the Brand License Agreement to be dated the Closing Date between USCC and AWS in substantially the form attached hereto as EXHIBIT J. "USCC BUSINESS" shall have the meaning set forth in the second recital. "USCC CONTRACTS" shall have the meaning set forth in Section 4.18(a). "USCC DISCLOSURE SCHEDULE" shall have the meaning set forth in the first paragraph of Article 4. "USCC ENTITIES" shall mean USCC and each Person listed on SCHEDULE III. "USCC EXCLUDED LIABILITIES" shall have the meaning set forth in Section 1.2(b). "USCC INDEMNITEE" shall have the meaning set forth in Section 8.3. "USCC INTELLECTUAL PROPERTY" shall have the meaning set forth in Section 4.11(b). "USCC MATERIAL ADVERSE EFFECT" shall mean any change, event, occurrence, fact, condition, effect or development that is materially adverse to (i) the USCC Assigned Licenses, the USCC Systems and the USCC Assets, taken as a whole, (ii) the ability of USCC to consummate, or cause the USCC Entities to consummate, the Transactions or (iii) AWS's ownership and operation of the USCC Assigned Licenses, the USCC Systems or the USCC Assets following the Closing, taken as a whole, but in each case shall exclude any change, event, occurrence, fact, condition, effect or development resulting from changes affecting the wireless communications industry generally or general economic conditions in the United States. "USCC SERVICE AREA" shall have the meaning set forth in the second recital. "USCC STATE CONSENTS" shall mean the Consents listed on SCHEDULE 4.4. "USCC SYSTEM CONSENTS" shall have the meaning set forth in Section 4.18(b). "USCC SYSTEM CONTRACTS" shall have the meaning set forth in Section 4.18(b). "USCC SYSTEMS" shall have the meaning set forth in the second recital. "WARN ACT" shall mean the Worker Adjustment and Retraining Notification Act. "WORKING CAPITAL SCHEDULE" shall have the meaning set forth in Section 1.6(c). (b) When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or a Section of this Agreement unless otherwise indicated. Unless the context otherwise requires, the terms defined hereunder shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms defined herein. The terms defined in the 78 singular shall have comparable meaning when used in the plural, and vice versa. The word "including" shall connote "including without limitation." All references in Articles 3 and 4 to a "Schedule" are references to such Schedule as contained in the AWS Disclosure Schedule and USCC Disclosure Schedule, respectively. (c) In determining whether a document, asset or system is "principally used or held for use in connection with the operation of the USCC Systems" or relates to the operation of the USCC Systems or the USCC Business, the following factors shall be considered, among other factors: (1) whether or not the asset is reflected in the balance sheet of any USCC Entity; (2) whether or not the asset is located in the USCC Service Area; and (3) whether or not more than a majority of the asset's use (or, in the case of a contract, the contract's value or utility) is in connection with the USCC Systems or the USCC Business relative to the asset's use (or contract's value or utility) in connection with all of USCC's operations and business, and, if more than a majority of the asset's use (or contract's value or utility) is in connection with the USCC Systems or the USCC Business, the percentage of such use (or value or utility), both currently and historically. Section 10.17. NO SET-OFF The obligations under this Agreement and any Transaction Document shall not be subject to set-off for any claim by any party or any of their respective Affiliates. Not in limitation of the foregoing, the parties hereto shall not, and shall cause their respective Affiliates not to, withhold performance of any of their respective obligations under this Agreement or the Transaction Documents due to a monetary claim under this Agreement or any Transaction Document, or due to any monetary or non-monetary claim under any other agreement between the parties or any of their respective Affiliates. [SIGNATURE PAGE FOLLOWS] 79 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AT&T WIRELESS SERVICES, INC By /s/ Joshua King ---------------------------- Name: Joshua King Title: Vice President UNITED STATES CELLULAR CORPORATION By /s/ LeRoy T. Carlson Jr. ---------------------------- Name: LeRoy T. Carlson, Jr. Title: Chairman Signature Page to Exchange Agreement dated as of March 7, 2003 between United States Cellular Corporation and AT&T Wireless Services, Inc. 80 EX-10.9 4 a2103341zex-10_9.txt EXHIBIT 10.9 EXHIBIT 10.9 SUMMARY OF 2002 BONUS PROGRAM FOR EXECUTIVE VICE PRESIDENTS OF UNITED STATES CELLULAR CORPORATION The objectives of the 2002 Bonus Program for Executive Vice Presidents (the "2002 Bonus Plan") of United States Cellular Corporation ("USM") are: (i) to provide incentives for the Executive Vice Presidents of USM to extend their best efforts to achieve superior results in relation to key performance targets, (ii) to reward USM's Executive Vice Presidents in relation to their success in meeting and exceeding these performance targets, and (iii) to help USM attract and retain talented leadership in positions of critical importance to the success of USM. The 2002 Bonus Plan was designed to generate a targeted 2002 bonus pool equal to the total of 40% of the aggregate of the base salaries of the Company's senior executive officers other than the President. Under the 2002 Bonus Plan, the size of the target bonus pool is increased or decreased depending on USM's 2002 achievements with respect to the performance categories. No bonus pool is paid under such plan if minimum performance levels are not achieved in these categories. The maximum bonus pool that could be generated, which would require exceptional performance in all areas, would equal the total of 80% of the aggregate base salaries of the Company's senior executive officers other than the president. At target performance, the bonus pool would be equal to 40% of the aggregate salaries of the Company's senior executive officers other than the President. The performance categories include (i) gross post-pay customer additions; (ii) consolidated cash flow; (iii) consolidated revenue; (iv) return on capital; and (v) customer defections. EX-10.11 5 a2103341zex-10_11.txt EXHIBIT 10.11 EXHIBIT 10.11 U.S. CELLULAR CORPORATION (THE "COMPANY") DESCRIPTION OF COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS (THE "PLAN") EFFECTIVE MAY 16, 2002 The purpose of the Plan is to provide reasonable compensation to non-employee directors for their service to the Company, in order to ensure that qualified persons serve as non-employee members of the Board of Directors. The Plan was approved pursuant to the authority granted in Section 9 of Article III of the Company's By-Laws, which provides that the Board of Directors shall have authority to establish reasonable compensation of directors, including reimbursement of expenses incurred in attending meetings of the Board of Directors. The Plan provides that each director of the Company who is not an employee of the Company, Telephone and Data Systems, Inc. or TDS Telecommunications Corporation ("non-employee director") will receive an annual director's retainer fee of $34,000 paid annually, a director's meeting fee of $1,500 for each meeting attended and reimbursement of reasonable expenses incurred in connection with attendance at meetings of the Board of Directors. The Plan provides that each non-employee director who serves on the Audit committee, other than the Audit committee Chairperson, will receive an annual committee retainer fee of $8,000 paid annually, a committee meeting fee of $1,500 for each meeting attended and reimbursement of reasonable expenses incurred in connection with attendance at meetings of the Audit Committee. The Audit Committee Chairperson will receive an annual retainer fee of $18,000 paid annually plus audit committee meeting fees of $1,500. The Plan provides that each non-employee director of the Company who serves on the Stock Option Compensation committee, other than the Stock Option Compensation committee Chairperson, will receive an annual committee retainer fee of $2,000 paid annually, a committee meeting fee of $1,000 for each meeting attended and reimbursement of reasonable expenses incurred in connection with attendance at each meeting of the committee. The Stock Option Compensation committee Co-Chairpersons will each receive an annual retainer fee of $4,000 paid quarterly plus Stock Option Compensation committee meeting fees of $1,000. Under the Plan, retainers are paid on an annual basis, as of the date of the Company's annual meeting of shareholders. Meeting fees are paid as of the date of the meeting. Non-employee directors may elect to receive fifty percent (50%) of their board and committee retainers and fifty percent (50%) of meeting fees for regularly scheduled meetings of the board (five per year) in the form of Common Shares of the Company. This election shall be made annually and shall be irrevocable for that one-year period. Fees for special meetings of the board and all committee meetings are paid in cash. The number of shares to be delivered shall be determined on the basis of the average closing price of Common Shares of the Company as reported in the American Stock Exchange Composite Transactions section of the Wall Street Journal for the twenty trading days before the date of the Company's annual meeting of shareholders or the date of the regularly scheduled meeting of the Board. EX-12 6 a2103341zex-12.txt EXHIBIT 12 Exhibit 12 UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES For the Twelve Months Ended December 31, 2002 (Dollars in Thousands)
12 months ended 12/31/02 ----------- EARNINGS: Income from continuing operations before income taxes $ (12,388) Add (Deduct): Earnings on equity method (42,068) Distributions from minority subsidiaries 28,881 Minority interest in income of majority-owned subsidiaries that do not have fixed charges (16,829) ----------- (42,404) Add fixed charges: Consolidated interest expense 46,887 Deferred debt amortization expense 991 Interest portion (1/3) of consolidated rent expense 19,061 ----------- $ 24,535 ----------- FIXED CHARGES: Consolidated interest expense 46,887 Deferred debt amortization expense 991 Interest portion (1/3) of consolidated rent expense 19,061 ----------- $ 66,939 ----------- RATIO OF EARNINGS TO FIXED CHARGES -- =========== Preferred dividends, net of tax $ 70 Fixed charges 66,939 ----------- Fixed Charges and Preferred Dividends $ 67,009 ----------- RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS -- ===========
- -------- The dollar deficiency resulting in less than one-to-one coverage is $42,404 for the ratio of earnings to fixed charges and $42,474 for the ratio of earnings to fixed charges and preferred dividends. EX-13 7 a2103341zex-13.htm EXHIBIT 13
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Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

        United States Cellular Corporation (the "Company"—AMEX symbol: USM) owns, operates and invests in wireless markets throughout the United States. The Company is an 82.2%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS").

        The following discussion and analysis should be read in conjunction with the Company's audited consolidated financial statements and footnotes included herein and the description of the Company's business included in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2002.

        The Company owned either majority or minority interests in 175 cellular markets and 35 personal communication service ("PCS") markets at December 31, 2002, representing 42,045,000 population equivalents ("pops"). The numbers reported for pops do not duplicate the number of pops in any overlapping areas owned by the Company and are calculated by multiplying the total population of each licensed area in which the Company has an interest by the Company's ownership percentage of such licensed area. In the case of the acquisition of a market that overlaps a previously existing market, only the incremental, non-overlapping pops acquired are added to the number of pops reported by the Company.

        The Company included the operations of 143 majority-owned cellular markets and six PCS markets which have begun marketing activities and have signed up customers for service ("operational markets"), representing 35.6 million pops, in consolidated operations ("consolidated markets") as of December 31, 2002. The total population of the Company's operational consolidated markets, as used to calculate market penetration, is 36.6 million. Minority interests in 26 cellular markets, representing 2.0 million pops, were accounted for using the equity method and were included in investment income at that date. All other cellular interests were accounted for using the cost method. The Company owns, outright and through joint ventures ("JVs"), interests in 29 other PCS markets, representing 4.4 million pops; these markets were not operational as of December 31, 2002.

RESULTS OF OPERATIONS

        Following is a table of summarized operating data for the Company's consolidated operations.

Year Ended or At December 31,

2002
2001
2000

Total market population (in thousands)(1) 36,568 25,670 24,912

Customers 4,103,000 3,461,000 3,061,000

Market penetration 11.22 % 13.48 % 12.29 %

Markets in operation 149 142 139

Total employees 6,100 5,150 5,250

Cell sites in service 3,914 2,925 2,501

Average monthly service revenue per customer $ 47.25 $ 46.28 $ 49.21

Postpay churn rate per month 1.8 % 1.7 % 1.8 %

Marketing cost per gross customer addition $ 365 $ 322 $ 330

(1)
Represents 100% of the population of the operational licensed areas in which the Company has a controlling financial interest for financial reporting purposes. Calculated using Claritas population

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estimates for 2001, 2000 and 1999, respectively. "Total market population" is used only for the purposes of calculating market penetration and is not related to "pops," as previously defined.

        The Company's operating income, which includes 100% of the revenues and expenses of its consolidated markets plus its corporate office operations, declined 11% in 2002 from 2001 and increased 9% in 2001 from 2000. The Company 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. The Company determined that no impairment charge was required upon the completion of the initial impairment review required under SFAS No. 142. Amortization of license costs and goodwill totaled $36.5 million in 2001 and $33.8 million in 2000.

        In 2002, growth in the Company's customer base and revenues and a reduction in amortization of intangibles were offset by increases in all other operating expense captions that were larger than the growth in operating revenues. In 2001, growth in the Company's customer base and revenues were partially offset by increased system operations and general and administrative expenses.

        Operating revenues, driven by 19% and 13% increases in customers served in 2002 and 2001, respectively, rose $289.6 million, or 15%, in 2002 and $178.2 million, or 10%, in 2001. Operating income decreased $36.0 million, or 11%, in 2002 and increased $24.9 million, or 9%, in 2001.

        Investment and other income decreased $307.7 million in 2002 and $70.7 million in 2001, respectively. In 2002, the decrease was primarily due to the $295.5 million in losses recorded related to certain investments. In 2000, there were gains on cellular and other investments totaling $96.1 million; there were no such gains in 2001. Net income and diluted earnings per share decreased $188.2 million and $2.16, respectively, in 2002 and $19.0 million and $0.23, respectively, in 2001.

        On August 7, 2002, the Company completed the acquisition of the assets and certain liabilities of Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). The purchase price was approximately $618 million, including working capital and other adjustments. Chicago 20MHz operates a wireless system in the Chicago Major Trading Area ("MTA"). Chicago 20MHz is the holder of certain FCC licenses, including a 20 megahertz PCS license in the Chicago MTA (excluding Kenosha County, Wisconsin) covering 13.2 million pops.

        The Company has been transitioning the operations of Chicago 20MHz from PrimeCo to U.S. Cellular since the acquisition date in August 2002, and is reorganizing its operations to increase efficiency. The Company launched its "U.S. Cellular" brand in the Chicago 20MHz licensed area in the fourth quarter of 2002. In conjunction with this brand launch, the Company has incurred additional costs for advertising and customer care in 2002 and plans to continue to incur such costs in 2003. Additionally, the Company plans to invest approximately $90 million in capital expenditures during the first year following the Chicago 20MHz acquisition, $65 million of which had been spent in 2002. These capital investments will improve coverage in the Chicago 20MHz network, including an upgrade of the current CDMA system to 1XRTT, and will enhance the Company's marketing distribution in the Chicago market.

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        The Company's consolidated financial statements include the assets and liabilities of Chicago 20MHz and the results of operations since August 7, 2002. The Chicago 20MHz results of operations included in the Company's consolidated financial statements were as follows:

August 7-December 31, 2002

(Dollars in thousands)

Operating Revenues

Retail service $ 64,735

Inbound roaming 376

Long-distance and other 3,394

Service Revenues 68,505

Equipment sales 7,553

Total Operating Revenues 76,058

Operating Expenses

System operations 15,694

Marketing and selling 42,304

Cost of equipment sold 19,576

General and administrative 40,355

Depreciation 16,871

Amortization of intangibles 7,425

Total Operating Expenses 142,225

Operating (Loss) $ (66,167 )

Operating Revenues

        Operating revenues increased $289.6 million, or 15%, in 2002 and $178.2 million, or 10%, in 2001. The operating revenues of Chicago 20MHz for the period from the acquisition date through December 31, 2002, totaling $76.1 million, are included in the Company's 2002 operating revenues.

        Service revenues primarily consist of: (i) charges for access, airtime and value-added services provided to the Company's retail customers ("retail service"); (ii) charges to other wireless carriers whose customers use the Company's wireless systems when roaming ("inbound roaming"); and (iii) charges for long-distance calls made on the Company's systems. Service revenues increased $272.5 million, or 15%, in 2002, and increased $172.5 million, or 10%, in 2001. The increases in both years were primarily due to the growing number of retail customers. In 2002, the acquisition of Chicago 20MHz increased service revenues by $68.5 million. Monthly service revenue per customer averaged $47.25 in 2002, $46.28 in 2001 and $49.21 in 2000.

        Retail service revenue increased $273.8 million, or 19%, in 2002 and $180.7 million, or 15%, in 2001. Growth in the Company's customer base was the primary reason for the increase in retail service revenue in both years. Also, in 2002, average monthly retail service revenue per customer increased, contributing to the absolute growth in retail service revenue. Average monthly retail service revenue per customer increased 6% to $37.86 in 2002, and declined 2% to $35.68 in 2001. In 2002, the acquisition of Chicago 20MHz increased retail service revenue by $64.7 million.

        Management anticipates that growth in the customer base in the Company's cellular markets will continue at a slower pace in the future, primarily as a result of the increased number of competitors in its markets and continued penetration of the consumer market. As the Company expands its operations in Chicago and into other PCS markets in 2003 and 2004, it anticipates adding customers and revenues in those markets, increasing its overall customer and revenue growth rates.

3

        Monthly local retail minutes of use per customer averaged 304 in 2002, 216 in 2001 and 157 in 2000. The increases in monthly local retail minutes of use in both years were driven by the Company's focus on designing incentive programs and rate plans to stimulate overall usage. The impact on retail service revenue of these increases was partially offset by decreases in average revenue per minute of use in both years. Management anticipates that the Company's average revenue per minute of use will continue to decline in the future, reflecting increased competition and continued penetration of the consumer market.

        Inbound roaming revenue decreased $16.9 million, or 6%, in 2002 and $20.1 million, or 7%, in 2001. The declines in inbound roaming revenue in both years resulted from the decrease in revenue per roaming minute of use on the Company's systems, partially offset by an increase in roaming minutes used. The increases in inbound roaming minutes of use in both years were primarily driven by the overall growth in the number of customers throughout the wireless industry. The declines in revenue per minute of use in both years were primarily due to the general downward trend in negotiated rates.

        Management anticipates that the future rate of growth in inbound roaming minutes of use will be reduced due to two factors:

•
newer customers may roam less than existing customers, reflecting further penetration of the consumer market; and

•
as wireless operators expand service in the Company's markets, the Company's roaming partners may switch their business to these operators.

        Management also anticipates that average inbound roaming revenue per minute of use will continue to decline, reflecting the continued general downward trend in negotiated rates.

        Long-distance and other revenue increased $15.6 million, or 11%, in 2002 and $11.9 million, or 9%, in 2001 as the volume of long-distance calls billed by the Company increased in both years, primarily from inbound roamers using the Company's systems to make long-distance calls. This effect was partially offset in both years by price reductions primarily related to long-distance charges on roaming minutes of use as well as the Company's increasing use of pricing plans for its customers which include long-distance calling at no additional charge. In 2002, the acquisition of Chicago 20MHz increased long-distance and other revenue by $3.4 million.

        Equipment sales revenues increased $17.1 million, or 25%, in 2002 and $5.7 million, or 9%, in 2001. In 2002, the increase in equipment sales revenues reflects a change in the Company's method of distributing handsets to its agent channel. Beginning in the second quarter of 2002, the Company began selling handsets to its agents at a price approximately equal to the Company's cost. Previously, the Company's agents purchased handsets from third parties. Selling handsets to agents enables the Company to provide better control over handset quality, set roaming preferences and pass along quantity discounts. Management anticipates that the Company will continue to sell handsets to agents in the future, and that it will continue to provide rebates to agents who sell handsets to new and current customers.

        Equipment sales revenue is recognized upon delivery of the related products to the agents, net of any anticipated agent rebates. In most cases, the agents receive a rebate from the Company at the time these agents sign up a new customer or retain a current customer.

        Handset sales to agents, net of all rebates, increased equipment sales revenues by approximately $20.8 million during 2002. Excluding those revenues, equipment sales would have decreased $3.7 million, or 5%, from 2001. Gross customer activations, the primary driver of equipment sales revenues, increased 14% in 2002. The decrease in revenues is primarily attributable to lower revenue per handset in 2002, reflecting declining handset prices and the reduction in sales prices to end users as

4

a result of increased competition. In 2002, the acquisition of Chicago 20MHz increased equipment sales revenue by $7.6 million.

        In 2001, the increase primarily reflects the recognition in equipment sales revenues of $5.2 million of previously deferred activation fees. In 2000, these activation fees were recorded in retail service revenues.

Operating Expenses

        Operating expenses increased $325.7 million, or 21%, in 2002 and $153.3 million, or 11%, in 2001. The operating expenses of Chicago 20MHz for the period from the acquisition date through December 31, 2002, totaling $142.2 million, are included in the Company's consolidated operating expenses.

        System operations expenses increased $71.6 million, or 17%, in 2002 and $70.6 million, or 20%, in 2001. System operations expenses include charges from other telecommunications service providers for the Company's customers' use of their facilities, costs related to local interconnection to the landline network, charges for maintenance of the Company's network, long-distance charges and outbound roaming expenses. The increases in system operations expenses in both years were due to the following factors:

•
26% and 17% increases, respectively, in the average number of cell sites within the Company's systems, as the Company continues to expand and enhance coverage in its service areas; and

•
increases in minutes of use both on the Company's systems and by the Company's customers using other systems when roaming.

        The ongoing reduction both in the per-minute cost of usage on the Company's systems and in negotiated roaming rates partially offset the above factors.

        As a result of the above factors, the components of system operations expenses were affected as follows:

•
the cost of minutes used on the Company's systems increased $33.9 million, or 38%, in 2002 and $12.2 million, or 16%, in 2001;

•
maintenance, utility and cell site expenses increased $28.1 million, or 27%, in 2002 and $19.6 million, or 24%, in 2001; and

•
expenses incurred when the Company's customers used other systems when roaming increased $9.6 million, or 4%, in 2002 and $38.8 million, or 21%, in 2001.

        In 2002, the acquisition of Chicago 20MHz increased system operations expenses by $15.7 million. These Chicago 20MHz expenses are included in the components of the 2002 increases indicated above.

        In total, management expects system operations expenses to increase over the next few years, driven by the following factors:

•
increases in the number of cell sites within the Company's systems as it continues to add capacity and enhance quality in all markets, and begins startup activities in new PCS markets; and

•
increases in minutes of use, both on the Company's systems and by the Company's customers on other systems when roaming.

        These factors are expected to be partially offset by anticipated decreases in the per-minute cost of usage both on the Company's systems and in negotiated roaming rates. As the Chicago area has historically been the Company's customers' most popular roaming destination, management anticipates

5

that the integration of Chicago 20MHz into its operations will result in an increase in minutes of use by the Company's customers on its systems and a corresponding decrease in minutes of use by its customers on other systems, resulting in a lower overall increase in minutes of use by the Company's customers on other systems. Such a shift in minutes of use should reduce the Company's per-minute cost of usage in the future.

        Marketing and selling expenses increased $71.6 million, or 24%, in 2002 and decreased $6.5 million, or 2%, in 2001. Marketing and selling expenses primarily consist of salaries, commissions and expenses of field sales and retail personnel and offices; agent commissions and expenses; corporate marketing, merchandise management and telesales department salaries and expenses; advertising; and public relations expenses. The increase in 2002 was primarily due to the following factors:

•
enhancements made to the Company's merchandise management and telesales processes and the development of data services strategies, which resulted in a $25.7 million increase in 2002; and

•
a $25.7 million increase in advertising costs, primarily related to the Chicago 20MHz brand launch.

        In 2002, the acquisition of Chicago 20MHz increased marketing and selling expenses by $42.3 million. These Chicago 20MHz expenses are included in the components of the 2002 increases indicated above.

        Also in 2002, the Company changed its accounting for commissions expenses, reflecting a change in its application of Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." Effective January 1, 2002, the Company began deferring expense recognition of a portion of its commissions expenses, equal to the amount of activation fees revenue deferred. The Company recognizes the related commissions expense over the average customer service period, currently estimated to be 48 months. This change resulted in a reduction in marketing and selling expenses of $2.8 million in 2002. Pursuant to this change, beginning in 2002 the implementation of SAB No. 101 results in better matching for purposes of reporting operating income, net income and diluted earnings per share, as equivalent amounts of revenue and expense are deferred and amortized. See "Cumulative Effect of a Change in Accounting Principle" for more information on the impact of SAB No. 101 on the Company's results.

        The decrease in marketing and selling expenses in 2001 was primarily due to a 5% decrease in the number of gross customer activations.

        Also, during the second half of 2001, the Company changed certain agent compensation plans to reduce the base commission payment and include future residual payments to agents. Such residual payments recognize the agent's role in providing ongoing customer support, promote agent loyalty and encourage agent sales to customers who are more likely to have greater usage and remain customers for a longer period of time. As a greater percentage of the Company's customer base becomes activated by agents receiving residual payments, it is possible that the Company's aggregate residual payments to agents may grow by a larger percentage than the growth in the Company's gross customer activations.

        Cost of equipment sold increased $61.3 million, or 49%, in 2002 and decreased $15.6 million, or 11%, in 2001. The increase in 2002 is primarily due to the $55.8 million in handset costs related to the sale of handsets to agents beginning in the second quarter of 2002. Also in 2002, the acquisition of Chicago 20MHz increased cost of equipment sold by $19.6 million. Excluding these factors, cost of equipment sold decreased by $14.1 million, or 11%, in 2002. This decrease primarily reflects reduced per unit handset prices, partially offset by a 14% increase in gross customer activations. The decrease in cost of equipment sold in 2001 reflects the decline in unit sales related to the 5% decrease in gross customer activations as well as reduced per unit handset prices.

6

        Marketing cost per gross customer activation ("CPGA"), which includes marketing and selling expenses and the components of equipment subsidies less agent rebates related to customer retention, totaled $365 in 2002, $322 in 2001 and $330 in 2000. Agent rebates related to the retention of current customers totaled $14.6 million in 2002. Due to the impact of such agent rebates in 2002 CPGA is not calculable using financial information derived directly from the statement of operations. Future CPGA calculations will also be impacted by the effects of agent rebates related to customer retention.

        General and administrative expenses increased $70.7 million, or 16%, in 2002 and $69.9 million, or 19%, in 2001. These expenses include the costs of operating the Company's customer care centers, the costs of serving and retaining customers and the majority of the Company's corporate expenses. The increase in 2002 is primarily due to the following factors:

•
a $35.0 million increase in bad debt expense and

•
an increase in customer service-related expenses as a result of the 19% increase in the Company's customer base.

        In 2002, the acquisition of Chicago 20MHz increased general and administrative expenses by $40.4 million. These Chicago 20MHz expenses are included in the components of the 2002 increases indicated above.

        In 2001, the increase in general and administrative expenses was primarily due to the following factors:

•
a $27.8 million, or 18%, increase in administrative employee-related expenses;

•
a $9.8 million, or 16%, increase in customer retention costs; and

•
an increase in customer service-related expenses as a result of the 13% increase in the Company's customer base.

        The Company anticipates that customer retention expenses will increase in the future as it changes to a single digital technology platform and certain customers will require new handsets. A substantial portion of these customer retention expenses are anticipated to be agent rebates, which are recorded as a reduction of equipment sales revenues.

        Monthly general and administrative expenses per customer totaled $11.70 in 2002, $11.01 in 2001 and $10.85 in 2000. General and administrative expenses represented 24% of service revenues in 2002 and 2001 and 22% in 2000.

        Depreciation expense increased $74.6 million, or 31%, in 2002 and $31.4 million, or 15% in 2001. The increases in both years reflect rising average fixed asset balances, which increased 31% in 2002 and 20% in 2001. Increased fixed asset balances in both 2002 and 2001 resulted from the following factors:

•
the addition of new cell sites built to improve coverage and capacity in the Company's markets;

•
the addition of digital radio channels to the Company's network to accommodate increased usage;

•
upgrades to provide digital service in more of the Company's service areas; and

•
investments in the Company's billing and office systems.

See "Financial Resources and Liquidity—Liquidity and Capital Resources" for further discussion of the Company's capital expenditures.

        In 2002, the acquisition of Chicago 20MHz increased depreciation expense by $16.9 million. In addition, depreciation expense increased $15.0 million in 2002 to reflect the writeoff of certain analog radio equipment based on fixed asset inventory reviews performed during the year. Also in 2002, the

7

Company began migrating its network to a single digital equipment platform, which increased fixed asset balances during the second half of the year.

        Amortization of licenses, deferred charges and customer lists decreased $24.2 million, or 38%, in 2002 and increased $3.5 million, or 6%, in 2001. In accordance with SFAS No. 142, effective January 1, 2002, the Company no longer amortizes previously recorded goodwill and intangible assets with indefinite lives. These assets will be subject to periodic impairment tests, which will be conducted annually or more often if necessary. No impairment charge was required to be recorded upon the completion of the initial impairment review. In 2001 and 2000, amortization of these intangibles totaled $36.5 million and $33.8 million, respectively. In 2002, the acquisition of Chicago 20MHz increased amortization of intangibles by $7.4 million.

Operating Income

        Operating income decreased $36.0 million, or 11%, in 2002 and increased $24.9 million, or 9%, in 2001. The operating income margins (as a percent of service revenues) were 13.4% in 2002, 17.4% in 2001 and 17.7% in 2000. Excluding the effect of SFAS No. 142 on amortization of intangibles, operating income would have decreased $72.5 million, or 21%, in 2002 and increased $27.5 million, or 8%, in 2001. Excluding amortization of intangibles related to licenses and goodwill, the operating income margins in 2001 and 2000 would have been 19.4% and 19.7%. Excluding the operations of Chicago 20MHz, 2002's operating income would have been $347.3 million, a $30.1 million, or 9%, increase from 2001, and the operating income margin would have been 17.1%.

        The decline in operating income and operating income margin in 2002 reflects the following:

•
the acquisition and subsequent brand launch of Chicago 20MHz, which generated a $66.2 million operating loss in the period subsequent to its acquisition;

•
increased system operations expenses, primarily driven by increases in the number of cell sites in and the number of minutes used on the Company's network;

•
increased equipment subsidies, primarily due to the Company's practice of selling handsets to agents, which began in 2002; and

•
increased depreciation expense, driven by an increase in average fixed assets and a writeoff of analog radio equipment.

        These were partially offset by the following factors:

•
increased service revenues, driven by growth in the number of customers served by the Company's systems and an increase in average monthly revenue per customer; and

•
a decrease in amortization of intangibles due to the implementation of SFAS No. 142.

        The increase in operating income in 2001 reflects increased revenues, driven by growth in the number of customers served by the Company's systems. This revenue growth was partially offset by increases in system operations expenses and general and administrative expenses related to growth in minutes of use and the cost to retain and serve customers, respectively.

        The Company expects each of the above factors to continue to have an effect on operating income and operating margins for the next several quarters. Any changes in the above factors, as well as the effects of other drivers of the Company's operating results, may cause operating income and operating margins to fluctuate over the next several quarters.

        Related to the Company's acquisition and subsequent transition of the Chicago 20MHz operations, the Company plans to incur additional expenses in 2003 as it competes in the Chicago market. Additionally, the Company plans to build out its network into other as yet unserved portions of its PCS licensed areas, and will begin marketing operations in those areas during 2003 and 2004. All expense categories will be affected by these startup and transition activities, and there is no assurance that the expenses incurred will result in any increase in revenues over the startup and transition periods. As a result, the Company's operating income and operating margins may decrease during 2003 and 2004.

8

        The Company expects service revenues in its wireless markets to continue to grow during 2003; however, management anticipates that average monthly service revenue per customer will decrease, as retail service revenue per minute and inbound roaming revenue per minute of use decline. Additionally, the Company expects expenses related to its wireless markets to increase during 2003 as it incurs costs associated with customer growth, service and retention and fixed asset additions.

        Management continues to believe there exists a seasonality in both service revenues, which tend to increase more slowly in the first and fourth quarters, and operating expenses, which tend to be higher in the fourth quarter due to increased marketing activities and customer growth, which may cause operating income to vary from quarter to quarter. Management anticipates that the impact of such seasonality will decrease in the future, particularly as it relates to operating expenses, as the proportion of full year customer activations derived from fourth quarter holiday sales is expected to decline.

        Additionally, competitors licensed to provide wireless services have initiated service in many of the Company's markets over the past several years. The Company expects other wireless operators to continue deployment of their networks throughout all of the Company's service areas during 2003. Management continues to monitor other wireless communications providers' strategies to determine how additional competition is affecting the Company's results. The effects of additional wireless competition have significantly slowed customer growth in certain of the Company's markets. Coupled with the downturn in the nation's economy, the effect of increased competition has caused the Company's customer growth in these markets to be slower than expected over the past 18 months, although the Company's overall customer growth improved in the second half of 2002 due primarily to the acquisition and promotions associated with the brand launch of the Chicago market. Management anticipates that overall customer growth may be slower in the future, primarily as a result of the increase in competition in its markets and due to the maturation of the wireless industry. There is no assurance that the marketing efforts in the transition and startup markets will result in additional customer or revenue growth in the future.

Investment and Other Income (Loss)

        Investment and other income (loss) totaled a loss of $293.6 million in 2002 and income of $14.1 million and $84.9 million in 2001 and 2000, respectively.

        Gain (Loss) on marketable securities and other investments totaled a loss of $295.5 million in 2002 and a gain of $96.1 million in 2000. In 2002, the Company recognized other than temporary losses of $244.7 million on its investments in Vodafone AirTouch plc (ticker symbol "VOD") and Rural Cellular Corporation (ticker symbol "RCCC"). In 2002, the Company recorded a $38.1 million writedown in the value of notes receivable related to the 2000 sales of certain minority interests. See "Critical Accounting Policies—Valuation of Notes Receivable" for more information regarding these notes receivable. The Company also recorded additional losses in 2002 of $8.5 million related to the withdrawal from a partnership in which it had owned an investment interest and $4.2 million related to the reduction in value of a land purchase option.

        Investment income was $42.1 million in 2002, $41.9 million in 2001 and $43.7 million in 2000. Investment income primarily represents the Company's share of net income from the markets managed by others that are accounted for by the equity method.

        Interest income totaled $4.4 million in 2002, $10.3 million in 2001 and $17.0 million in 2000. The decreases in 2002 and 2001 are primarily due to lower average cash balances.

        (Loss) on extinguishment of debt totaled ($7.0) million in 2001 and ($36.9) million in 2000. In 2001, the Company satisfied $58.2 million face value ($25.4 million carrying value) of retired Liquid Yield Option Notes ("LYONs") by paying $32.0 million in cash to the holders. In 2000, the Company repurchased $40.8 million face value ($16.9 million carrying value) of LYONs and satisfied

9

$111.8 million face value ($46.8 million carrying value) of retired LYONs by paying cash to the holders. In total, the Company paid $99.4 million in cash in 2000 to satisfy LYONs repurchases and retirements. The losses in each year resulted from the difference between the repurchase or retirement price, which approximated market value, and the accreted value of the LYONs repurchased or retired. These losses are not deductible for tax purposes.

        Interest expense totaled $47.9 million in 2002, $35.2 million in 2001 and $36.6 million in 2000. Interest expense in 2002 is primarily related to LYONs ($8.9 million); the Company's 7.25% Notes (the "7.25% Notes") ($18.5 million); the Company's $500 million revolving credit facility with a series of banks (the "1997 Revolving Credit Facility") ($5.8 million); the Company's contracts with a series of banks related to its investment in variable prepaid forward contracts ("forward contracts") ($2.1 million); the Company's 9% Series A Notes (the "9% Series A Notes") ($4.6 million); the Company's 8.75% Senior Notes (the "8.75% Senior Notes") ($1.8 million); and the Company's 8.1% Note from TDS (the "Intercompany Note") ($3.5 million).

        Interest expense in 2001 was primarily related to LYONs ($9.8 million); the 7.25% Notes ($18.5 million); and the 1997 Revolving Credit Facility ($5.1 million).

        Interest expense in 2000 was primarily related to LYONs ($16.0 million), the 7.25% Notes ($18.5 million) and the 1997 Revolving Credit Facility ($1.0 million).

        The LYONs are zero coupon convertible debentures which accrete interest at 6% annually, but do not require current cash payments of interest. All accreted interest is added to the outstanding principal balance on June 15 and December 15 of each year.

        The Company's $250 million principal amount of 7.25% Notes are unsecured and become due in August 2007. Interest on the 7.25% Notes is payable semi-annually on February 15 and August 15 of each year.

        The 1997 Revolving Credit Facility is a seven-year facility which was established in 1997. Borrowings under this facility accrue interest at the London InterBank Offered Rate ("LIBOR") plus 19.5 basis points (for a rate of 1.6% at December 31, 2002). Interest and principal are due the last day of the borrowing period, as selected by the borrower, of either seven days or one, two, three or six months; any borrowings made under the facility are short-term in nature and automatically renew until they are repaid. The Company pays annual facility and administrative fees in addition to interest on any borrowings; these fees, which totaled $515,000 in 2002, are recorded as interest expense. Any borrowings outstanding in August 2004, the termination date of the 1997 Revolving Credit Facility, are due and payable at that time along with any accrued interest. As of December 31, 2002, the Company had $460 million of borrowings outstanding under the 1997 Revolving Credit Facility.

        In May 2002, the Company entered into the forward contracts, which were negotiated with third parties relating to its investment in 10.2 million VOD American Depository Receipts ("ADRs"), hedging the market price risk with respect to these securities. Taken together, the forward contracts allowed the Company to borrow an aggregate of $159.9 million against the stock. The forward contracts bear interest, payable quarterly, at LIBOR plus 0.5% for a rate of 1.9% at December 30, 2002. See "Financial Resources and Liquidity" for further information on the forward contracts.

        The 9% Series A Notes were issued to PrimeCo in a private placement and were due in August 2032. The notes were callable by the Company at the principal amount after five years. Interest was payable quarterly. The Company issued the $175 million principal amount of 9% Series A Notes in conjunction with the acquisition of Chicago 20MHz. In November 2002, the Company repurchased $129.8 million of the 9% Series A Notes with the proceeds of its 8.75% Senior Notes issuance. In January 2003, the Company repurchased the remaining $45.2 million of the 9% Series A Notes with borrowings from its revolving credit facilities. As a result of these repurchases, the 9% Series A Notes have been cancelled.

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        In November 2002, the Company sold $130 million of 8.75% Senior Notes. Interest is payable quarterly. The notes are callable by the Company, at the principal amount plus accrued and unpaid interest, at any time on and after November 7, 2007. The net proceeds of the 8.75% Senior Notes were used to repurchase $129.8 million of the 9% Series A Notes. The Company issued the 8.75% Senior Notes under the $500 million shelf registration statement on Form S-3 filed in May 2002.

        The Intercompany Note from TDS, principal amount of $105 million, bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with no penalty for prepayment. This loan is subordinated to the Company's five-year credit facility, which provides up to $325 million in financing (the "2002 Revolving Credit Facility").

Income Taxes

        Income tax expense (benefit) totaled a benefit of $7.5 million in 2002 and expense of $147.3 million in 2001 and $172.0 million in 2000. Excluding $112.2 million of income tax benefit in 2002 and $44.9 million of income tax expense in 2000 related to the gains and losses on marketable securities and other investments, the Company's effective tax rate was 37% in 2002, 44% in 2001 and 45% in 2000. In 2002, the Company reassessed the rate at which it provides for deferred taxes, lowering income tax expense by $8.4 million and the effective tax rate by 3%. See Note 2—Income Taxes in the Notes to Consolidated Financial Statements for further discussion of the effective tax rate.

        TDS and the Company are parties to a Tax Allocation Agreement, pursuant to which the Company is included in a consolidated federal income tax return with other members of the TDS consolidated group.

        For financial reporting purposes, the Company computes federal income taxes as if it were filing a separate return as its own affiliated group and not included in the TDS group.

Cumulative Effect of a Change in Accounting Principle

        Cumulative effect of a change in accounting, net of tax added $4.1 million, or $0.05 per share, to income in 2002 and reduced income by $4.7 million, or $0.05 per share, in 2000. In 2002, the amount reflects the Company's change in its application of Staff Accounting Bulletin ("SAB") No. 101. Effective January 1, 2002, the Company began deferring expense recognition of a portion of its commissions expenses, in the amount of activation fees revenue deferred. The cumulative effect in 2002 represents the aggregate impact of this accounting change for periods prior to 2002. In 2000, the Company adopted SAB No. 101, deferring revenue recognition of certain activation and reconnection fees and recording the related revenue over periods from six to 48 months. The cumulative effect in 2000 represents the aggregate impact of this accounting change for periods prior to 2000.

Net Income (Loss)

        Net income (loss) totaled a loss of $14.3 million in 2002 and income of $173.9 million in 2001 and $192.9 million in 2000. Diluted earnings (loss) per share was ($0.17) in 2002, $1.99 in 2001 and $2.22 in 2000. In 2002, reduced operating income, primarily related to the launch of U.S. Cellular's brand in Chicago 20MHz, and losses on marketable securities and other investments led to the decline in net income and diluted earnings per share from 2001.

Inflation

        Management believes that inflation affects the Company's business to no greater extent than the general economy.

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RECENT ACCOUNTING PRONOUNCEMENTS

        SFAS No. 143 "Accounting for Asset Retirement Obligations" was issued in June 2001, and will become effective for the Company beginning January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with an asset retirement in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Throughout the useful life of the asset, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the asset's useful life. The Company has reviewed its contractual obligations under SFAS No. 143 and has determined that, based upon its historical experience with asset retirements, the impact of adopting this standard will not have a material effect on its financial position and results of operations.

        Financial Accounting Standards Board Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45") was issued in November 2002. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for periods ending after December 15, 2002. The initial recognition and initial measurement provisions shall be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has adopted the disclosure provisions in 2002 and will adopt the recognition and measurement provisions for guarantees issued or modified after December 31, 2002.

FINANCIAL RESOURCES AND LIQUIDITY

        The Company operates a capital- and marketing-intensive business. In recent years, the Company has generated cash from its operations, received cash proceeds from divestitures and used its short-term lines of credit to fund its network construction costs and operating expenses. The Company anticipates further increases in wireless customers, revenues, cash flows from operating activities and fixed asset additions in the future. Cash flows may fluctuate from quarter to quarter depending on the seasonality of each of these growth factors.

        Cash flows from operating activities provided $620.1 million in 2002, $440.3 million in 2001 and $521.3 million in 2000. Income excluding adjustments to reconcile income (loss) to net cash provided by operating activities, excluding proceeds from litigation settlement and changes in assets and liabilities from operations ("noncash" items) totaled $599.9 million in 2002, $505.0 million in 2001 and $418.1 million in 2000. Proceeds from litigation settlement provided $42.5 million in 2000. Changes in assets and liabilities from operations provided $20.2 million in 2002, required $64.7 million in 2001 and provided $60.8 million in 2000, reflecting primarily timing differences in the payment of accounts payable and the receipt of accounts receivable. Income taxes and interest paid totaled $69.9 million in 2002, $154.0 million in 2001 and $128.2 million in 2000.

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        The following table is a summary of the components of cash flows from operating activities.

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Net income (loss) $ (14,288 ) $ 173,876 $ 192,907

Noncash items included in net income (loss) 614,225 331,165 225,187

Income excluding noncash items 599,937 505,041 418,094

Proceeds from litigation settlement — — 42,457

Changes in assets and liabilities from operations 20,143 (64,693 ) 60,779

$ 620,080 $ 440,348 $ 521,330

        Cash flows from investing activities required $1,099.6 million in 2002, $671.8 million in 2001 and $321.7 million in 2000. Cash required for property, plant and equipment and system development expenditures totaled $730.6 million in 2002, $503.3 million in 2001 and $305.4 million in 2000. These expenditures were financed primarily with internally generated cash and borrowings from the Company's revolving credit facilities.These expenditures represent the construction of 437, 377 and 224 cell sites in 2002, 2001 and 2000, respectively, as well as other plant additions. In 2002, these plant additions included approximately $215 million for the migration to a single digital equipment platform, and in all three years they included the addition of digital radio channels to accommodate increased usage and costs related to the development of the Company's billing and office systems. Other plant additions in all three years included significant amounts related to the replacement of retired assets and the changeout of analog equipment for digital equipment.

        Acquisitions, excluding cash received in all three years and notes issued to the sellers of Chicago 20MHz in 2002, required $452.9 million in 2002, $186.3 million in 2001 and $108.7 million in 2000. Cash distributions from wireless entities in which the Company has an interest provided $28.9 million in 2002, $14.8 million in 2001 and $20.6 million in 2000. In 2002, the Company was refunded $56.1 million of its deposit with the Federal Communications Commission ("FCC") related to the January 2001 FCC spectrum auction. In 2000, the Company received net cash proceeds of $73.0 million related to the sales of wireless and other investments.

        Cash flows from financing activities provided $465.5 million in 2002, $136.1 million in 2001 and required $273.1 million in 2000. In 2002, the Company received $159.9 million from the forward contracts, $129.8 million net proceeds from the 8.75% Senior Notes offering and $105.0 million from TDS through the Intercompany Note. In 2002, the Company repurchased $129.8 million of such 9% Series A Notes using the net proceeds from the 8.75% Senior Notes offering. The Company repaid $346.6 million in 2002, $22.5 million in 2001 and $6.0 million in 2000 under the 1997 Revolving Credit Facility. Borrowings under the 1997 Revolving Credit Facility totaled $542.6 million in 2002, primarily to fund the Chicago 20MHz acquisition and capital expenditures; $231.5 million in 2001; and $61.0 million in 2000.

        In 2001, the Company paid $32.0 million in cash and issued 644,000 USM Common Shares to satisfy the retirement of $126.2 million face value ($55.1 million carrying value) of LYONs by the holders. In 2000, the Company paid $99.4 million in cash and issued 1.4 million USM Common Shares to satisfy the retirement of $302.0 million face value ($126.2 million carrying value) of LYONs by the holders.

        In 2001, the Company paid $40.9 million for the repurchase of 643,000 of its Common Shares, including $11.0 million paid in January 2001 related to December 2000 Common Share repurchases. In 2000, the Company paid $223.8 million for the repurchase of 3.5 million of its Common Shares. The stock repurchases in 2001 and 2000 were made under separate programs authorized by the Company's

13

Board of Directors. In March 2000, May 2000 and October 2000, the Board of Directors authorized separate programs to repurchase up to 1.4 million USM Common Shares per program. All shares authorized to be repurchased under the March 2000 and May 2000 programs were repurchased as of December 31, 2001. A total of 541,000 Common Shares were repurchased under the October 2000 program as of that date. An additional 157,000 and 631,000 Common Shares were purchased in 2001 and 2000, respectively, pursuant to a previously authorized program to repurchase a limited amount of shares on a quarterly basis, primarily for use of employee benefit plans.

ACQUISITIONS AND DIVESTITURES

Acquisitions

        The Company assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from clustering its markets. The Company also reviews attractive opportunities for the acquisition of additional wireless spectrum.

Acquisition of Chicago 20MHz

        On August 7, 2002, the Company completed the acquisition of Chicago 20MHz, representing 13.2 million pops, for approximately $618 million, including working capital and other adjustments. Net of cash acquired in the transaction and notes issued to the sellers of Chicago 20MHz, the Company used cash totaling $431.9 million for the acquisition of Chicago 20MHz.

        The Chicago MTA is the fourth largest MTA in the United States. The markets that comprise the Chicago MTA are adjacent to the Company's Iowa, Illinois, Wisconsin and Indiana markets, which comprise its largest contiguous service area. Of the total Chicago MTA population of 13.2 million, approximately 81% was not previously covered by the Company's licenses. There is a strong community of interest between the Company's other Midwest markets and the Chicago 20MHz market. The Chicago MTA was the single largest roaming destination of the Company's customers prior to the acquisition.

        Chicago 20MHz owns licenses covering the 18 Basic Trading Areas ("BTAs") that comprise the Chicago MTA. The Chicago MTA includes, among others, the Chicago, Bloomington-Normal, Champaign-Urbana, Decatur-Effingham, Peoria, Rockford and Springfield BTAs in Illinois, the South Bend and Fort Wayne BTAs in Indiana and the Benton Harbor BTA in Michigan. The Company launched its "U.S. Cellular" brand in the Chicago 20MHz licensed area in the fourth quarter of 2002.

        The Company competes in the Chicago MTA directly against larger and more established wireless service providers, as it does in many of its other markets. The other wireless carriers competing in all or part of the Chicago MTA include Cingular, Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel and T-Mobile. These competitors provide wireless services on a substantially national basis. As a result, they have customer bases and financial resources substantially greater than the Company, which is only a regional competitor.

Financing of Chicago 20MHz Acquisition

        The Chicago 20MHz acquisition price of approximately $618 million was financed using $175 million from the 9% Series A Notes, $105 million from the Intercompany Note with TDS and the remaining amount from the 1997 Revolving Credit Facility.

        The 9% Series A Notes were issued to PrimeCo in a private placement as part of the payment of the purchase price for Chicago 20MHz. Interest was payable quarterly. The notes were callable by the Company after five years at the principal amount plus accrued but unpaid interest. In November 2002, the Company repurchased $129.8 million of the 9% Series A Notes with the proceeds of its 8.75%

14

Senior Notes issuance. In January 2003, the Company repurchased the remaining $45.2 million of the 9% Series A Notes with borrowings from its revolving credit facilities.

        In November 2002, the Company sold $130 million of 8.75% Senior Notes. Interest is payable quarterly. The notes are callable by the Company, at the principal amount plus accrued and unpaid interest, at any time on and after November 7, 2007. The net proceeds of the 8.75% Senior Notes were used to repurchase a portion of the 9% Series A Notes. The Company issued the 8.75% Senior Notes under the $500 million shelf registration statement on Form S-3 filed in May 2002.

        The $105 million Intercompany Note with TDS bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with no penalty for prepayment. This loan is subordinated to the 2002 Revolving Credit Facility.

Other Acquisitions

        Additionally in 2002, the Company, through joint ventures, acquired majority interests in licenses in three PCS markets. The interests the Company acquired are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. The Company also acquired the remaining minority interests in three other PCS markets in which it previously owned an interest, resulting in 100% ownership in those markets. The aggregate amount paid by the Company to acquire the interests in these transactions, which represented 1.4 million pops, was $21.1 million.

        In 2001, the Company, on its own behalf and through joint ventures, acquired majority interests in licenses in one cellular market and 26 PCS markets, representing a total population of 6.8 million, for $182.3 million in cash, which excluded $4.1 million of deposits on potential future acquisitions. These deposits were returned to the Company in 2002 and no additional interests were acquired related to the deposits. The interests the Company acquired through joint ventures are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. Of the PCS interests acquired, interests representing a total population of 4.7 million were in 10 MHz licenses, and the remaining interests are in 15 MHz—30 MHz licenses.

        In 2000, the Company acquired majority interests in two cellular markets and several minority interests in other cellular markets, representing 387,000 pops, for consideration totaling $86.5 million, which excluded $51.1 million of deposits on potential future acquisitions. Of these deposits, all but $4.1 million was returned to the Company in 2002; the remaining $4.1 million was used to purchase interests in four PCS markets in 2001. The consideration for 2000 acquisitions consisted of approximately 28,000 USM Common Shares, $57.6 million in cash, forgiveness of notes receivable totaling $10.4 million and payables, primarily other long-term debt, totaling $15.6 million.

Divestitures

        In 2002 and 2001, the Company had no material divestitures of wireless interests.

        In 2000, the Company divested a majority interest in one cellular market and minority interests in two cellular markets, representing 384,000 pops, for consideration totaling $114.8 million. The consideration consisted of $74.2 million in cash and $40.6 million in receivables. The receivables consisted of $37.3 million of long-term notes receivable from Kington Management Corporation ("Kington") and $3.3 million of accounts receivable. The notes receivable originally had a five-year term and bore interest at 8% per year, with interest payable annually. The carrying value of the amount receivable at December 31, 2002 was $7.8 million. The Company received payment of approximately $7.6 million in January 2003 and expects to receive the remaining amount from Kington at a later date. See "Application of Critical Accounting Policies" for more information on these notes receivable.

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FCC Auction 35 Transactions

        The Company is a limited partner in a joint venture that was a successful bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction ("Auction 35"). In 2001, the joint venture acquired five of such licenses in four markets for a total of $4.1 million and at December 31, 2001, had deposits with the FCC totaling $56.1 million for the remaining licenses.

        In May 2002, the FCC refunded 85% of the deposits, or $47.6 million. On September 12, 2002, the FCC issued a public notice permitting the winning bidders in Auction 35 to dismiss some or all of their applications. In November 2002, the joint venture notified the FCC of its election to opt out of its applications for the remaining 12 license applications and on December 9, 2002, the FCC issued a public notice dismissing the applications. On December 20, 2002, the joint venture received the remaining $8.5 million of deposits paid to the FCC.

Subsequent Event

        On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. U.S. Cellular will receive 10 and 20 MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. U.S. Cellular will also receive approximately $31 million in cash and minority interests in six markets it currently controls. U.S. Cellular will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total U.S. Cellular revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the U.S. Cellular properties and the assignment to U.S. Cellular of most PCS licenses is expected to occur in the third quarter 2003. The assignment and development of certain licenses in the exchange will be accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular will be accounted for as a sale. The build-out of the licenses could require substantial capital investment by U.S. Cellular over the next several years. U.S. Cellular is currently working on a build-out and financing plan for these markets.

        The following table summarizes the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

December 31,
2002

(Dollars in millions)

Current assets $ 16.8

Net property, plant and equipment 86.0

Licenses 53.1

Goodwill 78.2

Other .6

Total assets 234.7

Current liabilities (13.4 )

Net assets to be transferred $ 221.3

        The Company is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, the Company will classify the net assets of the markets to be

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transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

LIQUIDITY AND CAPITAL RESOURCES

Contractual Obligations

        As of December 31, 2002, the resources required for scheduled repayment of long-term debt and aggregate minimum commitments under noncancelable long-term operating leases, were as follows:

Payments Due by Period

Contractual Obligations
Total
2003
2004
2005
2006
2007
After
5 years

(Dollars in millions)

Long-term Debt Obligations(1) $ 851.7 $ 45.2 $ — $ 3.0 $ — $ 409.9 $ 393.6

Average Interest Rate on Debt(2) 6.6 % 9.0 % — 9.0 % — 5.2 % 7.5 %

Operating Leases(3) $ 243.0 $ 49.9 $ 45.1 $ 38.5 $ 28.8 $ 18.8 $ 61.9

Purchase Obligations(4) 240.9 42.2 56.2 56.2 56.2 30.1 —

$ 1,335.6 $ 137.3 $ 101.3 $ 97.7 $ 85.0 $ 458.8 $ 455.5

(1)
Scheduled debt repayments include long-term debt and the current portion of long-term debt but exclude $162.1 million of unamortized discount on LYONs. See Note 12—Long-term Debt in the Notes to Consolidated Financial Statements.

(2)
Represents the average interest rate on all debt shown above for the indicated period.

(3)
Represents the amount due under operating leases for the periods specified. The Company has no material capitalized leases.

(4)
Represents obligations due under vendor equipment contracts. The 2003 amounts are also included in estimated capital expenditures.

        On January 31, 2003, the Company entered into an agreement to rename Comiskey Park, home of the Chicago White Sox American League baseball team, U.S. Cellular Field. The Company will pay $3.4 million per year for 20 years for the naming rights ($68 million in aggregate). Concurrent with the naming rights agreement, the Company purchased a media package to place various forms of advertising in and around the facility. For the media package, the Company will pay $600,000 in 2003, with future annual payments increasing by 3% per year through 2025. The total combined cost of the renaming rights and media package is $87 million over 23 years. The amounts related to the naming rights and media package are not included in the above table.

        For further information regarding the Company's contractual obligations see Note 16—Commitments and Contingencies.

Capital Expenditures

        Anticipated capital expenditures requirements for 2003 primarily reflect the Company's plans for construction, system expansion, the execution of its plans to migrate to a single digital equipment platform and the buildout of certain of its PCS licensed areas. The Company's construction and system expansion budget for 2003 is $600 million to $630 million. These expenditures primarily address the following needs:

•
Expand and enhance the Company's coverage in its service areas.

•
Provide additional capacity to accommodate increased network usage by current customers.

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•
Addition of digital service capabilities to its systems, including its migration to a single digital equipment platform, Code Division Multiple Access ("CDMA"), from a mixture of CDMA and another digital technology, Time Division Multiple Access ("TDMA").

•
Build out certain PCS licensed areas acquired in 2001 and 2002.

•
Satisfy certain regulatory requirements for specific services such as enhanced 911 and wireless number portability.

•
Enhance the Company's billing and office systems.

        The Company expects its conversion to CDMA to be completed during 2004, at an approximate cost of $400 million to $450 million spread over three years. The estimated capital expenditures in 2003 include $50 million related to this conversion; the remaining $135 million to $185 million is planned for 2004. Customers in the areas converted to CDMA will be able to use the Company's Chicago 20MHz network instead of roaming on third-party networks, potentially reducing system operations expense. The Company has contracted with multiple infrastructure vendors to provide a substantial portion of the equipment related to the conversion.

Repurchase of Securities

        The Company has no current plans to repurchase its common shares. However, as market conditions warrant, the Company may continue the repurchase of its common shares, on the open market or at negotiated prices in private transactions. The Company's repurchase program is intended to create value for the shareholders. There are 859,000 shares available to be repurchased under the most recent 1.4 million share authorization, which expires in December 2003. The repurchases of common shares will be funded by internal cash flow, supplemented by short-term borrowings and other sources.

        The Company's Board of Directors has authorized management to opportunistically repurchase LYONs in private transactions. The Company may also purchase a limited amount of LYONs in open-market transactions from time to time. The Company's LYONs are convertible, at the option of their holders, at any time prior to maturity, redemption or purchase, into USM Common Shares at a conversion rate of 9.475 USM Common Shares per $1,000 of LYONs. Upon conversion, the Company has the option to deliver to holders either USM Common Shares or cash equal to the market value of the USM Common Shares into which the LYONs are convertible. The Company may redeem the LYONs for cash at the issue price plus accrued original issue discount through the date of redemption.

Revolving Credit Facilities

        The Company is generating substantial cash from its operations and anticipates financing all of the remaining 2003 obligations listed above with internally generated cash and with borrowings under the Company's revolving credit facilities, as the timing of such expenditures warrants. The Company had $14.9 million of cash and cash equivalents at December 31, 2002.

        At December 31, 2002, $40 million of the $500 million under the Company's 1997 Revolving Credit Facility and the entire $325 million of the 2002 Revolving Credit Facility were unused and remained available to meet any short-term borrowing requirements.

        The 1997 Revolving Credit Facility expires in August 2004 and provides for borrowings with interest at LIBOR plus a margin percentage based on the Company's credit rating, which was 19.5 basis points as of December 31, 2002 (for a rate of 1.6% as of December 31, 2002).

        The 2002 Revolving Credit Facility expires in June 2007 and permits revolving loans on terms and conditions substantially similar to the Company's 1997 Revolving Credit Facility. The terms of the 2002 Revolving Credit Facility provide for borrowings with interest at LIBOR plus a margin percentage

18

based on the Company's credit rating, which was 55 basis points (for a rate of 1.9% as of December 31, 2002).

        The continued availability of these revolving lines of credit requires the Company to comply with certain negative and affirmative covenants, maintain certain financial ratios and to represent certain matters at the time of each borrowing. At December 31, 2002, the Company was in compliance with all covenants and other requirements set forth in the revolving credit facilities. The Company's interest costs related to both lines of credit would increase if its credit rating goes down, which would increase its cost of financing, but such lines of credit would not cease to be available solely as a result of a decline in its credit rating.

        Management believes that the Company's cash flows from operations and sources of external financing, including the above-referenced 1997 and 2002 Revolving Credit Facilities, provide substantial financial flexibility for the Company to meet both its short- and long-term needs. The Company also may have access to public and private capital markets to help meet its long-term financing needs. The Company anticipates issuing debt and equity securities only when capital requirements (including acquisitions), financial market conditions and other factors warrant.

        However, the availability of financial resources is dependent on economic events, business developments, technological changes, financial conditions or other factors, some of which may not be in the Company's control. If at any time financing is not available on terms acceptable to the Company, it might be required to reduce its business development and capital expenditure plans, which could have a materially adverse effect on its business and financial condition. The Company does not believe that any circumstances that could materially adversely affect its liquidity or its capital resources are currently reasonably likely to occur, but it cannot provide assurances that such circumstances will not occur or that they will not occur rapidly. Economic downturns, changes in financial markets or other factors could rapidly change the availability of the Company's liquidity and capital resources. Uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.

        At December 31, 2002, the Company is in compliance with all covenants and other requirements set forth in long-term debt indentures. The Company does not have any rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in the Company's credit rating could adversely affect its ability to renew existing, or obtain access to new, credit facilities in the future.

MARKET RISK

        The Company is subject to market rate risks due to fluctuations in interest rates and market prices of marketable equity securities. The Company currently has both fixed-rate and variable-rate long-term debt instruments, with original maturities ranging from five to 30 years. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of such instruments. As of December 31, 2002, the Company has not entered into financial derivatives to reduce its exposure to interest rate risks.

        The annual requirements for principal payments on long-term debt and the average interest rates are shown under the Contractual Obligation heading in the Liquidity and Capital Resources section. At December 31, 2002 and 2001, the aggregate principal amounts of long-term debt, excluding the loans associated with the forward contracts, were $646.6 million and $403.2 million, the estimated fair value was $636.3 million and $414.1 million, and the average interest rate on the debt was 6.6% and 6.9%, respectively. The fair value was estimated using market prices for the 8.75% Senior Notes and the LYONs and discounted cash flow analysis for the remaining debt.

19

        The Company maintains a portfolio of available-for-sale marketable equity securities. The market value of these investments aggregated $186.0 million at December 31, 2002 (VOD ADRs $185.7 million and RCCC shares $0.3 million) and $272.4 million at December 31, 2001. As of December 31, 2002, the net unrealized holding gain, net of tax and minority interest, included in accumulated other comprehensive income (loss) totaled $15.5 million. In 2002, the Company recognized, in the statement of operations, losses of $145.6 million, net of tax, related to investments in marketable securities as a result of management's determination that unrealized losses with respect to the investments were "other than temporary." Management continues to review the valuation of the investments on a periodic basis. If management determines in the future that an unrealized loss is other than temporary, the loss will be recognized and recorded in the statement of operations.

        The Company has entered into a number of forward contracts related to the marketable equity securities that it holds. See Note 13—Financial Instruments and Derivatives in the Notes to Consolidated Financial Statements for a description of the forward contracts. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at a range of $15.07 to $16.07 per share, which is at or above the accounting cost basis, thereby eliminating the other than temporary risk on these contracted securities. The upside potential is a range of $22.22 to $23.26 per share.

        Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature in May 2007 and, at the Company's option, may be settled in shares of the security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. The collars could be adjusted for any changes in dividends on the contracted shares. The forward contracts may be settled in shares of the marketable equity security or in cash upon expiration of the forward contract. If shares are delivered in the settlement of the forward contract, the Company would incur current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized though maturity. If the Company elects to settle in cash it will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula. If the Company elects to settle in shares it will be required to deliver the number of shares of the contracted security determined pursuant to the formula.

        Deferred taxes have been provided for the difference between the financial reporting basis and the income tax basis of the marketable equity securities and are included in deferred tax liabilities on the balance sheet. As of December 31, 2002, such deferred tax liabilities totaled $53.4 million.

        The following table summarizes certain facts surrounding the contracted securities as of December 31, 2002.

Collar

Security

Shares
Downside
Limit (Floor)
Upside Potential
(Ceiling)
Loan Amount
(000's)

Vodafone 10,245,370 $ 15.07-$16.07 $ 22.22-$23.26 $ 159,856

        The following analysis presents the hypothetical change in the fair value of the Company's marketable equity securities and derivative instruments at December 31, 2002, assuming the same hypothetical price fluctuations of plus and minus 10%, 20% and 30%. The table presents hypothetical information as required by Securities and Exchange Commission rules. Such information should not be

20

inferred to suggest that the Company has any intention of selling any marketable securities or canceling any derivative instruments.

Valuation of investments assuming indicated decrease
December 31,
2002
Valuation of investments assuming indicated increase

-30%
-20%
-10%
Fair Value
+10%
+20%
+30%

(Dollars in thousands)

Marketable Equity Securities $ 130,173 $ 148,769 $ 167,365 $ 185,961 $ 204,557 $ 223,153 $ 241,749

Derivative Instruments(1) $ 36,967 $ 22,177 $ 7,095 $ (8,709 ) $ (24,339 ) $ (40,303 ) $ (56,415 )

(1)
Represents change in the fair value of the derivative instrument assuming the indicated increase or decrease in the underlying securities.

Off-Balance Sheet Arrangements

        The Company has no material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons ("off-balance sheet arrangements"), that have or are reasonably likely to have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

        The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company's significant accounting policies are discussed in detail in Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

        The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimates under different assumptions or conditions.

Critical Accounting Estimates

        Management believes the following critical accounting estimates reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company's senior management has discussed the development and selection of each of the following accounting estimates and the following disclosures with the audit committee of the Company's board of directors.

Valuation of Notes Receivable

        The Company held notes receivable aggregating $45.8 million from Kington that are due in June 2005. These notes relate to the purchase by Kington of two of the Company's minority interests in 2000. The values of these notes are directly related to the values of the related interests.

        As a result of changes in business strategies and other events, in 2002 management reviewed the fair market value of the wireless markets. An independent third party valuation of one of the wireless minority interests sold to Kington and a recent transaction involving an unrelated party holding an

21

interest in the same market as the other wireless minority interest sold to Kington indicated a lower market value for these wireless minority interests, and therefore a lower value of the notes. Management concluded that the notes receivable were impaired. In addition, in the fourth quarter of 2002, Kington decided to withdraw from the partnerships. A loss of $38.1 million was charged to the statement of operations in 2002 and was included in the caption Gain (Loss) on Marketable Securities and Other Investments. The carrying value of the amount receivable at December 31, 2002 was $7.8 million. The Company received payment of approximately $7.6 million in January 2003 and expects to receive the remaining amount from Kington at a later date.

Marketable Equity Securities

        The Company holds a substantial amount of marketable securities that are publicly traded and can have volatile share prices. These investments are classified as available-for-sale and are stated at fair value based on quoted market prices. The marketable securities are marked to market value each period with the unrealized gain or loss in value of the securities reported as Accumulated other comprehensive income (loss), net of income taxes, which is included in the common shareholders' equity section of the balance sheet.

        The market values of marketable securities may fall below the accounting cost basis of such securities. GAAP requires management to determine whether a decline in fair value below the accounting cost basis is other than temporary. If management determines the decline in value to be other than temporary, the unrealized loss included in Accumulated Other Comprehensive Income is recognized and recorded as a loss in the statement of operations. The determination of whether a decline in fair market value below the accounting cost basis is other than temporary is a critical accounting estimate because the result of such determination may be significant to the Company's results of operations.

        Factors that management considers in determining whether a decrease in market value of its securities is an other than temporary decline include the following:

•
whether there has been a significant change in the financial condition, operational structure or near-term prospects of the issuer;

•
how long and how much the value of the security has been below historical cost; and

•
whether the Company has the intent and ability to retain its investment in the issuer's securities to allow the market value to return to historical cost levels.

        The Company is in the same industry classification as the issuers of its marketable securities, enhancing the Company's ability to evaluate the effects of any changes in industry-specific factors which may affect the determination of whether a decline in market values of its marketable securities is other than temporary.

        In 2002, based on a review of such factors, management determined that the decline in value of its investment in marketable securities relative to their respective accounting cost basis was other than temporary and charged an aggregate $244.7 million loss to the statement of operations ($145.6 net of tax) and reduced the accounting cost basis of such marketable equity securities by a respective amount.

        During 2002, the Company utilized derivative financial instruments to reduce the market risk due to fluctuations in market prices of marketable equity securities. At December 31, 2002, the Company had forward contracts maturing in 2007 in connection with substantially all of the Company's marketable equity security portfolio, hedging the market price risk with respect to the contracted securities. The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk of loss on these contracted securities. As of December 31, 2002, the

22

aggregate market value of the marketable equity securities totaled $186.0 million and the aggregate accounting cost basis was $160.4 million.

        The unhedged downside risk on the RCCC shares is not material. Accordingly, unless the Company acquires other marketable equity securities or cancels or modifies any forward contracts, the Company will no longer be required to make any assumptions regarding whether any future unrealized losses are other than temporary.

Investment in Licenses and Goodwill

        As of December 31, 2002, the Company reported $1,038.6 million of investment in licenses, net of accumulated amortization and $643.6 million of goodwill, net of accumulated amortization, as a result of acquisitions of interests in wireless licenses and businesses.

        The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002. In connection with SFAS No. 142, the Company has assessed its recorded balances of investment in licenses and goodwill for potential impairment. The Company completed its initial impairment assessments in the first quarter of 2002. No impairment charge was necessary upon the completion of the initial impairment review. After these initial impairment reviews, investments in licenses and goodwill must be reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There can be no assurance that, upon review at a later date, material impairment charges will not be required.

        The intangible asset impairment test consists of comparing the fair value of the intangible asset to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized for the difference. The goodwill impairment test is a two-step process. The first step compares the fair value of the reporting unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized for that difference.

        The fair value of an intangible asset and reporting unit goodwill is the amount at which that asset or reporting unit could be bought or sold in a current transaction between willing parties. Therefore, quoted market prices in active markets are the best evidence of fair value and should be used when available. If quoted market prices are not available, the estimate of fair value shall be based on the best information available, including prices for similar assets and the use of other valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or revenue or a similar performance measure. The use of these techniques involve assumptions by management about the following factors that are highly uncertain and can result in a range of values: future cash flows, the appropriate discount rate and other factors and inputs.

Allocation of Chicago 20MHz Purchase Price

        In connection with the purchase of Chicago 20MHz, the Company allocated the total acquisition costs to all tangible and intangible assets acquired and all liabilities assumed, with the excess purchase price over the fair value of net assets acquired recorded to goodwill. The values allocated to such assets are critical accounting estimates because they are significant to the Company's financial condition, changes in financial condition and results of operations. The value of such allocations are underlying assumptions about uncertain matters that are material to the determination of the value, and different estimates would have had a material impact on the Company's financial presentation that could have been used in the current period.

23

        An independent appraiser provided a valuation of Chicago 20MHz's assets. The following table summarizes the revised estimated fair values of the Chicago 20MHz assets acquired and liabilities assumed at the date of acquisition. The Company revised the estimated amounts since the quarter ended September 30, 2002 due to additional information derived during an audit of such information following the initial estimates. The current revised estimate at December 31, 2002 is shown below.

(Dollars in millions)

Current assets, excluding $7.0 cash acquired $ 34.1

Property, plant and equipment 236.0

Other assets 0.8

Customer list 43.4

Licenses 163.5

Goodwill 168.4

Total assets acquired 646.2

Current liabilities (22.5 )

Non-current liabilities (1.3 )

Total liabilities assumed (23.8 )

Net assets purchased $ 622.4

        A $4.5 million reduction in goodwill is expected in January 2003, to reflect a reduction in notes issued to PrimeCo. In January 2003, the Company repurchased the remaining $45.2 million of 9% Series A Notes, previously issued to PrimeCo, for $40.7 million.

Income Taxes

        The accounting for income taxes, the amounts of income tax assets and liabilities and the related income tax provision are critical accounting estimates because such amounts are significant to the company's financial condition, changes in financial condition and results of operations.

        The preparation of the consolidated financial statements requires the Company to calculate its provision for income taxes. This process involves estimating the actual current income tax liability together with assessing temporary differences resulting from the different treatment of items, such as depreciation expense, for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the Company's consolidated balance sheet. The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent management believes that recovery is not likely, establish a valuation allowance. Management's judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The Company's current net deferred tax asset was $10.8 million as of December 31, 2002, representing primarily the deferred tax effects of the allowance for doubtful accounts on accounts receivable.

24

        The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities as of December 31, 2002 are as follows:

December 31, 2002

(Dollars in millions)

Deferred Tax Asset

Net operating loss carryforward $ 43.3

Partnership investments (1.7 )

Unearned revenue 7.1

48.7

Less valuation allowance (13.2 )

Total Deferred Tax Asset 35.5

Deferred Tax Liability

Property, plant and equipment 267.6

Licenses 141.2

Marketable equity securities 53.4

Other (2.0 )

Total Deferred Tax Liability 460.2

Net Deferred Income Tax Liability $ 424.7

        The valuation allowance relates to state net operating loss carryforwards that are expected to expire before they can be utilized.

        The deferred income tax liability relating to marketable equity securities of $53.4 million at December 31, 2002 represents deferred income taxes calculated on the difference between the book basis and the tax basis of the marketable securities. Income taxes will be payable when the Company sells the marketable equity securities.

        The Company is routinely subject to examination of its income tax returns by the Internal Revenue Service ("IRS") and other tax authorities. The Company periodically assesses the likelihood of adjustments to its tax liabilities resulting from these examinations to determine the adequacy of its provision for income taxes, including related interest. Management judgment is required in assessing the eventual outcome of these examinations. Changes to such assessments affect the calculation of the Company's income tax expense. The IRS has completed audits of the Company's federal income tax returns for tax years through 1996.

        In the event of an increase in the value of tax assets or a decrease in the value of tax liabilities, the Company would decrease the income tax expense or increase the income tax benefit by an equivalent amount. In the event of a decrease in the value of tax assets or an increase in the value of tax liabilities, the Company would increase the income tax expense or decrease the income tax benefit by an equivalent amount.

        The Company is included in a consolidated federal income tax return with other members of the TDS consolidated group. TDS and the Company are parties to the TDS Tax Allocation Agreement. The TDS Tax Allocation Agreement provides that the Company and its subsidiaries be included with the TDS affiliated group in a consolidated federal income tax return and in state income or franchise tax returns in certain situations. The Company and its subsidiaries calculate their income and credits as if they comprised a separate affiliated group. Under the TDS Tax Agreement, the Company remits its applicable income tax payments to TDS.

25

Initial Adoption of Accounting Policies

        During 2002, the Company began utilizing derivative financial instruments to reduce market risks due to fluctuations in market prices of marketable equity securities. Prior to 2002, the Company had no significant derivative financial instruments. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in fair value of those instruments will be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of the hedged item or cash flows of the asset or liability hedged. SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (as amended) establishes the accounting and reporting standards for derivative instruments and hedging activities.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        In August 2002, the Company entered into a loan agreement with TDS under which it borrowed $105 million, which was used for the Chicago 20MHz purchase. The loan bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with prepayments optional. The loan is subordinated to the 2002 Revolving Credit Facility. The terms of the loan do not contain restrictive covenants that are greater than those included in the Company's senior debt, except that the loan agreement provides that the Company may not incur senior debt in an aggregate principle amount in excess of $325 million unless it obtains the consent of TDS as a lender. The Company's Board of Directors, including independent directors, approved the terms of this loan and determined that such terms were fair to the Company and all of its shareholders.

        The Company is billed for all services it receives from TDS, pursuant to the terms of various agreements between the Company and TDS. The majority of these billings are included in the Company's general and administrative expenses. Some of these agreements were established at a time prior to the Company's initial public offering when TDS owned more than 90% of the Company's outstanding capital stock and may not reflect terms that would be obtainable from an unrelated third party through arms-length negotiations. The principal arrangements that affect the Company's operations are described in Item 13 of the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Management believes the method TDS uses to allocate common expenses is reasonable and that all expenses and costs applicable to the Company are reflected in the Company's financial statements on a basis which is representative of what they would have been if the Company operated on a stand-alone basis.

        The following persons are partners of Sidley Austin Brown & Wood, the principal law firm of the Company and its subsidiaries: Walter C. D. Carlson, a director of the Company, a director and non-executive Chairman of the Board of Directors of TDS and a trustee and beneficiary of a voting trust that controls TDS; William S. DeCarlo, the acting General Counsel of TDS and an Assistant Secretary of TDS and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel and an Assistant Secretary of the Company and the Assistant Secretary of certain other subsidiaries of TDS. In addition, prior to August 1, 2002, another partner of Sidley Austin Brown & Wood at the time, Michael G. Hron, was the General Counsel and an Assistant Secretary of the Company, TDS and certain subsidiaries of TDS. Walter C. D. Carlson does not provide legal services to TDS, the Company or their subsidiaries.

26

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT

        This Management's Discussion and Analysis of Results of Operations and Financial Condition and other sections of this Annual Report to Shareholders contain statements that are not based on historical fact, including the words "believes", "anticipates", "intends", "expects", and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following risks:

•
Increases in the level of competition in the markets in which the Company operates could adversely affect the Company's revenues or increase its costs to compete.

•
Advances or changes in telecommunications technology could render certain technologies used by the Company obsolete. Competitors may have a lower fixed investment per customer because of technology changes.

•
Changes in the telecommunications regulatory environment could adversely affect the Company's financial condition or results of operations or could prevent the portion of the Company's business which depends on access to competitors' facilities from obtaining such access on reasonable terms.

•
Changes in the supply or demand of the market for wireless licenses, increased competition, adverse developments in the Company's business or the wireless industry and/or other factors could result in an impairment of the value of the Company's investment in licenses, goodwill and/or physical assets, which may require the Company to write down the value of such assets.

•
Conversions of LYONs, early redemptions of debt or repurchases of debt, normal scheduled repayments of debt, changes in estimates or other factors or developments, could cause the amounts reported under Contractual Obligations to be different from the amounts presented.

•
Changes in circumstances relating to and/or in the assumptions underlying the accounting estimates described under Critical Accounting Policies could have a material effect on the Company's financial condition, changes in financial condition and results of operations.

•
Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending or future litigation that are Company-specific or that apply to the wireless industry in general could have an adverse effect on the Company's financial condition, results of operations or ability to do business.

•
Costs, integration problems or other factors associated with acquisitions/divestitures of properties and or licenses could have an adverse effect on the Company's financial condition or results of operations.

•
Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on the Company's operations.

•
Changes in roaming partners, rates, and the ability to provide voice and data services on other carriers' networks could have an adverse effect on the Company's operations.

•
Changes in competitive factors with national wireless carriers could result in product and cost disadvantages and could have an adverse effect on the Company's operations.

•
Continued uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the

27

availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.

•
Changes in the Company's credit ratings could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.

•
Changes in circumstances or other events relating to the integration of Chicago 20MHz, including market launch costs or problems or other factors associated with such acquisition could have an adverse effect on the Company's financial condition or results of operations.

•
The continuation of the economic downturn and continued bankruptcies in the telecommunications industry could result in higher bad debts and slower business activity, which would have an adverse effect on the Company's business.

•
War, conflicts, hostilities and/or terrorist attacks could have an adverse effect on the Company's business.

•
Changes in the Company's accounting policies, estimates or assumptions could have an adverse effect on the Company's financial condition or results of operations.

•
Changes in general economic and business conditions, both nationally and in the regions in which the Company operates, could have an adverse effect on the Company's business.

        The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

28

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Operations

Year Ended December 31,

2002
2001
2000

(Dollars in thousands,
except per share amounts)

Operating Revenues

Service $ 2,098,893 $ 1,826,385 $ 1,653,922

Equipment sales 85,585 68,445 62,718

Total Operating Revenues 2,184,478 1,894,830 1,716,640

Operating Expenses

System operations 492,750 421,114 350,507

Marketing and selling 368,888 297,239 303,721

Cost of equipment sold 185,283 124,028 139,654

General and administrative 505,237 434,579 364,747

Depreciation 311,993 237,346 205,916

Amortization of licenses, deferred charges and customer lists 39,161 63,312 59,782

Total Operating Expenses 1,903,312 1,577,618 1,424,327

Operating Income 281,166 317,212 292,313

Investment and Other Income

Investment income 42,068 41,934 43,727

Amortization of costs related to minority investments — (726 ) (1,365 )

Interest income 4,411 10,300 17,049

Other income, net 3,299 4,737 2,844

Gain (loss) on marketable securities and other investments (295,454 ) — 96,075

(Loss) on extinguishment of debt — (6,956 ) (36,870 )

Interest (expense) (47,878 ) (35,164 ) (36,608 )

Total Investment and Other Income (293,554 ) 14,125 84,852

Income (Loss) Before Income Taxes and Minority Interest (12,388 ) 331,337 377,165

Income tax expense (benefit) (7,541 ) 147,315 171,968

Income (Loss) Before Minority Interest (4,847 ) 184,022 205,197

Minority share of income (13,538 ) (10,146 ) (7,629 )

Income (Loss) Before Cumulative Effect of Accounting Change (18,385 ) 173,876 197,568

Cumulative effect of accounting change, net of tax 4,097 — (4,661 )

Net Income (Loss) $ (14,288 ) $ 173,876 $ 192,907

Basic Weighted Average Shares Outstanding (000s) 86,086 86,200 86,355

Basic Earnings per Share

Income (Loss) Before Cumulative Effect of Accounting Change $ (0.22 ) $ 2.02 $ 2.28

Cumulative Effect of Accounting Change 0.05 — (0.05 )

Net Income (Loss) $ (0.17 ) $ 2.02 $ 2.23

Diluted Weighted Average Shares Outstanding (000s) 86,086 89,977 90,874

Diluted Earnings per Share

Income (Loss) Before Cumulative Effect of Accounting Change $ (0.22 ) $ 1.99 $ 2.27

Cumulative Effect of Accounting Change 0.05 — (0.05 )

Net Income (Loss) $ (0.17 ) $ 1.99 $ 2.22

The accompanying notes to consolidated financial statements are an integral part of these statements.

29

Consolidated Statement of Cash Flows

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Cash Flows from Operating Activities

Net Income (Loss) $ (14,288 ) $ 173,876 $ 192,907

Add (Deduct) adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization 351,154 300,658 265,698

Deferred income tax provision (11,743 ) 41,961 23,612

Investment income (42,068 ) (41,934 ) (43,727 )

Minority share of income 13,538 10,146 7,629

Loss on extinguishment of debt — 6,956 36,870

Cumulative effect of accounting change (4,097 ) — 4,661

(Gain) loss on marketable securities and other investments 295,454 — (96,075 )

Other noncash expense 11,987 13,378 26,519

Proceeds from litigation settlement — — 42,457

Changes in assets and liabilities from operations

Change in accounts receivable (35,383 ) (26,464 ) (22,462 )

Change in inventory 2,639 (7,198 ) (19,053 )

Change in accounts payable 68,472 (12,910 ) 54,200

Change in accrued taxes (37,177 ) (22,663 ) 30,378

Change in customer deposits and deferred revenues 17,268 (302 ) 12,876

Change in other assets and liabilities 4,324 4,844 4,840

620,080 440,348 521,330

Cash Flows from Investing Activities

Additions to property, plant and equipment (698,636 ) (487,813 ) (295,308 )

System development costs (32,009 ) (15,521 ) (10,109 )

Refund of deposit from FCC 56,060 — —

Acquisitions, excluding cash acquired (452,936 ) (186,269 ) (108,669 )

Proceeds from cellular and other investments — — 72,973

Distributions from unconsolidated entities 28,881 14,813 20,582

Investments in and advances (to)/from unconsolidated entities — (46 ) (4,187 )

Change in notes receivable (403 ) (1,239 ) —

Change in temporary investments and marketable non-equity securities — — 357

Other investing activities (598 ) 4,250 2,693

(1,099,641 ) (671,825 ) (321,668 )

Cash Flows from Financing Activities

Proceeds from prepaid forward contracts 159,856 — —

Sale of long-term notes 129,800 — —

Affiliated long-term debt borrowings 105,000 — —

Repurchase and conversion of LYONs — (31,963 ) (99,356 )

Repurchase of common shares — (40,862 ) (223,847 )

Increase in Notes Payable 542,610 231,500 61,000

Repayment of Notes Payable (346,610 ) (22,500 ) (6,000 )

Common Shares issued 787 4,103 4,033

Capital (distributions) to minority partners (7,776 ) (4,141 ) (8,886 )

Repurchase of long-term debt (129,800 ) — —

Other financing activities 11,617 — —

465,484 136,137 (273,056 )

Net Decrease in Cash and Cash Equivalents (14,077 ) (95,340 ) (73,394 )

Cash and Cash Equivalents—

Beginning of period 28,941 124,281 197,675

End of period $ 14,864 $ 28,941 $ 124,281

The accompanying notes to consolidated financial statements are an integral part of these statements.

30

Consolidated Balance Sheets—Assets

December 31,

2002
2001

(Dollars in thousands)

Current Assets

Cash and cash equivalents

General funds $ 14,155 $ 28,941

Affiliated cash equivalents 709 —

14,864 28,941

Accounts receivable

Customers, less allowance of $17,866 and $9,799, respectively 220,430 149,920

Roaming 53,545 78,572

Other 41,276 18,883

Inventory 55,490 55,996

Deposit receivable from Federal Communications Commission — 56,060

Prepaid expenses 19,749 9,442

Prepaid income taxes 26,610 —

Other current assets 21,309 6,141

453,273 403,955

Investments

Licenses 1,038,556 858,791

Goodwill 643,629 473,975

Customer lists, net of accumulated amortization of $6,567 40,087 —

Marketable equity securities 185,961 272,390

Investments in unconsolidated entities 161,451 159,454

Notes and interest receivable—long-term 7,287 49,220

2,076,971 1,813,830

Property, Plant and Equipment

In service and under construction 3,057,466 2,253,016

Less accumulated depreciation 1,049,797 833,675

2,007,669 1,419,341

Deferred Charges

System development costs, net of accumulated amortization of $89,320 and $60,128, respectively 140,764 108,464

Other, net of accumulated amortization of $5,023 and $10,587 respectively 21,164 13,567

161,928 122,031

Total Assets $ 4,699,841 $ 3,759,157

The accompanying notes to consolidated financial statements are an integral part of these statements.

31

Consolidated Balance Sheets—Liabilities and Shareholders' Equity

December 31,

2002
2001

(Dollars in thousands)

Current Liabilities

9% senior notes $ 45,200 $ —

Notes payable 460,000 264,000

Accounts payable

Affiliates 4,958 4,018

Trade 301,929 192,742

Customer deposits and deferred revenues 82,639 58,000

Accrued interest 9,295 7,857

Accrued taxes 24,401 8,362

Accrued compensation 30,279 22,185

Other current liabilities 20,323 19,974

979,024 577,138

Long-term Debt

Long-term debt-affiliated 105,000 —

6% zero coupon convertible debentures 148,604 140,156

7.25% notes 250,000 250,000

8.75% notes 130,000 —

Variable prepaid forward contracts 159,856 —

Other 13,000 13,000

806,460 403,156

Deferred Liabilities and Credits

Net deferred income tax liability 424,728 388,296

Derivative liability 8,709 —

Other 10,818 8,466

444,255 396,762

Commitments and Contingencies (Note 16)

Minority Interest

55,068

46,432

Common Shareholders' Equity

Common Shares, par value $1 per share; authorized 140,000,000 shares; issued and outstanding 55,046,268 shares 55,046 55,046

Series A Common Shares, par value $1 per share; authorized 50,000,000 shares; issued and outstanding 33,005,877 shares 33,006 33,006

Additional paid-in-capital 1,307,185 1,307,584

Treasury Shares, at cost, 1,932,322 and 2,001,560 shares, respectively (117,262 ) (122,010 )

Accumulated other comprehensive income (loss) 10,307 (78,997 )

Retained earnings 1,126,752 1,141,040

2,415,034 2,335,669

Total Liabilities and Shareholders' Equity $ 4,699,841 $ 3,759,157

The accompanying notes to consolidated financial statements are an integral part of these statements.

32

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY

Common
Shares
Series A
Common
Shares
Additional
Paid-In
Capital
Treasury
Shares
Comprehensive
Income
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings

(Dollars in thousands)

Balance, December 31, 1999 $ 54,713 $ 33,006 $ 1,331,274 $ — $ 81,391 $ 774,257

Add (Deduct)

Acquisition of wireless interests 27 — 2,805 — — —

Employee benefit plans 201 — 11,648 2,220 — —

Conversion and repurchase of 6% zero coupon convertible debentures 105 — (24,624 ) 87,078 — —

Capital stock expense — — 90 — — —

Repurchase Common Shares — — — (234,840 ) — —

Net income — — — — $ 192,907 — 192,907

Other comprehensive income:

Net unrealized (loss) on marketable equity securities — — — — (97,687 ) (97,687 ) —

Comprehensive income — — — — $ 95,220 — —

Balance, December 31, 2000 55,046 33,006 1,321,193 (145,542 ) (16,296 ) 967,164

Add (Deduct)

Employee benefit plans — — (1,051 ) 11,202 — —

Conversion and repurchase of 6% zero coupon convertible debentures — — (12,558 ) 42,200 — —

Repurchase Common Shares — — — (29,870 ) — —

Net income — — — — $ 173,876 — 173,876

Other comprehensive income:

Net unrealized (loss) on marketable equity securities — — — — (62,701 ) (62,701 ) —

Comprehensive income — — — — $ 111,175 — —

Balance, December 31, 2001 $ 55,046 $ 33,006 $ 1,307,584 $ (122,010 ) $ (78,997 ) $ 1,141,040

Add (Deduct)

Employee benefit plans — — (399 ) 4,748 — —

Net income — — — — $ (14,288 ) — (14,288 )

Other comprehensive income:

Net unrealized income (loss) on—

Derivative instrument — — — — (5,181 ) (5,181 ) —

Marketable equity securities — — — — 94,485 94,485 —

Comprehensive income — — — — $ 75,016 — —

Balance, December 31, 2002 $ 55,046 $ 33,006 $ 1,307,185 $ (117,262 ) $ 10,307 $ 1,126,752

The accompanying notes to consolidated financial statements are an integral part of these statements.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        United States Cellular Corporation (the "Company" or "U.S. Cellular"), a Delaware Corporation, is an 82.2%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS").

NATURE OF OPERATIONS

        U.S. Cellular owns, manages and invests in wireless systems throughout the United States. The Company owned interests in 210 wireless markets, representing approximately 42.0 million population equivalents ("pops"), as of December 31, 2002. U.S. Cellular's 149 majority-owned markets served 4.1 million customers in 25 states as of December 31, 2002. U.S. Cellular's Midwest market area, which includes markets in Iowa, Wisconsin, Illinois, Indiana and Missouri, served 2.0 million customers at December 31, 2002, representing approximately 50% of U.S. Cellular's total customers served as of that date. U.S. Cellular operates as one business segment.

PRINCIPLES OF CONSOLIDATION

        The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of U.S. Cellular, its majority-owned subsidiaries since acquisition, and general partnerships in which U.S. Cellular has a majority partnership interest. All material intercompany accounts and transactions have been eliminated. U.S. Cellular includes in its consolidated financial statements the accounts of certain limited partnerships in which it owns a noncontrolling, limited partner interest. Based on the amount of its residual equity in these limited partnerships, U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes.

BUSINESS COMBINATIONS

        U.S. Cellular uses the purchase method of accounting for business combinations. U.S. Cellular 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.

USE OF ESTIMATES

        The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect (a) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and (b) the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

RECLASSIFICATIONS

        Certain amounts reported in prior years have been reclassified to conform to current period presentation. The reclassifications had no impact on previously reported operating revenue, net income and stockholders' equity.

        In conjunction with the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," the Company reviewed the balance sheet to identify and properly report all goodwill amounts in conjunction with the new standard. As a result of the review, the Company reclassified $439.9 million of wireless license costs and $34.1 million of deferred tax assets. The balance sheet as of December 31, 2001 has been reclassified to conform with current period presentation.

34

        The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 145 "Rescission of SFAS No. 4, 44, and 64 and Technical Corrections" was issued in April 2002, and is effective for fiscal years beginning after May 15, 2002, with early application encouraged. The provisions of SFAS No. 145 preclude gains and losses on the extinguishment of debt from being classified as extraordinary. The Company elected to adopt SFAS No. 145 early and as a result no longer reports the retirement of Liquid Yield Options Notes ("LYONs") as extraordinary. Losses on debt retirements of $7.0 million and $36.9 million for the years ended December 31, 2001 and 2000, respectively, previously recorded as extraordinary items, have been reclassified to the Investment and Other Income section of the Company's statement of operations.

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include cash and those short-term, highly-liquid investments with original maturities of three months or less.

        Outstanding checks totaled $31.1 million at December 31, 2001, and are classified as Accounts payable in the consolidated balance sheets.

MARKETABLE EQUITY SECURITIES

        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.

        The market values of marketable securities may fall below the accounting cost basis of such securities. GAAP requires management to determine whether a decline in fair value below the accounting cost basis is other than temporary. If management determines the decline in value to be other than temporary, the unrealized loss included in Accumulated other comprehensive income (loss) is recognized and recorded as a loss in the statement of operations.

        Factors that management considers in determining an other than temporary decline include the following: whether there has been a significant change in the financial condition, operational structure or near-term prospects of the issuer; how long and how much the security has been below historical cost; and whether U.S. Cellular has the intent and ability to retain its investment in the issuer's securities to allow the market value to return to historical cost levels.

        During 2002, U.S. Cellular began utilizing derivative financial instruments to reduce market risks due to fluctuations in market prices of its Vodafone marketable equity securities. At December 31, 2002, U.S. Cellular had forward contracts maturing in 2007 in connection with all of its Vodafone marketable equity security portfolio, hedging the market price risk with respect to the contracted securities. The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

DERIVATIVE INSTRUMENTS

        The Company utilizes derivative financial instruments to reduce marketable equity security market value risks. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in fair value of those instruments are reported in the statement of operations or other Accumulated comprehensive income (loss) depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the consolidated financial statements depends on its hedge designation and whether the hedge is anticipated to be highly effective in achieving offsetting changes in the fair value of the hedged item or cash flows of the asset hedged.

35

INVESTMENT IN LICENSES

        Investment in licenses consists of costs incurred in acquiring Federal Communications Commission ("FCC") licenses to provide wireless service. These costs include amounts paid to license applicants and owners of interests in entities awarded licenses and all direct and incremental costs relating to acquiring the licenses. Licenses are intangible assets with indefinite useful lives, and beginning January 1, 2002, with the implementation of SFAS No. 142 "Goodwill and Other Intangible Assets", are not amortized. Prior to 2002, licenses were amortized over 40 years.

        An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds it fair value, an impairment loss shall be recognized in an amount equal to that excess. No impairment charges were recognized in 2002.

INVESTMENT IN GOODWILL

        The Company has substantial amounts of goodwill as a result of the acquisition of wireless licenses and markets. Included in U.S. Cellular's goodwill are costs related to various acquisitions structured to be tax-free. No deferred taxes have been provided on this goodwill. The Company adopted SFAS No. 142 on January 1, 2002, and no longer amortizes goodwill. Prior to 2002, goodwill was amortized over 40 years. Upon adoption of SFAS 142, the Company assessed its recorded balances of goodwill for potential impairment. Goodwill will be tested for impairment annually. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. No impairment charges were recognized in 2002.

INVESTMENT IN UNCONSOLIDATED ENTITIES

        Investments in unconsolidated entities consists of investments where U.S. Cellular holds a less than 50% non-controlling ownership interest. U.S. Cellular follows the equity method of accounting, which recognizes U.S. Cellular's proportionate share of the income and losses accruing to it under the terms of its partnership or shareholder agreements, where U.S. Cellular's ownership interest equals or exceeds 20% for corporations and 3% to 5% for partnerships. Equity method investments aggregated $157.2 million and $147.8 million at December 31, 2002 and 2001, respectively. Income and losses from these entities are reflected in the consolidated statements of operations on a pretax basis as Investment income. At December 31, 2002, the cumulative share of income from minority investments accounted for under the equity method was $313.8 million, of which $118.2 million was undistributed. The cost method of accounting is followed for certain minority interests where U.S. Cellular's ownership interest is less than 20% for corporations and 3% to 5% for partnerships, or where the Company does not have the ability to exercise significant influence. Cost method investments aggregated $4.2 million and $11.6 million at December 31, 2002 and 2001, respectively.

ACCOUNTS RECEIVABLE

        Accounts receivable consists of amounts owed by customers for both service provided and equipment sales, by other wireless carriers whose customers have used U.S. Cellular's wireless systems, and by partners for capital distributions.

INVENTORY

        Inventory is stated at the lower of cost or market with cost determined using the first-in, first-out method.

36

DEPOSIT RECEIVABLE FROM FEDERAL
COMMUNICATIONS COMMISSION

        The Company is a limited partner and has the controlling financial interest in a limited partnership that was a successful bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction. The limited partnership has acquired five of such licenses in four markets for a total of $4.1 million and had deposited $56.1 million with the FCC for the remaining 12 licenses.

        During 2002, upon resolution of certain legal proceedings, the limited partnership relinquished its rights to the remaining 12 licenses and received a refund of its $56.1 million deposit from the FCC.

PROPERTY, PLANT AND EQUIPMENT

        The Company's property, plant and equipment is stated at the original cost of construction including capitalized costs of certain taxes and payroll-related expenses.

        Renewals and betterments of units of property are recorded as additions to plant in service. The original cost of depreciable property retired (along with the related accumulated depreciation) is removed from plant in service and, together with removal cost less any salvage realized, is charged to depreciation expense. Repairs and renewals of minor units of property are charged to system operations expense.

DEPRECIATION

        Depreciation is provided using the straight-line method over the estimated useful lives of the assets.

NOTES AND INTEREST RECEIVABLE—LONG-TERM

        Notes receivable—long-term primarily consisted of loans to Kington Management Corporation ("Kington") in 2001. The notes related to the purchase by Kington of certain U.S. Cellular minority interests in 2000. The values of the notes were directly related to the values of the minority cellular market interests.During 2002, management reviewed the fair market value of the cellular interests, including a third party fair value analysis, and concluded that the notes receivable were impaired, and reduced the value of the notes by $34.2 million. Subsequent to this review, Kington decided to withdraw from the partnership effective January 1, 2003. Upon withdrawal, the withdrawing partner is entitled to receive its partner's capital account in cash, estimated to be $7.8 million. An additional loss of $3.9 million was recorded to reduce the value of the receivable to the estimated partner capital amount. The losses on the notes were included in Gain (loss) on marketable securities and other investments in the Statement of Operations. The estimated recoverable proceeds are recorded as accounts receivable at December 31, 2002.

DEFERRED CHARGES

        Costs of developing new information systems are capitalized and amortized over a three- or seven-year period, starting when each new system is placed in service.

        Other deferred charges primarily represent legal and other charges incurred relating to the preparation of the agreements related to the Company's various borrowing instruments, and are amortized over the respective financing periods of each instrument.

REVENUE RECOGNITION

        Revenues from wireless operations primarily consist of charges for access, airtime, roaming and value added services provided for U.S. Cellular's retail customers; charges to customers of other

37

systems who use U.S. Cellular's systems when roaming; charges for long-distance calls made on U.S. Cellular's systems; end user equipment sales; and sales of accessories. Revenues are recognized as services are rendered. Unbilled revenues, resulting from wireless service provided from the billing cycle date to the end of each month and from other wireless carriers' customers using U.S. Cellular's systems for the last half of each month, are estimated and recorded.

        Equipment sales represent a separate earnings process. Revenues from equipment and accessory sales are recognized upon delivery to the customer. In order to provide better control over handset quality, U.S. Cellular began selling handsets to agents beginning in the second quarter of 2002, at a price approximately equal to cost. In most cases, the agents receive a rebate from U.S. Cellular at the time the agents sign up a new customer or retain a current customer. The Company accounts for the sale of equipment to agents in accordance with Emerging Issues Task Force ("EITF") Statement 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)". This standard requires that equipment sales revenue be reduced by the anticipated rebates to be paid to the agents at the time the agent purchases the handsets. In the fourth quarter of 2002, the Company determined that, in accordance with EITF 01-09, $3.4 million and $14.9 million of rebates recorded in operating expenses should have been reclassified as a reduction of equipment sales revenue for the second and third quarters of 2002, respectively. Additionally, the Company determined that an additional accrual of $2.9 million was required to account for its rebate exposure at September 30, 2002. As a result of these adjustments, the Company has restated its reported 2002 results for the second and third quarters of 2002.

        Activation fees charged with the sale of service only are deferred and recognized over the average customer service period. Activation fees allocated to the sale of equipment and charged in conjunction with the sale of equipment and service were recorded as revenue at the time of sale.

        Effective January 1, 2002, the Company adopted Emerging Issues Task Force ("EITF") Statement 00-21 "Accounting for Multiple Element Arrangements." Under this pronouncement, activation fees charged with the sale of equipment and service are allocated to the equipment and service based upon the relative fair values of each item. Due to the subsidy provided on customer handsets, this generally results in the recognition of the activation fee as additional handset revenue at the time of sale. Upon the initial adoption of SAB 101 in 2000, had the company deferred activation fees associated with the sales of equipment and service at the time of activation, with subsequent recognition over the expected customer service period, the financial results for all periods presented would not have been materially different from those originally reported. The effect of adopting EITF 00-21 did not have a material impact on any of the periods as originally reported.

        Effective January 1, 2002, U.S. Cellular changed its method of accounting for commissions expenses related to customer activations and began deferring expense recognition for a portion of commissions expenses equal to the amount of activation fees revenue deferred. The Company recognizes the related commissions expense over the average customer service period, currently estimated at 48 months. The Company believes this change is a preferable method of accounting for such costs primarily due to the fact that the new method of accounting provides for better matching of revenue from customer activations to direct incremental costs associated with these activations within each reporting period. The cumulative effect of this accounting change on periods prior to 2002 was recorded in 2002, increasing net income by $4.1 million ($0.05 per diluted share), net of taxes of $3.0 million and minority interest of $424,000.

        Upon the initial adoption of SAB 101 in 2000, had the Company deferred expense recognition for a portion of commission expenses in the amount of activation fees revenue deferred, Net Income and Basic and Diluted Earnings per Share would have been $174.4 million, $2.02 and $2.00, respectively, for the year ended December 31, 2001, and $194.4 million, $2.25 and $2.24, respectively, for the year ended December 31, 2000.

38

        Effective January 1, 2000, the Company changed its method of accounting for certain activation and reconnect fees charged to its customers when initiating service through its retail and direct channels or when resuming service after suspension. The cumulative effect of this accounting change on periods prior to 2000 was recorded in 2000 reducing net income by $4.7 million ($0.05 per diluted share), net of taxes of $3.2 million and minority interest of $550,000.

ADVERTISING COSTS

        The Company expenses advertising costs as incurred. Advertising costs totaled $91.6 million, $66.0 million and $69.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.

BAD DEBT EXPENSE

        Bad debt expense totaled $63.7 million, $28.7 million and $24.3 million in 2002, 2001 and 2000, respectively.

INCOME TAXES

        U.S. Cellular is included in a consolidated federal income tax return with other members of the TDS consolidated group. TDS and U.S. Cellular are parties to a Tax Allocation Agreement (the "Agreement"). The Agreement provides that U.S. Cellular and its subsidiaries be included with the TDS affiliated group in a consolidated federal income tax return and in state income or franchise tax returns in certain situations. U.S. Cellular and its subsidiaries calculate their income and credits as if they comprised a separate affiliated group. Under the Agreement, U.S. Cellular remits its applicable income tax payments to TDS.

        Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Both deferred tax assets and liabilities are measured using tax rates expected to be in effect when the temporary differences reverse. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when, in management's opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

        The Company accounts for stock options, stock appreciation rights ("SARs") and employee stock purchase plans under Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees", as allowed by SFAS No. 123 "Accounting for Stock-Based Compensation."

39

        Had compensation cost for all plans been determined consistent with SFAS No. 123, the Company's net income (loss) and earnings per share would have been reduced to the following pro forma amounts:

Year Ended December 31,

2002
2001
2000

(Dollars in thousands,
except per share amounts)

Net Income (Loss):

As Reported $ (14,288 ) $ 173,876 $ 192,907

Pro Forma Expense (5,324 ) (1,746 ) (982 )

Pro Forma (19,612 ) 172,130 191,925

Basic Earnings Per Share:

As Reported (0.17 ) 2.02 2.23

Pro Forma Expense (0.06 ) (0.02 ) (0.01 )

Pro Forma (0.23 ) 2.00 2.22

Diluted Earnings Per Share:

As Reported (0.17 ) 1.99 2.22

Pro Forma Expense (0.06 ) (0.04 ) (0.01 )

Pro Forma $ (0.23 ) $ 1.95 $ 2.21

PENSION PLAN

        The Company participates in a qualified noncontributory defined contribution pension plan sponsored by TDS. It provides pension benefits for the employees of U.S. Cellular and its subsidiaries. Under this plan, pension benefits and costs are calculated separately for each participant and are funded currently. Pension costs were $5.0 million, $3.4 million and $3.6 million in 2002, 2001 and 2000, respectively.

ASSET IMPAIRMENT

        The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluates the asset for possible impairment based on an estimate of related undiscounted cash flows over the remaining asset life. If an impairment is identified, a loss is recognized for the difference between the fair value of the asset (less cost to sell) and the carrying value of the asset.

RECENT ACCOUNTING PRONOUNCEMENTS

        SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in June 2001, and will become effective for the Company beginning January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with an asset retirement in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Throughout the useful life of the asset, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. The Company has reviewed its contractual obligations under SFAS No. 143 and has determined that, based upon its historical experience with asset retirements, the impact of adopting this standard will not have a material effect on its financial position and results of operations.

        FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45") was issued in

40

November 2002. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for periods ending after December 15, 2002.The initial recognition and initial measurement provisions shall be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has adopted the disclosure provisions in 2002 and will adopt the recognition and measurement provisions for guarantees issued or modified after December 31, 2002.

NOTE 2    INCOME TAXES

        Income tax provisions charged to net income are summarized as follows:

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Federal income taxes

Current $ 444 $ 88,345 $ 132,093

Deferred (4,674 ) 36,974 20,208

State income taxes

Current 3,758 17,009 16,263

Deferred (7,069 ) 4,987 3,404

Total income tax expense (benefit)(1) $ (7,541 ) $ 147,315 $ 171,968

(1)
Excludes $3.0 million of income tax benefit in 2002 and $3.2 million of income tax expense in 2000 which is included in Cumulative effect of accounting change, net of tax.

        A reconciliation of the Company's expected income tax expense (benefit) computed at the statutory rate to the reported income tax expense (benefit), and the statutory federal income tax (benefit) rate to the Company's effective income tax (benefit) rate is as follows.

Year Ended December 31,

2002
2001
2000

Amount
Rate
Amount
Rate
Amount
Rate

(Dollars in millions)

Statutory federal income tax (benefit) $ (4.3 ) (35.0 )% $ 116.0 35.0 % $ 132.0 35.0 %

State income taxes, net of federal benefit (2.4 ) (19.1 ) 14.3 4.3 13.0 3.4

Amortization of license acquisition costs — — 3.6 1.1 3.0 0.8

Effects of minority share of income excluded from consolidated federal income tax return (4.5 ) (36.3 ) (2.9 ) (0.9 ) (2.6 ) (0.7 )

Effects of gains (losses) on marketable securities and other investments 2.9 23.6 — — 8.9 2.4

Resolution of prior period tax issues 9.7 78.0 13.0 3.9 4.0 1.1

Loss on extinguishment of debt — — 2.4 0.7 12.9 3.4

Deferred tax rate change(1) (8.4 ) (68.2 ) — — — —

Other (0.5 ) (3.9 ) 0.9 0.4 0.8 0.2

Effective income tax (benefit) $ (7.5 ) (60.9 )% $ 147.3 44.5 % $ 172.0 45.6 %

(1)
Represents a reassessment of the rate at which the Company provides for deferred taxes.

        U.S. Cellular had current deferred tax assets totaling $10.8 million and $1.1 million at December 31, 2002 and 2001, respectively, resulting primarily from the allowance for customer receivables.

41

        The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities are as follows:

December 31,

2002
2001

(Dollars in thousands)

Deferred Tax Asset

Net operating loss carryforward $ 43,291 $ 17,139

Partnership investments (1,654 ) 11,100

Unearned revenue 7,099 7,249

48,736 35,488

Less valuation allowance (13,224 ) (12,875 )

Total Deferred Tax Asset 35,512 22,613

Deferred Tax Liability

Property, plant and equipment 267,641 121,300

Licenses 141,241 116,095

Marketable equity securities 53,377 93,226

Equity investments — 63,650

Other (2,019 ) 16,638

Total Deferred Tax Liability 460,240 410,909

Net Deferred Income Tax Liability $ 424,728 $ 388,296

        The Company and certain subsidiaries had $87.1 million of federal net operating loss carryforwards (generating a $30.3 million deferred tax asset) at December 31, 2002 expiring between 2004 and 2022. In addition, the Company and certain subsidiaries had $247.5 million of state net operating loss ("NOL") carryforward (generating a $13.0 million deferred tax asset) at December 31, 2002. The state NOL carryforward, available to offset future taxable income, is primarily from the individual subsidiaries which generated the loss, and expires between 2003 and 2022. A valuation allowance has been provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

NOTE 3    EARNINGS PER SHARE

        Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Potentially dilutive securities included in diluted earnings per share represent incremental shares issuable upon exercise of outstanding stock options and conversion of debentures. The diluted loss per share calculation for the year ended December 31, 2002 excludes the effect of stock options and stock appreciation rights and the conversion of convertible debentures, because their inclusion would be anti-dilutive.

42

        The amounts used in computing Earnings per Common and Series A Common Shares and the effect on income and the weighted average number of Common and Series A Common Shares of dilutive potential common stock are as follows:

Year Ended December 31,

2002
2001
2000

(Dollars and shares in thousands)

Income (Loss) used in Basic Earnings per Share $ (18,385 ) $ 173,876 $ 197,568

Cumulative effect of accounting change 4,097 — (4,661 )

$ (14,288 ) $ 173,876 $ 192,907

Income (Loss) used in Basic Earnings per Share $ (18,385 ) $ 173,876 $ 197,568

Interest expense eliminated as a result of the pro forma conversion of Convertible Debentures, net of tax — 5,507 9,096

Income (Loss) used in Diluted Earnings per Share (18,385 ) 179,383 206,664

Cumulative effect of accounting change 4,097 — (4,661 )

$ (14,288 ) $ 179,383 $ 202,003

Weighted Average Number of Common Shares used in Basic Earnings per Share 86,086 86,200 86,355

Effect of Dilutive Securities:

Stock options and stock appreciation rights — 233 377

Conversion of convertible debentures — 3,544 4,142

Weighted Average Number of Common Shares used in Diluted Earnings per Share 86,086 89,977 90,874

Basic Earnings per Share

Income (Loss) Before Cumulative Effect of Accounting Change $ (0.22 ) $ 2.02 $ 2.28

Cumulative effect of accounting change 0.05 — (0.05 )

$ (0.17 ) $ 2.02 $ 2.23

Diluted Earnings per Share

Income (Loss) Before Cumulative Effect of Accounting Change $ (0.22 ) $ 1.99 $ 2.27

Cumulative effect of accounting change 0.05 — (0.05 )

$ (0.17 ) $ 1.99 $ 2.22

43

NOTE 4    INVESTMENTS IN LICENSES AND GOODWILL

        A schedule of investment in licenses activity follows:

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Balance, beginning of year $ 858,791 $ 857,607 $ 822,554

Additions 181,510 112,068 64,978

Amortization — (22,734 ) (23,116 )

Sales — — (9,234 )

Deposit receivable from FCC — (56,060 ) —

Other changes (1,745 ) (32,090 ) 2,425

Balance, end of year $ 1,038,556 $ 858,791 $ 857,607

        Accumulated amortization of licenses was $168.7 million at December 31, 2002 and 2001. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased the amortization of licenses.

        Following is a schedule of investment in goodwill activity.

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Balance, beginning of year $ 473,975 $ 400,966 $ 380,866

Additions 172,263 53,610 27,794

Amortization — (13,756 ) (10,724 )

Other (2,609 ) 33,155 3,030

Balance, end of year $ 643,629 $ 473,975 $ 400,966

        Accumulated amortization of goodwill was $86.9 million at December 31, 2002 and 2001. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased the amortization of goodwill.

44

        Net income (loss) adjusted to exclude license and goodwill amortization expense, net of tax, recorded in the years ended December 31, 2002, 2001 and 2000 is summarized below.

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Net Income (Loss) $ (14,288 ) $ 173,876 $ 192,907

Amortization, net of tax and minority interest effect of

Licenses — 16,104 16,034

Goodwill — 9,744 7,438

Goodwill for equity method investments — 513 947

Adjusted Net Income (Loss) $ (14,288 ) $ 200,237 $ 217,326

Basic earnings per share:

Net Income (Loss) $ (0.17 ) $ 2.02 $ 2.23

Amortization, net of tax and minority interest — 0.31 0.28

Adjusted Earnings per Share $ (0.17 ) $ 2.33 $ 2.51

Diluted Earnings Per Share:

Net Income (Loss) $ (0.17 ) $ 1.99 $ 2.22

Amortization, net of tax and minority interest — 0.29 0.27

Adjusted Earnings per Share $ (0.17 ) $ 2.28 $ 2.49

NOTE 5    CUSTOMER LISTS

        The customer lists, intangible assets from the acquisition of wireless properties, are being amortized based on average customer retention periods using the declining balance method. Amortization expense was $6.6 million for the year ended December 31, 2002. The related amortization expense for the years 2003-2007 is expected to be $15.6 million, $9.5 million, $5.8 million, $3.5 million and $2.1 million, respectively.

NOTE 6    MARKETABLE EQUITY SECURITIES

        Information regarding the Company's marketable equity securities is summarized as follows:

December 31,

2002
2001

(Dollars in thousands)

Vodafone AirTouch plc 10,245,370 American Depository Receipts ("ADRs") $ 185,646 $ 263,102

Rural Cellular Corporation 370,882 Common Shares 315 8,252

Other — 1,036

Aggregate Fair Value 185,961 272,390

Historical Cost, as adjusted 160,362 405,061

Gross Unrealized Holding Gains (Losses) 25,599 (132,671 )

Tax Effect (10,111 ) 53,674

Net Unrealized Holding Gains (Losses) 15,488 (78,997 )

Derivative Accounting, net of tax (5,181 ) —

Accumulated Other Comprehensive Income (Loss) $ 10,307 $ (78,997 )

        The Company holds a substantial amount of marketable securities that are publicly traded and can have volatile share prices. The market values of the marketable securities may fall below the accounting cost basis of such securities. If management determines the decline in value of the marketable

45

securities to be other than temporary, the unrealized loss included in other comprehensive income is recognized and recorded as a loss in the statement of operations.

        In 2002, management determined that a decline in the value of marketable equity securities relative to their respective accounting cost basis was other than temporary and charged an aggregate $244.7 million loss to the statement of operations ($145.6 million net of tax) and reduced the accounting cost basis of such marketable equity securities by a corresponding amount. The loss is reported in the caption "Gain (loss) on marketable securities and other investments" in the statement of operations.

NOTE 7    INVESTMENTS IN UNCONSOLIDATED ENTITIES

        Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S. Cellular holds a minority interest. These investments are accounted for using either the equity or cost method, as shown in the following table:

December 31,

2002
2001

(Dollars in thousands)

Equity method investments:

Capital contributions, loans and advances $ 15,647 $ 16,937

Goodwill, net of amortization 23,397 24,563

Cumulative share of income 313,827 277,342

Cumulative share of distributions (195,626 ) (171,031 )

157,245 147,811

Cost method investments:

Capital contributions, net of partnership distributions 2,603 1,513

Goodwill, net of amortization 1,603 10,130

4,206 11,643

Total investments in unconsolidated entities $ 161,451 $ 159,454

        As of December 31, 2002, U.S. Cellular followed the equity method of accounting for minority interests in 26 markets where the Company's ownership interest is 20% or greater for corporations or 3% or greater for partnerships. This method recognizes, on a current basis, U.S. Cellular's proportionate share of the income and losses accruing to it under the terms of the respective partnership and shareholder agreements. Income and losses from the entities are reflected in the consolidated statements of operations on a pretax basis as Investment income. Investment income totaled $42.1 million, $41.9 million and $43.7 million in 2002, 2001 and 2000, respectively. As of December 31, 2002, U.S. Cellular followed the cost method of accounting for its investments in six markets where the Company's ownership interest is less than 20% for corporations or 3% to 5% for partnerships, or where the Company does not have the ability to exercise significant influence.

        Investments in unconsolidated entities include goodwill and costs in excess of the underlying book value of certain investments. At December 31, 2002, $136.4 million represented the investment in underlying equity and $25.0 million represented unamortized goodwill. In 2001 and 2000, goodwill related to investments for which the Company follows the equity method of accounting were being amortized over 40 years. The Company adopted SFAS No. 142 on January 1, 2002, and no longer amortizes its goodwill related to equity method investments. Amortization expense amounted to $726,000 and $1.4 million in 2001 and 2000, respectively.

46

        The Company's most significant investments in unconsolidated entities consist of the following:

Percentage Ownership

December 31,

2002
2001

Cellular investments

Los Angeles SMSA Limited Partnership 5.5 % 5.5 %

Raleigh-Durham MSA Limited Partnership 8.0 % 8.0 %

Midwest Wireless Communications, LLC 15.7 % 15.7 %

North Carolina RSA 1 Partnership 50.0 % 50.0 %

Oklahoma City SMSA Limited Partnership 14.6 % 14.6 %

        Based primarily on data furnished to the Company by third parties, the following summarizes the combined assets, liabilities and equity, and the combined results of operations of the wireless entities in which U.S. Cellular's investments are accounted for by the equity method:

December 31,

2002
2001

(Dollars in thousands)

Assets

Current $ 213,030 $ 248,467

Due from affiliates 249,354 371,133

Property and other 1,506,168 1,380,293

$ 1,968,552 $ 1,999,893

Liabilities and Equity

Current liabilities $ 171,589 $ 206,940

Due to affiliates 2,798 23,637

Deferred credits 85,441 118,773

Long-term debt 21,414 24,631

Partners' capital and shareholders' equity 1,687,310 1,625,912

$ 1,968,552 $ 1,999,893



Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Results of Operations

Revenues $ 2,161,657 $ 2,085,900 $ 1,769,203

Operating expenses 1,684,656 1,490,310 1,254,864

Operating income 477,001 595,590 514,339

Other income (expense), net 17,019 (7,362 ) (16,692 )

Net income $ 494,020 $ 588,228 $ 497,647

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NOTE 8    PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment in service and under construction, net of accumulated depreciation, consists of:

December 31,

2002
2001

(Dollars in thousands)

Cell site-related equipment (4-25 yrs) $ 1,664,154 $ 1,274,315

Land, buildings and leasehold improvements (0-20 yrs) 523,971 370,732

Switching-related equipment (3-8 yrs) 399,086 251,706

Office furniture and equipment (3-5 yrs) 183,285 132,305

Other operating equipment (10 yrs) 113,975 86,796

Work in process 172,995 137,162

Less accumulated depreciation (1,049,797 ) (833,675 )

$ 2,007,669 $ 1,419,341

NOTE 9    SUPPLEMENTAL CASH FLOW DISCLOSURES

        Following are supplemental cash flow disclosures regarding interest and income taxes paid and certain noncash transactions:

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Interest paid $ 36,431 $ 24,592 $ 19,440

Income taxes paid 33,446 129,430 108,800

Noncash interest expense 9,526 10,176 16,448

Net change to equity for conversion of LYONs — 29,642 62,560

9% Series A Notes issued for Chicago acquisition $ 175,000 $ — $ —

NOTE 10    ACQUISITIONS AND DIVESTITURES

        As part of its development strategy in 2002 and 2001, U.S. Cellular acquired wireless interests using cash and promissory notes. U.S. Cellular also divested wireless interests for cash in 2000. There were no divestitures in 2002 or 2001.

COMPLETED ACQUISITIONS

        On August 7, 2002, U.S. Cellular completed the acquisition of the asset and certain liabilities of Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). Chicago 20MHz operates a wireless system in the Chicago Major Trading Area ("MTA"). Chicago 20MHz is the holder of certain FCC licenses, including a 20 megahertz PCS license in the Chicago MTA (excluding Kenosha County, Wisconsin) covering 13.2 million pops.

        The purchase price was $617.8 million including working capital and other adjustments. U.S. Cellular financed the purchase using $327.3 million of revolving lines of credit, $175.0 million in 30 year notes issued to PrimeCo, a $105.0 million loan from TDS, and a $10.5 million accrued payable. The Company has included the Chicago 20MHz results of operations, subsequent to the purchase date, in the statement of operations.

        An independent appraiser completed a valuation of Chicago 20MHz's assets. The tangible fixed assets were recorded at fair value. The PCS licenses were valued at $163.5 million. These licenses have

48

an indefinite life and are not being amortized. The customer list was assigned a value of $43.4 million. This intangible asset is being amortized based on a 30 month average customer retention period using the declining balance method.

        Total goodwill attributed to the Chicago acquisition aggregated $168.4 million, and is not being amortized for financial reporting purposes. In January 2003, U.S. Cellular repaid the $45.2 million outstanding 9% Series A Notes at 90% of face value. The $4.5 million gain on retirement of the 9% Series A Notes will be credited to goodwill, reducing the aggregate goodwill attributed to the Chicago acquisition to $163.9 million. Goodwill is deductible for tax purposes and will be amortized over 15 years.

        The following table summarizes the estimated fair values of the PrimeCo assets acquired and liabilities assumed at the date of acquisition.

August 7, 2002

(Dollars in thousands)

Current assets, excluding $6,984 cash acquired $ 34,081

Property, plant and equipment 235,953

Other assets 815

Customer list 43,400

Licenses 163,500

Goodwill 168,436

Total assets acquired 646,185

Current liabilities (22,518 )

Non-current liabilities (1,300 )

Total liabilities assumed (23,818 )

Net assets purchased 622,367

Notes issued to PrimeCo (175,000 )

Accrued but unpaid items (15,500 )

Cash required $ 431,867

        In addition, during 2002, U.S. Cellular completed the acquisition of majority interests in licenses in three PCS markets and three minority interests in other PCS markets, representing approximately 1.4 million pops, for consideration totaling $21.1 million.

        During 2001, U.S. Cellular, on its own behalf and through joint ventures, acquired majority interests in licenses in one cellular market and 26 PCS markets, representing a total population of 6.8 million, for $182.3 million in cash. The interests the Company acquired through joint ventures are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes.

49

        In conjunction with these acquisitions, the following assets were acquired, liabilities assumed and Common Shares issued:

Year Ended December 31,

2002
2001
2000

(Dollars in thousands)

Property, plant and equipment, net $ — $ 13,443 $ —

Licenses 18,010 112,068 64,978

Goodwill 3,827 53,610 27,794

Increase (Decrease) in investment in unconsolidated entities — 1,701 39,093

Decrease in note receivable — — (10,000 )

Long-term debt — — (13,000 )

Other assets and liabilities, excluding cash acquired (769 ) 5,447 2,637

Common Shares issued and issuable — — (2,833 )

Decrease in cash due to acquisitions $ 21,068 $ 186,269 $ 108,669

        Assuming acquisitions accounted for as purchases during the period January 1, 2001 to December 31, 2002, had taken place on January 1, 2001, pro forma results of operations would have been as follows:

Year Ended December 31,

2002
2001

(Dollars in thousands,
except per share amounts)

Service revenues $ 2,208,079 $ 2,033,912

Equipment sales 92,402 97,888

Interest expense (including cost to finance acquisitions) 62,431 59,419

Net Income (Loss) (51,186 ) 110,802

Earnings per Common and Series A Common Share—Basic $ (0.59 ) $ 1.29

Earnings per Common and Series A Common Share—Diluted $ (0.59 ) $ 1.29

COMPLETED DIVESTITURES

        The gains recorded in 2000 reflect the sales and other transactions related to non-strategic cellular and certain other investments. In 2000, U.S. Cellular sold its majority interest in one market and minority interests in two other markets.

NOTE 11    NOTES PAYABLE

        U.S. Cellular has a $500 million revolving credit facility with a group of banks ("1997 Revolving Credit Facility"). At December 31, 2002, $40 million was unused. The terms of the 1997 Revolving Credit Facility provide for borrowings with interest at the London InterBank Offered Rate ("LIBOR") plus a margin percentage based on the Company's credit rating. At December 31, 2002, the margin percentage was 19.5 basis points (for a rate of 1.6%). Interest and principal are due the last day of the borrowing period, as selected by U.S. Cellular, of either seven days or one, two, three or six months. U.S. Cellular pays facility and administration fees at an aggregate annual rate of 0.142% of the total $500 million facility. These payments totaled $515,000, $698,000 and $710,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The 1997 Revolving Credit Facility expires in August 2004.

        U.S. Cellular had a $325 million revolving credit facility with a group of banks ("2002 Revolving Credit Facility") at December 31, 2002, all of which was unused. The terms of the 2002 Revolving

50

Credit Facility provide for borrowings with interest at the LIBOR rate plus a margin percentage based on the Company's credit rating (for a rate of 1.9% at December 31, 2002). Interest and principal are due the last day of the borrowing period, as selected by U.S. Cellular, of either seven days or one, two, three or six months. U.S. Cellular pays facility and administration fees at an aggregate annual rate of .20% of the total $325 million facility. These payments totaled $484,000 in 2002. The 2002 Revolving Credit Facility expires in June 2007.

        Information concerning notes payable is shown in the table that follows.

Year Ended December 31,

2002
2001

(Dollars in thousands)

Balance at end of year $ 460,000 $ 264,000

Weighted average interest rate at end of year 1.6 % 2.3 %

Maximum amount outstanding during the year $ 460,000 $ 264,000

Average amount outstanding during the year(1) $ 262,167 $ 121,833

Weighted average interest rate during the year(1) 2.0 % 3.5 %

(1)
The average was computed based on month-end balances.

NOTE 12    LONG-TERM DEBT

ZERO COUPON CONVERTIBLE DEBENTURES

        During 1995, the Company sold $745 million principal amount at maturity of zero coupon 6% yield to maturity convertible debt due in 2015. This 20-year fixed rate debt, in the form of Liquid Yield Option Notes ("LYONs"), is subordinated to all other liabilities of the Company legally or effectively.

        Each LYON is convertible at the option of the holder at any time at a conversion rate of 9.475 U.S. Cellular Common Shares per $1,000 of LYONs. Upon conversion, U.S. Cellular may elect to deliver its Common Shares or cash equal to the market value of the Common Shares. U.S. Cellular may redeem the LYONs for cash at the issue price plus accrued original issue discount through the date of redemption. Holders have the right to exercise their conversion option prior to the redemption date. There were no LYONs retired in 2002. In 2001, retirements of LYONs totaled $126.2 million face value ($55.1 million carrying value). The Company paid $32.0 million in cash and issued 644,000 Common Shares to satisfy these conversions. In 2000, conversions and repurchases of LYONs totaled $302.0 million face value ($126.2 million carrying value). The Company paid $99.4 million in cash and issued 1.4 million Common Shares to satisfy the conversions and repurchases.

        The shares retired for cash resulted in a loss of $7.0 million and $36.9 million in 2001 and 2000, respectively.

51

UNSECURED NOTES AND FORWARD CONTRACTS

        The long-term debt-affiliated is an 8.1% note due to TDS on August 7, 2008. Interest is paid quarterly on March 31, June 30, September 30, and December 31. The note may be prepaid at any time without penalty and is subordinated to the 2002 Revolving Credit Facility. The proceeds were used in connection with the acquisition of Chicago 20MHz.

        During 1997, the Company sold $250.0 million principal amount of 7.25% notes ("Notes"), priced to yield 7.33% to maturity. The Notes are unsecured and become due on August 15, 2007. Interest on the Notes is payable on February 15 and August 15 of each year. The Notes will be redeemable, in whole or in part, at the option of the Company at any time on or after August 15, 2004, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued interest thereon, if any, to the date of redemption.

        In November 2002, U.S. Cellular sold $130.0 million of 8.75% unsecured senior notes due November 7, 2032, under a $500.0 million shelf registration statement filed with the SEC in 2002. This $130 million issuance represents all amounts currently issued and outstanding under the shelf registration statement. Interest is paid quarterly. U.S. Cellular may redeem the notes beginning in 2007 at principal amount plus accrued interest. The $129.8 million net proceeds from the sale of the notes (after reimbursement of expenses) were used to purchase a portion of the 9% Series A Notes.

        U.S. Cellular issued $175.0 million of 9% Series A Notes due 2032 to PrimeCo in connection with the acquisition of Chicago 20MHz on August 7, 2002. Interest was payable quarterly. The notes were callable by U.S. Cellular after five years at the principal amount plus accrued but unpaid interest. U.S. Cellular repurchased $129.8 million of the notes in 2002. U.S. Cellular repurchased the remaining $45.2 million notes in January 2003 using funds from its revolving credit facilities, and classified these notes as current liabilities at December 31, 2002. As a result of these repurchases, the 9% Series A Notes have been cancelled.

        During 2002, the Company entered into variable prepaid forward contracts ("forward contracts") in connection with its 10,245,370 Vodafone AirTouch plc ADRs. The $159.9 million principal amount of the forward contracts is accounted for as a loan. The collar portions of the forward contracts are accounted for as derivative instruments.

        The forward contracts mature in May 2007. The forward contracts require quarterly interest payments at LIBOR plus 0.5% (for a rate of 1.9% based on LIBOR rate at December 31, 2002).

        The risk management objective of the forward contracts is to hedge the value of the Vodafone securities from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at a range of $15.07 to $16.07 per share, which is at or above the accounting cost basis, thereby eliminating the other than temporary risk on these contracted securities. The upside potential is a range of $22.22 to $23.26 per share.

        Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature May 2007 and, at the Company's option, may be settled in shares of the security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. The collars could be adjusted for any changes in dividends on the contracted shares. At the end of the forward contract, the Company will deliver the number of shares of the contracted security determined pursuant to the formula. If shares are delivered in the settlement of the forward contract, the Company would have a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities and the net amount realized through maturity on the forward contracts. If the Company elects to settle in cash it

52

will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula.

        The annual requirements for principal payments on long-term debt are approximately $45.2 million, $0 million, $3.0 million, $0 million and $409.9 million for the years 2003-2007, respectively.

NOTE 13    FINANCIAL INSTRUMENTS AND DERIVATIVES

        Financial instruments are as follows:

December 31,

2002
2001

Book Value
Fair Value
Book Value
Fair Value

(Dollars in thousands)

Cash and Cash Equivalents $ 14,864 $ 14,864 $ 28,941 $ 28,941

9% Series A Notes 45,200 45,200 — —

Notes Payable 460,000 460,000 264,000 264,000

Long-term Debt

6% zero coupon debentures 148,604 113,229 140,156 143,344

7.25% notes 250,000 260,226 250,000 256,550

8.75% notes 130,000 135,408 — —

Variable prepaid forward contracts 159,856 156,827 — —

Intercompany loan 105,000 113,344 — —

Other $ 13,000 $ 14,132 $ 13,000 $ 14,254

        The carrying amounts of cash and cash equivalents and notes payable approximates fair value due to the short-term nature of these financial instruments. The fair value of the Company's long-term debt was estimated using market prices for the 6.0% zero coupon convertible debentures and 8.75% notes and discounted cash flow analysis for the remaining debt.

DERIVATIVES

        During 2002, the Company entered into forward contracts in connection with its 10,245,370 Vodafone securities. The principal amount of the forward contracts is accounted for as a loan. The collar portions of the forward contracts are accounted for as derivative instruments. The forward contracts limit the downside risk to a range of $15.07 to $16.07 per share and upside potential to a range of $22.22 to $23.26 per share.

        The forward contracts for the forecasted transactions and hedged items are designated as cash flow hedges and recorded as assets or liabilities on the balance sheet at their fair value. The fair value of the derivative instruments is determined using the Black-Scholes model.

        The forward contracts are designated as cash flow hedges, where changes in the forward contract's fair value are recognized in Accumulated other comprehensive income until they are recognized in earnings when the forward contract is settled. If the delivery of the contracted shares does not occur, or it becomes probable that it will not occur, the gain or loss on the related cash flow hedge is recognized in earnings at that time. No components of the forward contracts are excluded in the measurement of hedge effectiveness for cash flow hedges. The critical terms of the forward contracts are the same as the underlying forecasted transactions; therefore, changes in the fair value of the forward contracts are anticipated to be effective in offsetting changes in the expected cash flows from the forecasted transactions. No gains or losses related to ineffectiveness of cash flow hedges were recognized in earnings for the year ended December 31, 2002.

53

        At December 31, 2002, the Company reported a derivative liability of $8.7 million included in the balance sheet caption Deferred Liabilities and Credits.

NOTE 14    COMMON SHAREHOLDER'S EQUITY

COMMON STOCK

EMPLOYEE BENEFIT PLANS

        The following table summarizes Common Shares issued, including reissued Treasury Shares, for the employee benefit plans described as follows:

Year Ended December 31,

2002
2001

Tax-Deferred Savings Plan — 40,510

Employee stock options, stock appreciation rights and awards 42,207 449,634

Employee Stock Purchase Plan 26,222 22,155

68,429 512,299

TAX-DEFERRED SAVINGS PLAN

        U.S. Cellular has reserved 67,215 Common Shares for issuance under the TDS Tax-Deferred Savings Plan, a qualified profit-sharing plan pursuant to Sections 401(a) and 401(k) of the Internal Revenue Code. Participating employees have the option of investing their contributions in U.S. Cellular Common Shares, TDS Common Shares, or seven nonaffiliated funds.

STOCK-BASED COMPENSATION PLANS

        U.S. Cellular accounts for stock options, restricted stock awards, stock appreciation rights ("SARs") and employee stock purchase plans under APB Opinion No. 25. No compensation costs have been recognized for the stock option and employee stock purchase plans.

        Compensation costs were recognized for SARs and restricted stock awards as expenses in the statement of operations. Compensation expense for SARs, measured on the difference between the SAR prices and the year-end market price of the Common Shares, aggregated $141,000 (a reduction of expense) in 2000.

54

        A summary of the status of the Company's stock option plans at December 31, 2002, 2001 and 2000 and changes during the years then ended is presented in the table and narrative as follows:

Weighted
Number
of Shares
Weighted
Average
Option Price
Weighted
Average
Black-Scholes
Values of
Option Grants

Stock Options

Outstanding December 31, 1999 (106,104 exercisable) 592,485 $ 28.14

Granted 166,254 $ 57.57 $ 32.80

Exercised (200,455 ) $ 19.74

Canceled (33,104 ) $ 35.28

Outstanding December 31, 2000 (127,012 exercisable) 525,180 $ 40.32

Granted 498,431 $ 54.90 $ 33.65

Exercised (80,831 ) $ 24.31

Canceled (58,542 ) $ 38.38

Outstanding December 31, 2001 (199,875 exercisable) 884,238 $ 50.42

Granted 869,637 $ 38.80 $ 19.74

Exercised (9,456 ) $ 29.45

Canceled (200,985 ) $ 47.17

Outstanding December 31, 2002 (335,972 exercisable) 1,543,434 $ 45.15

        U.S. Cellular has established Stock Option plans that provide for the grant of stock options to officers and employees and has reserved 1,189,844 Common Shares for options granted and to be granted to key employees. The options under the 1998 plan are exercisable from the date of vesting through 2003 to 2012, or 30 days following the date of the employee's termination of employment, if earlier. Under the 1998 Stock Option Plan, 335,972 stock options were exercisable at December 31, 2002, have exercise prices between $24.48 and $73.31 with a weighted average exercise price of $46.71 per share, and a weighted average remaining contractual life of 6.1 years. The remaining 1,207,462 options, which are not exercisable, have exercise prices between $23.20 and $73.31 with a weighted average exercise price of $44.72 and a weighted average remaining contractual life of 8.7 years. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free interest rates of 4.6%, 5.0% and 5.1%; expected dividend yields of zero for all years; expected lives of 9.4 years, 8.2 years and 7.6 years; and expected volatility of 39.4%, 31.7% and 34.5%.

        The following table provides certain details concerning U.S. Cellular stock options outstanding at December 31, 2002:

Range of
Exercise Price
Stock Options
Outstanding
Weighted Average
Exercise Price
Weighted Average
Contractual Life
(Years)

$ 23.20-$43.99 924,323 $ 38.00 8.4

$ 44.00-$73.31 619,111 $ 55.83 7.1

55

        The following table provides certain details concerning U.S. Cellular stock options exercisable at December 31, 2002:

Range of
Exercise Price
Stock Options
Exercisable
Weighted Average
Exercise Price

$ 24.48-$43.99 110,183 $ 30.77

$ 44.00-$73.31 225,789 $ 54.49

        The Company grants key employees restricted shares of stock that fully vest after three years. The number of shares granted were 86,826; 65,671 and 47,802 in the years 2002, 2001 and 2000, respectively. The weighted-average values of the shares granted were $39.71, $60.92 and $71.00 in 2002, 2001 and 2000, respectively. The expenses included in operating income due to grants of restricted shares were $1,611,707, $3,569,003 and $5,047,198 in 2002, 2001 and 2000, respectively.

        Stock Appreciation Rights allow the grantee to receive an amount in Common Shares or cash, or a combination thereof, equivalent to the difference between the exercise price and the fair market value of the Common Shares on the exercise date. At December 31, 2002 and 2001, there were no SARs outstanding. During 2000, 9,600 Series A Common Share SARs were exercised. There were no SARs granted in 2002, 2001 or 2000.

EMPLOYEE STOCK PURCHASE PLAN

        U.S. Cellular had 34,603 Common Shares reserved under the 1999 Employee Stock Purchase Plan ("1999 ESPP"), which terminated on December 31, 2002. The 1999 ESPP became effective July 1, 1999, and provides for eligible employees of the Company and its subsidiaries to purchase a limited number of USM Common Shares on a quarterly basis. The per share cost to each participant is at 85% of the market value of the Common Shares as of the issuance date.

SERIES A COMMON SHARES

        Series A Common Shares are convertible on a share-for-share basis into Common Shares. In matters other than the election of directors, each Series A Common Share is entitled to ten votes per share, compared to one vote for each Common Share. The Series A Common Shares are entitled to elect 75% of the directors (rounded down), and the Common Shares elect 25% of the directors (rounded up). As of December 31, 2002, all of U.S. Cellular's outstanding Series A Common Shares were held by TDS.

COMMON SHARE REPURCHASE PROGRAM

        The Board of Directors of U.S. Cellular from time to time has authorized the repurchase of U.S. Cellular Common Shares not owned by TDS. In 2000, the Company authorized the repurchase of up to 4.2 million Common Shares through three separate 1.4 million share programs. The Company may use repurchased shares to fund acquisitions and for other corporate purposes. There are 859,000 shares available to be repurchased under the most recent 1.4 million share authorization, which expires in December 2003.

        In 2002, the Company issued 69,000 treasury shares pursuant to certain employee and non-employee benefit plans.

        In 2001, the Company paid $29.9 million to repurchase 643,100 of its Common Shares. The Company issued 818,000 treasury shares to satisfy retirements of convertible debt securities and pursuant to certain employee benefit plans.

56

        In 2000, the Company paid $234.8 million to repurchase 3.5 million of its Common Shares. The Company issued 1.3 million treasury shares, primarily to satisfy retirements of convertible debt securities.

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

        The cumulative balance of unrealized gains and (losses) on securities and derivative instruments and related income tax effects included in Accumulated other comprehensive gain (loss) are as follows:

Year Ended December 31,

2002
2001

(Dollars in thousands)

Balance, beginning of year $ (78,997 ) $ (16,296 )

Add (Deduct):

Unrealized gains (losses) on securities (86,428 ) (105,510 )

Income (tax) benefit 35,326 42,809

Net unrealized gains (losses) (51,102 ) (62,701 )

Deduct (Add):

Recognized (losses) on securities (244,699 ) —

Income tax (expense) benefit 99,112 —

Net recognized gains (losses) from Marketable Securities included in Net Income (145,587 ) —

94,485 (62,701 )

Unrealized loss on derivative instruments (5,181 ) —

Net change in unrealized gains (losses) included in Comprehensive Income (Loss) 89,304 (62,701 )

Balance, end of year $ 10,307 $ (78,997 )

Accumulated Unrealized Gain on Derivative Instruments

Balance, beginning of year $ — $ —

Add (Deduct):

Unrealized (loss) on derivative instruments (5,181 ) —

Balance, end of year $ (5,181 ) $ —

NOTE 15    RELATED PARTIES

        U.S. Cellular is billed for all services it receives from TDS, consisting primarily of information processing and general management services. Such billings are based on expenses specifically identified to U.S. Cellular and on allocations of common expenses. Such allocations are based on the relationship of U.S. Cellular's assets, employees, investment in plant and expenses to the total assets, employees, investment in plant and expenses of TDS. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to U.S. Cellular are reflected in the accompanying financial statements on a basis which is representative of what they would have been if U.S. Cellular operated on a stand-alone basis. Billings to U.S. Cellular from TDS totaled $56.8 million, $55.7 million and $49.1 million in 2002, 2001 and 2000, respectively.

        In August 2002, the Company entered into a loan agreement with TDS under which it borrowed $105 million, which was used for the Chicago 20MHz purchase. The loan bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with prepayments optional. The loan is subordinated to the 2002 Revolving Credit Facility. The terms of the loan do not contain restrictive

57

covenants that are greater than those included in the Company's senior debt, except that the loan agreement provides that the Company may not incur senior debt in an aggregate principle amount in excess of $325 million unless it obtains the consent of TDS as a lender. The Company's Board of Directors, including independent directors, approved the terms of this loan and determined that such terms were fair to the Company and all of its shareholders.

        U.S. Cellular has a Cash Management Agreement with TDS under which U.S. Cellular may from time to time deposit its excess cash with TDS for investment under TDS's cash management program. Deposits made under the agreement are available to U.S. Cellular on demand and bear interest each month at the 30-day Commercial Paper Rate as reported in The Wall Street Journal, plus ¹/4%, or such higher rate as TDS may at its discretion offer on such deposits. Interest income from such deposits was $209,000, $1.5 million and $11.3 million in 2002, 2001 and 2000, respectively.

NOTE 16    COMMITMENTS AND CONTINGENCIES

CONSTRUCTION AND EXPANSION

        The Company's anticipated capital expenditure requirements for 2003 primarily reflect its plans for construction, system expansion and the execution of its plans to migrate to a single digital equipment platform. The Company's construction and system expansion budget for 2003 is approximately $600 million to $630 million. These expenditures will primarily address the following needs: expand and enhance the Company's coverage in its service areas; add digital service capabilities to its systems, including the migration toward a single digital equipment platform; satisfy certain regulatory requirements for specific services such as enhanced 911 and wireless number portability; and enhance the Company's office systems.

        The conversion toward CDMA is expected to be completed during 2004, at an approximate cost of $400-$450 million over the three year period 2002-2004. The CDMA conversion costs totaled $215 million in 2002 and are estimated to be $50 million in 2003.

        U.S. Cellular has obligations under certain vendor equipment contracts aggregating $240.9 million at December 31,2002. Payments pursuant to the contracts are expected to total $42.2 million, $56.2 million, $56.2 million, $56.2 million and $30.1 million for the years 2003-2007 respectively.

        From time to time U.S. Cellular may acquire markets to implement its business strategy.

LEASE COMMITMENTS

        U.S. Cellular and certain of its majority-owned partnerships and subsidiaries lease certain office and cell site locations under operating leases. Future minimum rental payments required under operating leases that have noncancelable lease terms in excess of one year as of December 31, 2002 are as follows:

Minimum
Future Rentals

(Dollars in thousands)

2003 $ 49,860

2004 45,107

2005 38,495

2006 28,795

2007 18,811

Thereafter $ 61,944

58

        Rent expense totaled $57.2 million, $35.4 million and $32.8 million in 2002, 2001 and 2000, respectively.

LEGAL PROCEEDINGS

        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.

NOTE 17    SUBSEQUENT EVENTS

        On January 31, 2003, the Company entered into an agreement to rename Comiskey Park, home of the Chicago White Sox American League baseball team, U.S. Cellular Field. The Company will pay $3.4 million per year for 20 years for the naming rights ($68 million in aggregate). Concurrent with the naming rights agreement, the Company purchased a media package to place various forms of advertising in and around the facility. For the media package, the Company will pay $600,000 in 2003, with future annual payments increasing by 3% per year through 2025. The total combined cost of the renaming rights and media package is $87 million over 23 years.

        On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. U.S. Cellular will receive 10 and 20 MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. U.S. Cellular will also receive approximately $31 million in cash and minority interests in six markets it currently controls. U.S. Cellular will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total U.S. Cellular revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the U.S. Cellular properties and the assignment to U.S. Cellular of most PCS licenses is expected to occur in the third quarter 2003. The assignment and development of certain licenses in the exchange will be accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular will be accounted for as a sale. The build-out of the licenses could require substantial capital investment by U.S. Cellular over the next several years. U.S. Cellular is currently working on a build-out and financing plan for these markets.

        The following table summarizes the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

December 31,
2002

(Dollars in millions)

Current assets $ 16.8

Net property, plant and equipment 86.0

Licenses 53.1

Goodwill 78.2

Other .6

Total assets 234.7

Current liabilities (13.4 )

Net assets to be transferred $ 221.3

        The Company is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, the Company will classify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

59

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF UNITED STATES CELLULAR CORPORATION:

        In our opinion, the accompanying consolidated balance sheet as of December 31, 2002 and the related consolidated statements of operations, common shareholders' equity and cash flows for the year then ended present fairly, in all material respects, the financial position of United States Cellular Corporation, an 82.2% owned subsidiary of Telephone and Data Systems, Inc., and its subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The consolidated financial statements of the Company as of December 31, 2001 and for each of the two years in the period ended December 31, 2001, prior to the revisions discussed in Notes 1 and 4 to the financial statements, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those consolidated financial statements in their report dated January 25, 2002.

        As disclosed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets as a result of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002. Also as disclosed in Note 1, the Company changed the manner in which it presents losses on debt retirements as a result of the adoption of SFAS No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections", during 2002. In addition, as disclosed in Note 1, the Company changed the method in which it accounts for direct incremental deferred costs related to wireless customer activations on January 1, 2002.

        As discussed above, the financial statements of United States Cellular Corporation as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Notes 1 and 4, these financial statements have been revised to separately reflect amounts that represent goodwill, and to include the transitional disclosures required by SFAS No. 142. Also, as described in Note 1, these financial statements have been revised to classify losses resulting from debt retirements as a component of income (loss) before cumulative effect of accounting change in accordance with the provisions of SFAS No. 145. We audited the adjustments described in Notes 1 and 4 that were applied to revise the 2001 and 2000 financial statements. We also audited the transitional disclosures described in Notes 1 and 4. In our opinion, the revisions and transitional disclosures for 2001 and 2000 included in Notes 1 and 4 are appropriate and the adjustments described in Notes 1 and 4 are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such adjustments and transitional disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 3, 2003, except as to Note 17,
as to which the date is March 10, 2003

60

COPY OF PREVIOUSLY ISSUED REPORT OF INDEPENDENT ACCOUNTANTS

        THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THESE INDEPENDENT ACCOUNTANTS HAVE CEASED OPERATIONS, AND HAVE NOT REISSUED THEIR REPORT IN CONJUNCTION WITH THIS ANNUAL REPORT. THEIR REPORT IS INCLUDED IN THE ANNUAL REPORT AS PERMITTED BY RULE 2-02(E) OF REGULATION S-X OF THE SECURITIES AND EXCHANGE COMMISSION. AS DESCRIBED IN NOTES 1 AND 4, THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN REVISED TO SEPARATELY REFLECT AMOUNTS THAT REPRESENT GOODWILL AND TO INCLUDE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. (SFAS) 142, "GOODWILL AND OTHER INTANGIBLE ASSETS", WHICH WAS ADOPTED BY THE COMPANY AS OF JANUARY 1, 2002. ALSO, AS DESCRIBED IN NOTE 1, THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN REVISED TO CLASSIFY LOSSES RESULTING FROM DEBT RETIREMENTS AS A COMPONENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS IN ACCORDANCE WITH THE PROVISIONS OF SFAS NO. 145, "RESCISSION OF SFAS NO. 4, 44 AND 64, AMENDMENT OF FAS 13, AND TECHNICAL CORRECTIONS", WHICH WAS ADOPTED BY THE COMPANY DURING 2002. THE ARTHUR ANDERSEN LLP REPORT DOES NOT EXTEND TO THESE CHANGES TO THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS. THE ADJUSTMENTS TO THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS WERE REPORTED ON BY PRICEWATERHOUSECOOPERS LLP AS STATED IN THEIR REPORT APPEARING HEREIN.

        We have audited the accompanying consolidated balance sheets of United States Cellular Corporation (a Delaware corporation and an 82.2%-owned subsidiary of Telephone and Data Systems, Inc.) and Subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in common shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United States Cellular Corporation and Subsidiaries as of December 31, 2001 and 2000, the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

        As explained in Note 1 of Notes to Consolidated Financial Statements, effective January 1, 2000, the Company changed certain of its accounting principles for revenue recognition as a result of the adoption of Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."

/s/ Arthur Andersen LLP
Chicago, Illinois
January 25, 2002

        The consolidated balance sheet at December 31, 2000 and the consolidated statements of operations, common stockholders' equity and cash flow for the year ended December 31, 1999 are not required to be presented in the 2002 Annual Report.

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SELECTED CONSOLIDATED FINANCIAL DATA

Year Ended or at December 31,

2002
2001
2000
1999
1998

(Dollars in thousands, except per share amounts)

Operating Data

Service Revenues $ 2,098,893 $ 1,826,385 $ 1,653,922 $ 1,525,660 $ 1,276,522

Operating Income 281,166 317,212 292,313 255,842 176,075

Investment income, net of related amortization expense 42,068 41,208 42,362 29,188 41,412

Gain (Loss) on sale of cellular and other investments (295,454 ) — 96,075 266,744 215,154

Income Before Income Taxes (12,388 ) 331,337 377,165 523,158 394,152

Net Income $ (14,288 ) $ 173,876 $ 192,907 $ 300,758 $ 216,947

Weighted Average Common and Series A Common Shares (000s) 86,086 86,200 86,355 87,478 87,323

Basic Earnings Per Common and Series A Common Share $ (0.17 ) $ 2.02 $ 2.23 $ 3.44 $ 2.48

Diluted Earnings Per Common and Series A Common Share $ (0.17 ) $ 1.99 $ 2.22 $ 3.28 $ 2.39

Balance Sheet Data

Property, Plant and Equipment, net $ 2,007,669 $ 1,419,341 $ 1,145,623 $ 1,071,005 $ 1,010,843

Investments—

Licenses, net of accumulated amortization 1,038,556 858,791 857,607 809,452 842,797

Goodwill, net of accumulated amortization 643,629 473,975 400,966 380,866 386,046

Marketable equity securities 185,961 272,390 377,900 540,711 300,754

Unconsolidated entities, net of accumulated amortization 161,451 159,454 137,474 124,573 136,391

Total Assets 4,699,841 3,759,157 3,501,177 3,534,239 3,047,636

Long-term Debt (excluding current portion) 806,460 403,156 448,817 546,322 531,487

Common Shareholders' Equity $ 2,415,034 $ 2,335,669 $ 2,214,571 $ 2,274,641 $ 1,950,230

Current Ratio 0.47 0.70 1.03 1.98 0.94

Return on Equity (0.8 )% 7.6 % 8.8 % 14.2 % 12.1 %

Results from previous years have been restated to conform to current period presentation.

62

CONSOLIDATED QUARTERLY INCOME INFORMATION (UNAUDITED)

2002

Quarter Ended

March 31
June 30
Sept. 30
Dec. 31

(Dollars in thousands, except per share amounts)

Operating Revenues $ 478,420 $ 524,339 $ 579,786 $ 601,933

Operating Income 79,676 101,272 62,697 37,521

Gain (Loss) on Marketable Securities and Other Investments — (244,699 ) (34,210 ) (16,545 )

Income (Loss) Before Cumulative Effect of Accounting Change 44,393 (88,382 ) 10,975 14,629

Net Income (Loss) $ 48,490 $ (88,382 ) $ 10,975 $ 14,629

Weighted Average Shares Outstanding (000s) 86,053 86,083 86,095 86,113

Basic Earnings per Share Before Cumulative Effect of Accounting Change $ 0.51 $ (1.03 ) $ 0.13 $ 0.17

Diluted Earnings per Share Before Cumulative Effect of Accounting Change 0.51 (1.03 ) 0.13 0.17

Basic Earnings per Share—Net Income (Loss) 0.56 (1.03 ) 0.13 0.17

Diluted Earnings per Share—Net Income (Loss) $ 0.56 $ (1.03 ) $ 0.13 $ 0.17

63

SUMMARY OF INCOME STATEMENT AND RELATED EFFECTS OF 2002 ACCOUNTING CHANGES

Three Months Ended

March 31, 2002
June 30, 2002
September 30, 2002

Effects of 2002 Accounting Changes

As
Reported
Changes
As
Restated
As
Reported
Changes
As
Restated
As
Reported
Changes
As
Restated

(Dollars in thousands, except per share amounts)

Operating revenues

Changes related to EITF 01-09 reclassification(1) $ — $ (3,370 ) $ (14,850 )

Changes related to EITF 01-09 accrual(1) — — (2,935 )

Total $ 478,420 $ — $ 478,420 $ 527,710 $ (3,370 ) $ 524,340 $ 597,571 $ (17,785 ) $ 579,786

Operating expenses

Changes related to EITF 01-09 reclassification(1) $ — $ (3,370 ) $ (14,850 )

Changes related to SAB 101(2) (830 ) (1,223 ) (937 )

Total $ 399,574 $ (830 ) $ 398,744 $ 427,661 $ (4,593 ) $ 423,068 $ 532,876 $ (15,787 ) $ 517,089

Operating income 78,846 830 79,676 100,049 1,223 101,272 64,695 (1,998 ) 62,697

Income (loss) before cumulative effect of accounting change 43,892 501 44,393 (89,102 ) 720 (88,382 ) 12,164 (1,189 ) 10,975

Cumulative effect of accounting change(2) — 4,097 4,097 — — — — — —

Net income (loss) 43,892 4,598 48,490 (89,102 ) 720 (88,382 ) 12,164 (1,189 ) 10,975

Basic earnings per share from cumulative effect of accounting change — 0.04 0.04 — — — — — —

Basic earnings per share before cumulative effect of accounting change 0.51 — 0.51 (1.04 ) 0.01 (1.03 ) 0.14 (0.01 ) 0.13

Diluted earnings per share before cumulative effect of accounting change 0.51 — 0.51 (1.04 ) 0.01 (1.03 ) 0.14 (0.01 ) 0.13

Basic earnings per share—Net Income (Loss) 0.51 0.05 0.56 (1.04 ) 0.01 (1.03 ) 0.14 (0.01 ) 0.13

Diluted earnings per share—Net Income (Loss) $ 0.51 $ 0.05 $ 0.56 $ (1.04 ) $ 0.01 $ (1.03 ) $ 0.14 $ (0.01 ) $ 0.13

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 reflected 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 (loss) or earnings per share. These changes do, however, have a significant impact on certain income statement captions for the restated periods.

(1)
U.S. Cellular changed its accounting for certain rebate transactions pursuant to Emerging Issues Task Force Statement ("EITF") No. 01-09 in the fourth quarter of 2002. Under EITF No. 01-09, all rebates paid to agents who participate in qualifying new activation and retention transactions are recorded as a reduction of equipment sales revenues. Previously, the Company had recorded new activation rebates as marketing and selling expense and retention rebates as general and administrative expense. Further, these rebates are now recorded at the time handsets are sold by the Company to these agents. Previously, the Company recorded these transactions at the time the handsets were delivered by agents to the Company's customers. As described, in Note 1 to the consolidated financial statements the Company has restated its reported results for the second and third quarters of 2002.

(2)
U.S. Cellular changed its accounting policy related to certain transactions pursuant to Staff Accounting Bulletin ("SAB") No. 101 during the fourth quarter of 2002. The Company had adopted SAB No. 101 as of January 1, 2000, and began deferring certain customer activation fees as of that date. As permitted by SAB No. 101, as of January 1, 2002, U.S. Cellular began deferring commissions expenses equal to the amount of activation fees deferred. In conjunction with this change, the Company recorded a $4.1 million addition to net income as of January 1, 2002, related to commissions expenses which would have been deferred in prior years had the Company adopted its new policy at the time it adopted SAB No. 101.

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2001

Quarter Ended

March 31
June 30
Sept. 30
Dec. 31

(Dollars in thousands, except per share amounts)

Operating Revenues $ 439,769 $ 475,289 $ 501,024 $ 478,748

Operating Income 58,483 93,626 92,677 72,426

Net Income (Loss) $ 30,388 $ 57,369 $ 53,127 $ 32,992

Weighted Average Shares Outstanding (000s) 85,989 86,311 86,394 86,106

Basic Earnings per Share—Net Income (Loss)

$
0.35

$
0.66

$
0.61

$
0.38

Diluted Earnings per Share—Net Income (Loss) $ 0.35 $ 0.65 $ 0.60 $ 0.38

There were no gains (losses) from marketable securities and other investments in 2001.

The Company adopted SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections" in the second quarter of 2002 and restated the 2001 amounts for comparability. SFAS No. 145 precludes gains and losses on the extinguishment of debt from being classified as extraordinary. In the quarter ended March 31, 2001, a loss on the retirement of LYONs totaling $3,629, net of tax, and $0.05 per basic share and $0.04 per diluted share, was originally recorded as an extraordinary item. The reclassification of the loss to Investment and Other Income, in accordance with SFAS 145, reduced Income (Loss) Before Cumulative Effect of Accounting Change as previously reported from $34,017 to $30,388, Basic Earnings per Share Before Cumulative Effect of Accounting Change from $0.40 to $0.35, and Diluted Earnings per Share Before Cumulative Effect of Accounting Change from $0.39 to $0.35.

65

SHAREHOLDER INFORMATION

UNITED STATES CELLULAR STOCK AND DIVIDEND INFORMATION

        The Company's Common Shares are listed on the American Stock Exchange under the symbol "USM" and in the newspapers as "US Cellu." As of February 28, 2003, the Company's Common Shares were held by 484 record owners. All of the Series A Common Shares were held by TDS. No public trading market exists for the Series A Common Shares. The Series A Common Shares are convertible on a share-for-share basis into Common Shares.

        The high and low sales prices of the Common Shares as reported by the American Stock Exchange were as follows:

2002 Common Shares

2001 Common Shares

Calendar Period

High
Low
High
Low

First Quarter $ 45.50 34.49 $ 68.57 $ 54.40

Second Quarter 42.15 24.90 67.65 55.35

Third Quarter 33.25 22.97 60.10 47.60

Fourth Quarter 31.03 23.80 49.15 40.70

        The Company has not paid any cash dividends and currently intends to retain all earnings for use in the Company's business.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EX-18 8 a2103341zex-18.txt EX-18 EXHIBIT 18 February 3, 2003 Board of Directors United States Cellular Corporation 8410 West Bryn Mawr Avenue Chicago, Illinois 60631 Dear Directors: We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K. We have audited the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and issued our report thereon dated February 3, 2003. Note 1 to the financial statements describes a change in accounting principle from expensing incremental direct costs relating to certain transactions in which revenue on up-front fees was deferred pursuant to STAFF ACCOUNTING BULLETIN NO. 101: REVENUE RECOGNITION IN FINANCIAL STATEMENTS to a method that defers such incremental direct costs up to, but not exceeding, the amount of deferred revenue. It should be understood that the preferability of one acceptable method of accounting over another for the deferral or expense of such incremental direct costs has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20. Very truly yours, /s/ PricewaterhouseCoopers LLP EX-21 9 a2103341zex-21.txt EXHIBIT 21 UNITED STATES CELLULAR CORPORATION SUBSIDIARY AND AFFILIATED COMPANIES DECEMBER 31, 2002
STATE OF INCORPORATION ------------- BANGOR CELLULAR TELEPHONE, L.P. Partnership BLACK CROW WIRELESS, L.P. Partnership BMG GROUP, LLC OKLAHOMA CALIFORNIA RURAL SERVICE AREA #1, INC. CALIFORNIA CAROLINA CELLULAR, INC. NORTH CAROLINA CEDAR RAPIDS CELLULAR TELEPHONE, L.P. Partnership CELLVEST, INC. DELAWARE CENTRAL CELLULAR TELEPHONES LTD ILLINOIS CENTRAL FLORIDA CELLULAR TELEPHONE COMPANY, INC FLORIDA CHAMPLAIN CELLULAR, INC NEW YORK CHARLOTTESVILLE MSA CELLULAR PARTNERSHIP Partnership CHICAGO 20MHZ, LLC DELAWARE COMMUNITY CELLULAR TELEPHONE COMPANY TEXAS CROWN POINT CELLULAR INC. NEW YORK DAVENPORT CELLULAR TELEPHONE COMPANY Partnership DAVENPORT CELLULAR TELEPHONE COMPANY, INC. DELAWARE DUBUQUE CELLULAR TELEPHONE, L.P. Partnership EASTERN NORTH CAROLINA CELLULAR JOINT VENTURE Partnership EAU CLAIRE MSA, INC. WISCONSIN FLORIDA RSA # 8, INC. DELAWARE GEORGIA RSA # 11, INC. GEORGIA GRAY BUTTE JOINT VENTURE Partnership GREEN BAY CELLTELCO Partnership HARDY CELLULAR TELEPHONE COMPANY DELAWARE HUMPHREY COUNTY CELLULAR, INC. DELAWARE ILLINOIS RSA # 3, INC. ILLINOIS INDIANA RSA # 4, INC. DELAWARE INDIANA RSA # 5, INC. INDIANA INDIANA RSA NO. 4 LIMITED PARTNERSHIP Partnership INDIANA RSA NO. 5 LIMITED PARTNERSHIP Partnership IOWA 13, INC. DELAWARE IOWA RSA # 3, INC. DELAWARE IOWA RSA # 9, INC. DELAWARE IOWA RSA # 12, INC. DELAWARE JACKSONVILLE CELLULAR PARTNERSHIP Partnership JACKSONVILLE CELLULAR TELEPHONE COMPANY DELAWARE JACKSON SQUARE WIRELESS, L.P. Partnership KANSAS # 15 LP Partnership KANSAS RSA # 15, INC. OHIO KENOSHA CELLULAR TELEPHONE, L.P. Partnership LACROSSE CELLULAR TELEPHONE COMPANY, INC. DELAWARE LEWISTON CELLTELLCO PARTNERSHIP Partnership MADISON CELLULAR TELEPHONE COMPANY Partnership MAINE RSA # 1, INC. MAINE MAINE RSA # 4, INC. MAINE MANCHESTER-NASHUA CELLULAR TELEPHONE, L.P. Partnership MCDANIEL CELLULAR TELEPHONE COMPANY DELAWARE MINNESOTA INVCO OF RSA # 7, INC. DELAWARE MINNESOTA INVCO OF RSA # 8, INC. DELAWARE MINNESOTA INVCO OF RSA # 9, INC. DELAWARE MINNESOTA INVCO OF RSA # 10, INC. DELAWARE N.H. #1 RURAL CELLULAR, INC. NEW HAMPSHIRE NEW YORK RSA 2 CELLULAR PARTNERSHIP Partnership NEWPORT CELLULAR, INC. NEW YORK NORTH CAROLINA RSA # 4, INC. DELAWARE NORTH CAROLINA RSA # 9, INC. NORTH CAROLINA NORTH CAROLINA RSA 1 PARTNERSHIP Partnership NORTH CAROLINA RSA NO. 6, INC. CALIFORNIA OHIO STATE CELLULAR PHONE COMPANY, INC. FLORIDA OREGON RSA # 2, INC. OREGON OREGON RSA # 3, INC. OREGON * 50% or more owned companies Page 1
UNITED STATES CELLULAR CORPORATION SUBSIDIARY AND AFFILIATED COMPANIES DECEMBER 31, 2002
STATE OF INCORPORATION ------------- OREGON RSA NO. 2 LIMITED PARTNERSHIP Partnership OREGON RSA NO. 3 LIMITED PARTNERSHIP Partnership PCS WISCONSIN, LLC WISCONSIN PINE VALLEY WIRELESS, LP Partnership PRIMECO REAL ESTATE HOLDINGS, LLC DELAWARE PRIMECO SPECTRUM HOLDINGS, LLC DELAWARE RACINE CELLULAR TELEPHONE COMPANY Partnership ST. LAWRENCE SEAWAY RSA CELLULAR PARTNERSHIP Partnership TENNESSEE RSA # 3, INC. DELAWARE TENNESSEE RSA # 4 SUB 2, INC. TENNESSEE TEXAHOMA CELLULAR, L.P. Partnership TEXAS # 20 RURAL CELLULAR, INC. TEXAS TEXAS INVCO OF RSA # 6, INC. DELAWARE TOWNSHIP CELLULAR TELEPHONE, INC. DELAWARE TULSA GENERAL PARTNER, INC. DELAWARE UNITED STATES CELLULAR INVESTMENT COMPANY, INC. DELAWARE UNITED STATES CELLULAR INVESTMENT CO. OF ALLENTOWN PENNSYLVANIA UNITED STATES CELLULAR INVESTMENT COMPANY OF EAU CLAIRE WISCONSIN UNITED STATES CELLULAR INVESTMENT COMPANY OF FRESNO, INC. CALIFORNIA UNITED STATES CELLULAR INVESTMENT COMPANY OF OKLAHOMA CITY, INC. OKLAHOMA UNITED STATES CELLULAR INVESTMENT COMPANY OF SANTA CRUZ, INC. CALIFORNIA UNITED STATES CELLULAR INVESTMENT CORPORATION OF LOS ANGELES INDIANA UNITED STATES CELLULAR OPERATING COMPANY LLC (fka UNITED STATES CELLULAR OPERATING COMPANY) DELAWARE UNITED STATES CELLULAR OPERATING COMPANY OF BANGOR MAINE UNITED STATES CELLULAR OPERATING COMPANY OF CEDAR RAPIDS DELAWARE UNITED STATES CELLULAR OPERATING COMPANY OF DES MOINES IOWA UNITED STATES CELLULAR OPERATING COMPANY OF DUBUQUE IOWA UNITED STATES CELLULAR OPERATING COMPANY OF FT. PIERCE FLORIDA UNITED STATES CELLULAR OPERATING COMPANY OF KENOSHA DELAWARE UNITED STATES CELLULAR OPERATING COMPANY OF KNOXVILLE TENNESSEE UNITED STATES CELLULAR OPERATING COMPANY OF LACROSSE, INC. WISCONSIN UNITED STATES CELLULAR OPERATING COMPANY OF LEWISTON-AUBURN MAINE UNITED STATES CELLULAR OPERATING COMPANY OF MANCHESTER-NASHUA, INC. NEW HAMPSHIRE UNITED STATES CELLULAR OPERATING COMPANY OF MEDFORD OREGON UNITED STATES CELLULAR OPERATING COMPANY OF TULSA, INC. OKLAHOMA UNITED STATES CELLULAR OPERATING COMPANY OF WATERLOO IOWA UNITED STATES CELLULAR OPERATING COMPANY OF YAKIMA WASHINGTON UNITED STATES CELLULAR TELEPHONE COMPANY (GREATER KNOXVILLE), L.P. Partnership UNITED STATES CELLULAR TELEPHONE OF GREATER TULSA, L.L.C. OKLAHOMA UNIVERSAL CELLULAR FOR EAU CLAIRE MSA, INC. WISCONSIN USCC DISTRIBUTION CO. DELAWARE USCC FINANCIAL, LLC DELAWARE USCC PAYROLL CORPORATION DELAWARE USCC PURCHASE LLC DELAWARE USCC REAL ESTATE CORPORATION DELAWARE USCC WIRELESS INVESTMENT, INC. DELAWARE USCCI CORPORATION DELAWARE USCIC OF AMARILLO, INC. DELAWARE USCIC OF DAYTONA, LLC DELAWARE USCIC OF JACKSON, INC. DELAWARE USCIC OF NORTH CAROLINA RSA # 1, INC. DELAWARE USCIC OF OHIO RSA #9, INC. DELAWARE USCIC OF PENNSYLVANIA 5, INC. DELAWARE USCOC OF CHARLOTTESVILLE, INC. VIRGINIA USCOC OF CORPUS CHRISTI, INC. TEXAS USCOC OF CUMBERLAND, INC. MARYLAND USCOC OF FLORIDA RSA #7, INC. DELAWARE USCOC OF GREATER IOWA, INC PENNSYLVANIA USCOC OF GREATER MISSOURI, LLC (fka PEACE VALLEY CELLULAR TELEPHONE COMPANY) DELAWARE USCOC OF IDAHO RSA # 5, INC DELAWARE USCOC OF ILLINOIS RSA # 1, INC. VIRGINIA * 50% or more owned companies Page 2
UNITED STATES CELLULAR CORPORATION SUBSIDIARY AND AFFILIATED COMPANIES DECEMBER 31, 2002
STATE OF INCORPORATION ------------- USCOC OF ILLINOIS RSA # 4, INC. ILLINOIS USCOC OF IOWA RSA # 1, INC. IOWA USCOC OF IOWA RSA # 16, INC. DELAWARE USCOC OF JACKSONVILLE, INC. NORTH CAROLINA USCOC OF JACK-WIL, INC. DELAWARE USCOC OF NEW HAMPSHIRE RSA # 2, INC. DELAWARE USCOC OF NORTH CAROLINA RSA # 7, INC. NORTH CAROLINA USCOC OF OKLAHOMA RSA # 10, INC. OKLAHOMA USCOC OF OREGON RSA # 5, INC. DELAWARE USCOC OF PENNSYLVANIA RSA #10-B2, INC. DELAWARE USCOC OF RICHLAND, INC. WASHINGTON USCOC OF ROCKFORD, INC. ILLINOIS USCOC OF SOUTH CAROLINA RSA # 4, INC. SOUTH CAROLINA USCOC OF ST. JOSEPH, INC. DELAWARE USCOC OF TALLAHASSEE, INC. FLORIDA USCOC OF TEXAHOMA, INC. TEXAS USCOC OF VICTORIA, INC. TEXAS USCOC OF VIRGINIA RSA # 2, INC. VIRGINIA USCOC OF VIRGINIA RSA # 3, INC. VIRGINIA USCOC OF WASHINGTON 4, INC. DELAWARE USCOC OF WILMINGTON, INC. NORTH CAROLINA VERMONT RSA NO. 2-B2, INC. DELAWARE VICTORIA CELLULAR CORPORATION TEXAS VICTORIA CELLULAR PARTNERSHIP Partnership VIRGINIA RSA # 4, INC. VIRGINIA VIRGINIA RSA # 7, INC. VIRGINIA WARD BUTTE JOINT VENTURE Partnership WASHINGTON RSA # 5, INC. WASHINGTON WATERLOO / CEDAR FALLS CELLTELCO PARTNERSHIP Partnership WESTELCOM CELLULAR, INC. NEW YORK WESTERN SUB-RSA LIMITED PARTNERSHIP Partnership WILMINGTON CELLULAR PARTNERSHIP Partnership WILMINGTON CELLULAR TELEPHONE CO. NORTH CAROLINA WOODLAND WIRELESS, LP Partnership X-10 WIRELESS, L.P. Partnership YAKIMA MSA LIMITED PARTNERSHIP Partnership YAKIMA VALLEY PAGING LIMITED PARTNERSHIP Partnership * 50% or more owned companies Page 3
EX-23.1 10 a2103341zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 33-58911, 333-32521, and 333-88344), in the Registration Statement on Form S-4 (File No. 33-41826), and in the Registration Statements on Form S-8 (File Nos. 333-57063, 333-42366, 333-19403, 333-76455 and 333-103543) of United States Cellular Corporation of our report dated February 3, 2003, except as to Note 17, as to which the date is March 10, 2003, relating to the consolidated financial statements of United States Cellular Corporation, which appears in the 2002 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 3, 2003, except as to Note 17, as to which the date is March 10, 2003, relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois March 19, 2003 EX-23.2 11 a2103341zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if any part of a registration statement at the time such part becomes effective contains an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. This Form 10-K is incorporated by reference into the Company's filings on Form S-3 (File Nos. 33-58911, 333-32521, and 333-88344). Form S-4 (File No. 33-41826) and Form S-8 (File Nos. 333-57063, 333-42366, 333-19403, 333-76455, and 333-103543) (collectively, the Registration Statements) and, for purposes of determining any liability under the Securities Act, is deemed to be a new registration statement for each Registration Statement into which it is incorporated by reference. On May 23, 2002 the Board of Directors dismissed Arthur Andersen LLP as its independent public accountants and appointed PricewaterhouseCoopers LLP as its independent public accountants. After reasonable efforts, the Company has been unable to obtain Arthur Andersen's written consent to the incorporation by reference into the Registration Statements of its audit report with respect to Company's financial statements as of December 31, 2001 and 2000 and for the years then ended included in this Form 10-K. Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Form 10-K without a written consent from Arthur Andersen. As a result, however, Arthur Andersen may not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you may not be able to assert a claim against Andersen under Section 11(a) of the Securities Act for any purchases of securities under the Registration Statements made on or after the date of this Form 10-K. To the extent provided in Section 11(b)(3)(C) of the Securities Act, however, other persons who are liable under Section 11(a) of the Securities Act, including the Company's officers and directors, should still be able to rely on Arthur Andersen's original audit reports as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act. EX-99.1 12 a2103341zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, John E. Rooney, the chief executive officer of United States Cellular Corporation, certify that (i) the annual report on Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of United States Cellular Corporation. /s/ JOHN E. ROONEY ---------------------------- John E. Rooney March 20, 2003 EX-99.2 13 a2103341zex-99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Kenneth R. Meyers, the chief financial officer of United States Cellular Corporation, certify that (i) the annual report on Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of United States Cellular Corporation. /s/ KENNETH R. MEYERS ---------------------------- Kenneth R. 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			August 7-December 31, 2002
			(Dollars in thousands)
Operating Revenues
	Retail service		$	64,735
	Inbound roaming			376
	Long-distance and other			3,394

		Service Revenues		68,505
	Equipment sales			7,553

		Total Operating Revenues		76,058

Operating Expenses
	System operations			15,694
	Marketing and selling			42,304
	Cost of equipment sold			19,576
	General and administrative			40,355
	Depreciation			16,871
	Amortization of intangibles			7,425

		Total Operating Expenses		142,225

Operating (Loss)			$	(66,167	)

		December 31, 2002
		(Dollars in millions)
Current assets		$	16.8
Net property, plant and equipment			86.0
Licenses			53.1
Goodwill			78.2
Other			.6

	Total assets		234.7
Current liabilities			(13.4	)

Net assets to be transferred		$	221.3

	Payments Due by Period
Contractual Obligations	Total			2003			2004		2005			2006		2007			After 5 years
	(Dollars in millions)
Long-term Debt Obligations(1)	$	851.7		$	45.2		$	—	$	3.0		$	—	$	409.9		$	393.6
Average Interest Rate on Debt(2)		6.6	%		9.0	%		—		9.0	%		—		5.2	%		7.5	%
Operating Leases(3)	$	243.0		$	49.9		$	45.1	$	38.5		$	28.8	$	18.8		$	61.9
Purchase Obligations(4)		240.9			42.2			56.2		56.2			56.2		30.1			—

	$	1,335.6		$	137.3		$	101.3	$	97.7		$	85.0	$	458.8		$	455.5

		Collar
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)		Loan Amount (000's)
Vodafone	10,245,370	$	15.07-$16.07	$	22.22-$23.26	$	159,856

		(Dollars in millions)
Current assets, excluding $7.0 cash acquired		$	34.1
Property, plant and equipment			236.0
Other assets			0.8
Customer list			43.4
Licenses			163.5
Goodwill			168.4

	Total assets acquired		646.2

Current liabilities			(22.5	)
Non-current liabilities			(1.3	)

	Total liabilities assumed		(23.8	)

Net assets purchased		$	622.4

		December 31, 2002
		(Dollars in millions)
Deferred Tax Asset
	Net operating loss carryforward	$	43.3
	Partnership investments		(1.7	)
	Unearned revenue		7.1

			48.7
Less valuation allowance			(13.2	)

Total Deferred Tax Asset			35.5

Deferred Tax Liability
	Property, plant and equipment		267.6
	Licenses		141.2
	Marketable equity securities		53.4
	Other		(2.0	)

Total Deferred Tax Liability			460.2

	Net Deferred Income Tax Liability	$	424.7

			Common Shares		Series A Common Shares		Additional Paid-In Capital			Treasury Shares			Comprehensive Income			Accumulated Other Comprehensive (Loss) Income			Retained Earnings
			(Dollars in thousands)
Balance, December 31, 1999			$	54,713	$	33,006	$	1,331,274		$	—					$	81,391		$	774,257
Add (Deduct)
	Acquisition of wireless interests			27		—		2,805			—						—			—
	Employee benefit plans			201		—		11,648			2,220						—			—
	Conversion and repurchase of 6% zero coupon convertible debentures			105		—		(24,624	)		87,078						—			—
	Capital stock expense			—		—		90			—						—			—
	Repurchase Common Shares			—		—		—			(234,840	)					—			—
	Net income			—		—		—			—		$	192,907			—			192,907
	Other comprehensive income:
		Net unrealized (loss) on marketable equity securities		—		—		—			—			(97,687	)		(97,687	)		—

		Comprehensive income		—		—		—			—		$	95,220			—			—

Balance, December 31, 2000				55,046		33,006		1,321,193			(145,542	)					(16,296	)		967,164
Add (Deduct)
	Employee benefit plans			—		—		(1,051	)		11,202						—			—
	Conversion and repurchase of 6% zero coupon convertible debentures			—		—		(12,558	)		42,200						—			—
	Repurchase Common Shares			—		—		—			(29,870	)					—			—
	Net income			—		—		—			—		$	173,876			—			173,876
	Other comprehensive income:
		Net unrealized (loss) on marketable equity securities		—		—		—			—			(62,701	)		(62,701	)		—

		Comprehensive income		—		—		—			—		$	111,175			—			—

Balance, December 31, 2001			$	55,046	$	33,006	$	1,307,584		$	(122,010	)				$	(78,997	)	$	1,141,040
Add (Deduct)
	Employee benefit plans			—		—		(399	)		4,748						—			—
	Net income			—		—		—			—		$	(14,288	)		—			(14,288	)
	Other comprehensive income:
		Net unrealized income (loss) on—
		Derivative instrument		—		—		—			—			(5,181	)		(5,181	)		—
		Marketable equity securities		—		—		—			—			94,485			94,485			—

	Comprehensive income			—		—		—			—		$	75,016			—			—

Balance, December 31, 2002			$	55,046	$	33,006	$	1,307,185		$	(117,262	)				$	10,307		$	1,126,752

		Percentage Ownership
		December 31,
		2002		2001
Cellular investments
	Los Angeles SMSA Limited Partnership	5.5	%	5.5	%
	Raleigh-Durham MSA Limited Partnership	8.0	%	8.0	%
	Midwest Wireless Communications, LLC	15.7	%	15.7	%
	North Carolina RSA 1 Partnership	50.0	%	50.0	%
	Oklahoma City SMSA Limited Partnership	14.6	%	14.6	%

		August 7, 2002
		(Dollars in thousands)
Current assets, excluding $6,984 cash acquired		$	34,081
Property, plant and equipment			235,953
Other assets			815
Customer list			43,400
Licenses			163,500
Goodwill			168,436

	Total assets acquired		646,185

Current liabilities			(22,518	)
Non-current liabilities			(1,300	)

	Total liabilities assumed		(23,818	)

Net assets purchased			622,367
Notes issued to PrimeCo			(175,000	)
Accrued but unpaid items			(15,500	)

Cash required		$	431,867

	Year Ended December 31,
	2002			2001
	(Dollars in thousands, except per share amounts)
Service revenues	$	2,208,079		$	2,033,912
Equipment sales		92,402			97,888
Interest expense (including cost to finance acquisitions)		62,431			59,419
Net Income (Loss)		(51,186	)		110,802
Earnings per Common and Series A Common Share—Basic	$	(0.59	)	$	1.29
Earnings per Common and Series A Common Share—Diluted	$	(0.59	)	$	1.29

		December 31,
		2002				2001
		Book Value		Fair Value		Book Value		Fair Value
		(Dollars in thousands)
Cash and Cash Equivalents		$	14,864	$	14,864	$	28,941	$	28,941
9% Series A Notes			45,200		45,200		—		—
Notes Payable			460,000		460,000		264,000		264,000
Long-term Debt
	6% zero coupon debentures		148,604		113,229		140,156		143,344
	7.25% notes		250,000		260,226		250,000		256,550
	8.75% notes		130,000		135,408		—		—
	Variable prepaid forward contracts		159,856		156,827		—		—
	Intercompany loan		105,000		113,344		—		—
	Other	$	13,000	$	14,132	$	13,000	$	14,254

	Year Ended December 31,
	2002	2001
Tax-Deferred Savings Plan	—	40,510
Employee stock options, stock appreciation rights and awards	42,207	449,634
Employee Stock Purchase Plan	26,222	22,155

	68,429	512,299

		Weighted Number of Shares		Weighted Average Option Price		Weighted Average Black-Scholes Values of Option Grants
Stock Options
Outstanding December 31, 1999 (106,104 exercisable)		592,485		$	28.14
	Granted	166,254		$	57.57	$	32.80
	Exercised	(200,455	)	$	19.74
	Canceled	(33,104	)	$	35.28

Outstanding December 31, 2000 (127,012 exercisable)		525,180		$	40.32
	Granted	498,431		$	54.90	$	33.65
	Exercised	(80,831	)	$	24.31
	Canceled	(58,542	)	$	38.38

Outstanding December 31, 2001 (199,875 exercisable)		884,238		$	50.42
	Granted	869,637		$	38.80	$	19.74
	Exercised	(9,456	)	$	29.45
	Canceled	(200,985	)	$	47.17

Outstanding December 31, 2002 (335,972 exercisable)		1,543,434		$	45.15

	Minimum Future Rentals
	(Dollars in thousands)
2003	$	49,860
2004		45,107
2005		38,495
2006		28,795
2007		18,811
Thereafter	$	61,944

	2002
	Quarter Ended
	March 31		June 30			Sept. 30			Dec. 31
	(Dollars in thousands, except per share amounts)
Operating Revenues	$	478,420	$	524,339		$	579,786		$	601,933
Operating Income		79,676		101,272			62,697			37,521
Gain (Loss) on Marketable Securities and Other Investments		—		(244,699	)		(34,210	)		(16,545	)
Income (Loss) Before Cumulative Effect of Accounting Change		44,393		(88,382	)		10,975			14,629
Net Income (Loss)	$	48,490	$	(88,382	)	$	10,975		$	14,629
Weighted Average Shares Outstanding (000s)		86,053		86,083			86,095			86,113
Basic Earnings per Share Before Cumulative Effect of Accounting Change	$	0.51	$	(1.03	)	$	0.13		$	0.17
Diluted Earnings per Share Before Cumulative Effect of Accounting Change		0.51		(1.03	)		0.13			0.17
Basic Earnings per Share—Net Income (Loss)		0.56		(1.03	)		0.13			0.17
Diluted Earnings per Share—Net Income (Loss)	$	0.56	$	(1.03	)	$	0.13		$	0.17

			Three Months Ended
			March 31, 2002							June 30, 2002									September 30, 2002
Effects of 2002 Accounting Changes			As Reported		Changes			As Restated		As Reported			Changes			As Restated			As Reported		Changes			As Restated
			(Dollars in thousands, except per share amounts)
Operating revenues
	Changes related to EITF 01-09 reclassification(1)				$	—							$	(3,370	)						$	(14,850	)
	Changes related to EITF 01-09 accrual(1)					—								—								(2,935	)

		Total	$	478,420	$	—		$	478,420	$	527,710		$	(3,370	)	$	524,340		$	597,571	$	(17,785	)	$	579,786
Operating expenses
	Changes related to EITF 01-09 reclassification(1)				$	—							$	(3,370	)						$	(14,850	)
	Changes related to SAB 101(2)					(830	)							(1,223	)							(937	)

		Total	$	399,574	$	(830	)	$	398,744	$	427,661		$	(4,593	)	$	423,068		$	532,876	$	(15,787	)	$	517,089
Operating income				78,846		830			79,676		100,049			1,223			101,272			64,695		(1,998	)		62,697
Income (loss) before cumulative effect of accounting change				43,892		501			44,393		(89,102	)		720			(88,382	)		12,164		(1,189	)		10,975
Cumulative effect of accounting change(2)				—		4,097			4,097		—			—			—			—		—			—
Net income (loss)				43,892		4,598			48,490		(89,102	)		720			(88,382	)		12,164		(1,189	)		10,975
Basic earnings per share from cumulative effect of accounting change				—		0.04			0.04		—			—			—			—		—			—
Basic earnings per share before cumulative effect of accounting change				0.51		—			0.51		(1.04	)		0.01			(1.03	)		0.14		(0.01	)		0.13
Diluted earnings per share before cumulative effect of accounting change				0.51		—			0.51		(1.04	)		0.01			(1.03	)		0.14		(0.01	)		0.13
Basic earnings per share—Net Income (Loss)				0.51		0.05			0.56		(1.04	)		0.01			(1.03	)		0.14		(0.01	)		0.13
Diluted earnings per share—Net Income (Loss)			$	0.51	$	0.05		$	0.56	$	(1.04	)	$	0.01		$	(1.03	)	$	0.14	$	(0.01	)	$	0.13

	2002 Common Shares
				2001 Common Shares
Calendar Period				2001 Common Shares
Calendar Period	High		Low	High		Low
First Quarter	$	45.50	34.49	$	68.57	$	54.40
Second Quarter		42.15	24.90		67.65		55.35
Third Quarter		33.25	22.97		60.10		47.60
Fourth Quarter		31.03	23.80		49.15		40.70