10-K/A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 2)

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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.                   

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

        As of June 30, 2003, the aggregate market value of registrant's Common Shares held by nonaffiliates was approximately $381.6 million (based upon the closing price of the Common Shares on June 30, 2003, of $25.45, 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 U.S. Cellular is an affiliate.

        The number of shares outstanding of each of the registrant's classes of common stock, as of February 29, 2004, is 53,146,566 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 2003 Annual Report to Shareholders described in the cross reference sheet and table of contents attached hereto are incorporated by reference into Part II of this report.

Explanatory Note

        United States Cellular Corporation ("U.S. Cellular") is filing this Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2003, which was originally filed with the Securities and Exchange Commission ("SEC") on March 12, 2004 and amended on April 29, 2004, to amend Item 1 "Business", Item 6 "Selected Consolidated Financial Data," Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition" ("MD&A"), Item 7A "Quantitative and Qualitative Disclosures About Market Risk," Item 8 "Financial Statements and Supplementary Data" and Item 15 "Exhibits, Financial Statement Schedules and Reports on Form 8-K."

        U.S. Cellular filed a Current Report on Form 8-K on April 19, 2004 which disclosed that U.S. Cellular would amend its Annual Report on Form 10-K for the year ended December 31, 2003 to restate financial statements and financial information for each of the years ended December 31, 2003 and 2002, including restated interim quarterly information for those years. This Amendment No. 2 includes the restated financial information for all such periods. U.S. Cellular did not amend its Annual Report on Form 10-K for the year ended December 31, 2002 or any of its Quarterly Reports on Form 10-Q for the interim periods in 2003 or 2002 to reflect the restated financial information included herein and, accordingly, only the restated financial information included in this Amendment No. 2 should be relied upon for such periods.

        The restatement of U.S. Cellular's 2003 and 2002 financial statements relates to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," which was adopted on January 1, 2002. Prior to January 1, 2002, U.S. Cellular allocated the excess of purchase price over tangible assets and liabilities acquired to wireless license costs and goodwill. At that time, the accounting treatment for the U.S. Cellular's wireless license costs and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

        Based upon a subsequent review of goodwill, U.S. Cellular has restated the allocation of $138.9 million of purchase price recorded as goodwill to wireless license costs as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of wireless license costs by a corresponding $90.7 million. Following these adjustments, U.S. Cellular reperformed the impairment tests for its wireless license costs as of January 1, 2002, and recorded an impairment loss of $12.7 million ($20.9 million before income taxes of $8.2 million). This impairment has been recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

        In the first quarter of 2003, U.S. Cellular had recorded a loss on assets held for sale related to the pending disposition of certain wireless properties. The investment in licenses upon which the impairment was recorded in the first quarter of 2002 included the investment in wireless licenses of these properties. As a result, a portion of the originally recognized loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, loss on assets held for sale in 2003 has been reduced by $1.9 million, before income taxes of $0.8 million. In the third quarter of 2003, U.S. Cellular had originally recorded an income tax expense upon the closing of the disposition of such wireless properties. This tax expense has been reduced due to the reversal of additional deferred tax liabilities that were recorded with respect to the wireless properties exchanged in conjunction with the restatement from goodwill to investment in licenses. Consequently, income tax expense in 2003 has been reduced by $10.7 million.

        In addition, as a result of the restatement discussed above, U.S. Cellular also reperformed the annual impairment test for its wireless license costs for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before income taxes of $19.6 million. This additional loss has been recorded in the second quarter of 2003.

        Except as expressly stated herein, this amendment does not update any of the disclosures contained in the original filing or amendment No. 1 to reflect any events that occurred after the original filing dates of March 12, 2004 or April 29, 2004, respectively. The filing of this Form 10-K/A shall not be deemed an admission that the original filing, when made included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

		Page Number or Reference(1)
Item  1.	Business	3
Item  5.	Market for Registrant's Common Equity and Related Stockholder Matters	32	(2)
Item  6.	Selected Consolidated Financial Data	32	(3)
Item  7.	Management's Discussion and Analysis of Results of Operations and Financial Condition	32	(4)
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32	(4)
Item  8.	Financial Statements and Supplementary Data	32	(5)
Item 9A.	Controls and Procedures	32
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	33

(1)

Parenthetical references are to information incorporated by reference from Exhibit 13 to this document, which includes portions of the registrant's Annual Report to Shareholders for the year ended December 31, 2003 ("Annual Report").

(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 Auditors" and "Copy of Previously Issued Report of Independent Accountants."

United States Cellular Corporation

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

PART I

Item 1. Business

        United States Cellular Corporation ("U.S. Cellular") provides wireless telephone service to 4,409,000 customers through the operations of 182 majority-owned ("consolidated") wireless licenses throughout the United States. Since 1985, when it began providing cellular service in Knoxville, Tennessee and Tulsa, Oklahoma, U.S. Cellular has expanded its wireless networks and customer service operations to cover seven market areas in 28 states as of December 31, 2003. Through a 2003 exchange transaction, U.S. Cellular has rights to 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 U.S. Cellular currently includes in its consolidated operations cover a total population of more than one million in each market area.

        U.S. Cellular's ownership interests in wireless licenses include interests in licenses covering 165 cellular metropolitan statistical areas (as designated by the U.S. Office of Management and Budget and used by the Federal Communications Commission ("FCC") in designating metropolitan cellular market areas) or rural service areas (as used by the FCC in designating non-metropolitan statistical area cellular market areas) ("cellular licenses") and 70 personal communication service basic trading areas (used by the FCC in dividing the United States into personal communication service market areas for licenses in Blocks C through F). Of those interests, U.S. Cellular owns controlling interests in 133 cellular licenses and 49 personal communication service basic trading areas. U.S. Cellular also owns rights to acquire controlling interests in 21 additional personal communication service licenses through an acquisition agreement with AT&T Wireless Services, Inc. ("AT&T Wireless"). See "Wireless Systems Development—Asset Exchange with AT&T Wireless."

        At December 31, 2003, U.S. Cellular has consolidated four interests in joint ventures in which it has a limited partnership interest because it is deemed to have a controlling financial interest. In January 2004, U.S. Cellular acquired the remaining partnership interests in three of these entities and now owns 100% of the interests in these licenses.

        In November 2003, U.S. Cellular agreed to sell its controlling interests in six cellular licenses in southern Texas to AT&T Wireless Services, Inc. ("AT&T Wireless") for cash. This transaction was completed in February 2004. Subsequent to the completion of this transaction, in which one entire market area was divested, U.S. Cellular's operations will cover six market areas.

        U.S. Cellular manages the operations of all but two of the licenses in which it owns a controlling interest; U.S. Cellular has contracted with another wireless operator to manage the operations of the other two licenses. U.S. Cellular also manages the operations of four additional licenses in which it does not own a controlling interest, through an agreement with the controlling interest holder or holders. U.S. Cellular manages or has the rights to manage the operations of all except one of the 70 personal communication service licenses in which it owns an interest. In the remaining personal communication service license in which U.S. Cellular owns a limited partner interest, the general partner has the authority to select the manager of this operation.

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        The following table summarizes the status of U.S. Cellular's interests in wireless markets at December 31, 2003. Personal communication service markets are designated as "PCS".

	Total		Cellular		PCS
Consolidated markets (1)	182		133		49
Consolidated markets to be acquired pursuant to existing agreements (2)	21		—		21
Minority interests accounted for using equity method (3)	26		26		—
Minority interests accounted for using cost method (4)	6		6		—
Total markets currently owned	235		165		70
Consolidated markets to be divested pursuant to existing agreements (5)	(6	)	(6	)	—
Total markets to be owned after completion of pending transactions	229		159		70

(1)

U.S. Cellular owns a controlling interest in each of the 133 cellular markets and 49 personal communication service markets. Included in the 49 consolidated personal communication service markets are four markets in which U.S. Cellular owns a limited partner interest, and U.S. Cellular includes the operations of these licenses in its consolidated results because it is considered to have the controlling financial interest for financial reporting purposes.

(2)

U.S. Cellular owns rights to acquire controlling interests in 21additional personal communication service licenses through an acquisition agreement with AT&T Wireless which was closed in August 2003. U.S. Cellular has up to five years from the transaction closing date to exercise its rights to acquire these licenses. See "Wireless Systems Development—Asset Exchange with AT&T Wireless."

(3)

Represents cellular licenses in which U.S. Cellular owns an interest that is not a controlling financial interest and which are accounted for using the equity method. U.S. Cellular's investments in these licenses are included in investment in unconsolidated entities in its balance sheet and its proportionate share of the net income of these licenses is included in investment income in its statement of operations.

(4)

Represents cellular licenses in which U.S. Cellular owns an interest that is not a controlling financial interest and which are accounted for using the cost method. U.S. Cellular's investments in these licenses are included in investment in unconsolidated entities in its balance sheet.

(5)

U.S. Cellular had agreed to sell these markets, which are included in "Consolidated Markets," to AT&T Wireless as of December 31, 2003. The transaction was completed in February 2004.

        Some of the territory covered by the personal communication service licenses U.S. Cellular operates overlaps with territory covered by the cellular licenses it operates. For the purpose of tracking population counts in order to calculate market penetration, when U.S. Cellular acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the population counts for any overlapping licensed area. Only non-overlapping, incremental population counts are added to the reported amount of total population in the case of an acquisition of a licensed area that overlaps a previously owned licensed area. The incremental population counts 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" do not duplicate any population counts in the case of any overlapping licensed areas U.S. Cellular owns.

        U.S. Cellular owns interests in consolidated wireless licenses which cover a total population of 46.3 million as of December 31, 2003. U.S. Cellular also owns investment interests in wireless licenses which represent 2.1 million population equivalents as of that date. "Population equivalents" represent the population of a wireless licensed area, based on 2002 Claritas estimates, multiplied by the percentage interest that U.S. Cellular owns in an entity licensed to operate such wireless license.

        U.S. Cellular 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. U.S. Cellular'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. U.S. Cellular anticipates that grouping its operations into market areas will continue to provide it with certain economies in its capital and operating costs. In recent years, U.S. Cellular's focus has broadened to include exchanges and divestitures of consolidated and investment interests which are considered less essential to its operating strategy.

4

        Wireless systems in U.S. Cellular's consolidated markets served 4,409,000 customers at December 31, 2003, and contained 4,184 cell sites. The average penetration rate in U.S. Cellular's consolidated markets was 9.53% at December 31, 2003, and the number of customers who discontinued service (the "churn rate") in these markets averaged 1.78% per month for the twelve months ended December 31, 2003.

        U.S. Cellular was incorporated in Delaware in 1983. U.S. Cellular's executive offices are located at 8410 West Bryn Mawr, Chicago, Illinois 60631. Its telephone number is 773-399-8900. The Common Shares of U.S. Cellular are listed on the American Stock Exchange under the symbol "USM." U.S. Cellular's Liquid Yield Option Notes are also listed on the American Stock Exchange under the symbol "USM.B." U.S. Cellular's 8.75% Senior Notes are listed on the New York Stock Exchange under the symbol "UZG." U.S. Cellular is a majority-owned subsidiary of Telephone and Data Systems, Inc. (AMEX symbol "TDS"). TDS owns 82.1% of the combined total of the outstanding Common Shares and Series A Common Shares of U.S. Cellular and controls 96.0% of the combined voting power of both classes of common stock.

Available Information

        U.S. Cellular's website is http://www.uscellular.com. Investors may access, free of charge, through the About Us / Investor Relations portion of the website, U.S. Cellular'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.

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 services, similar to those offered by conventional ("landline") telephone services. Data transmission capabilities offered by wireless telephone systems may be at slower speeds than those offered by landline telephone or other data service providers.

        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. Each mobile telephone switching office is connected to the landline telephone network and potentially other mobile telephone switching offices. 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 mobile telephone switching office 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 mobile telephone switching office 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 personal communication service licensed area, and these licensed areas overlap with cellular licensed areas. As a result, personal communication services license holders can and do compete with cellular license holders for customers. In addition, specialized mobile radio systems operators such as Nextel are providing wireless services similar to those offered by U.S. Cellular. Competition for customers also includes competing communications technologies, such as:

•

conventional landline telephone,



•

mobile satellite communications systems,



•

radio paging, and

5

•

voice over Internet Protocol.

        Personal communication service licensees have initiated service in nearly all areas of the United States, including substantially all of U.S. Cellular's licensed areas, and U.S. Cellular expects other wireless operators to continue deployment in all of U.S. Cellular's operating regions throughout 2004 and beyond. Additionally, technologies such as enhanced specialized mobile radio are competitive with wireless service in many of U.S. Cellular's markets.

        The services available to wireless customers and the sources of revenue available to wireless system operators are similar to those provided by 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 U.S. Cellular 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 personal communication service radio frequencies) wireless telephones can roam in other companies' service areas which have a compatible digital technology in place. Likewise, U.S. Cellular 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' mobile telephone switching offices process information digitally, on certain cellular systems the radio transmission uses analog technology. All personal communication service systems utilize digital radio transmission. Several years ago, certain digital transmission techniques were approved for implementation by the wireless industry in the United States. 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 U.S. Cellular's operations in a substantial portion of its markets. Another digital technology, Code Division Multiple Access ("CDMA"), was also deployed by U.S. Cellular in its remaining markets.

        In late 2001, U.S. Cellular announced its plans to migrate to a single digital technology, CDMA for its customers, in all of its markets. U.S. Cellular believes that a single digital technology platform represents the best network strategy to foster its future growth. In 2002, U.S. Cellular began its plans to deploy CDMA 1XRTT technology, which improves capacity and allows for higher speed data transmission than basic CDMA, throughout all of its markets, over a three-year period ending in 2004. As of December 31, 2003, U.S. Cellular had deployed CDMA 1XRTT technology in a substantial portion of its licensed areas, including areas where it had previously deployed TDMA technology, as part of its technology conversion plans. Migration of U.S. Cellular's customers to CDMA handsets in these markets is expected to take a few years.

        U.S. Cellular believes CDMA technology is the best digital radio technology choice for its operations for the following reasons:

•

TDMA technology may not be supported by manufacturers of future generations of wireless products due to limitations on the services it enables wireless companies to provide.



•

The lower long-term cost of CDMA in relation to the spectrum efficiency it provides compared to similar costs of other technologies.



•

Improved coverage provided by CDMA at most cell sites compared to other technologies.



•

A more efficient evolution through CDMA to a wireless network with higher data speeds, which will enable U.S. Cellular to provide enhanced data services.

        The main disadvantage of U.S. Cellular's conversion to CDMA technology is that it is generally not used outside of the United States. A third digital technology, Global System for Mobile Communication ("GSM"), is the standard technology in Europe and most other areas outside the United States. GSM technology, which is used by certain wireless companies in the United States, has certain advantages over CDMA in that GSM phones can be used more widely outside of the

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United States and GSM has a larger installed worldwide customer base. Also, TDMA technology is used in many parts of the United States and in other countries as well. Since CDMA technology is not compatible with GSM or TDMA technology, U.S. Cellular customers with CDMA-based handsets may not be able to use all of their handset features when traveling through GSM- and TDMA-based networks. Through roaming agreements with other CDMA-based wireless carriers, U.S. Cellular's customers may access CDMA service in virtually all areas of the United States.

        U.S. Cellular will continue to retain TDMA technology for the next several years in markets in which such technology is in use today. This will enable U.S. Cellular to provide TDMA-based service to its customers who still choose to use TDMA-based handsets and to roamers from other wireless providers who have TDMA-based networks. Also, since the TDMA equipment has analog capabilities embedded, U.S. Cellular will maintain the TDMA network in order to be able to meet the FCC mandate of retaining analog capability through 2008.

        U.S. Cellular's Operations.    Management anticipates further growth in wireless units in service and revenues in 2004 as it continues to expand through internal growth and as the licenses acquired in 2001, 2002 and 2003 become integrated into its operations.

        Expenses associated with this customer and revenue growth may reduce the amount of cash flows from operating activities and operating income during 2004. In addition, U.S. Cellular anticipates that the seasonality of revenue streams and operating expenses may cause U.S. Cellular's cash flows from operating activities and operating income to vary from quarter to quarter.

        Changes in any of several factors may reduce U.S. Cellular's growth in operating income and net income over the next few years. These factors include but are not limited to:

•

the growth rate in U.S. Cellular's customer base;



•

the usage and pricing of wireless services;



•

the cost to begin or integrate operations of newly acquired licensed areas;



•

the churn rate;



•

the cost of providing wireless services, including the cost of attracting and retaining customers;



•

the impact of the ability of wireless customers to retain, subject to certain geographical limitations, their existing telephone numbers when switching from one telecommunications carrier to another ("wireless number portability") on U.S. Cellular's business;



•

the completion of U.S. Cellular's migration to a CDMA network platform, which will require capital expenditures;



•

continued competition from other wireless licensees and other telecommunication technologies; and



•

continuing technological advances which may provide wireless products/services and additional competitive alternatives to wireless service.

        U.S. Cellular 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 included seven market areas as of December 31, 2003. See "U.S. Cellular's Wireless Interests."

Wireless Systems Development

        Acquisitions, Divestitures and Exchanges.    U.S. Cellular assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from grouping its licenses geographically. U.S. Cellular also reviews attractive opportunities for the acquisition of additional wireless spectrum. Over the past few years, U.S. Cellular 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, such as the 2003 Georgia and Florida exchange transaction with AT&T Wireless. U.S. Cellular has also completed outright sales of other less strategic licenses, such as

7

the transaction completed in February 2004 pursuant to which U.S. Cellular sold certain licenses and operations in southern Texas to AT&T Wireless, and has purchased controlling interests in licenses which enhance its operating market areas. In 2001, U.S. Cellular began acquiring interests in personal communication service licenses. These licenses are in markets which are either adjacent to U.S. Cellular's current operations, thus expanding its current operating market areas, or are in territories in which U.S. Cellular currently operates, and will add spectrum capacity to those operations.

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

        U.S. Cellular 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.

        Asset Exchange with AT&T Wireless.    On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless to exchange wireless properties. When this transaction is fully consummated, U.S. Cellular will receive 10 and 20 megahertz personal communication service licenses in 13 states contiguous to and that overlap existing properties in the Midwest and the Northeast; approximately $34 million in cash; and minority interests in six licenses it currently controls. On August 1, 2003, U.S. Cellular completed the transfer of wireless assets and customers in 10 markets in Florida and Georgia, representing the majority of U.S. Cellular's operations in these states, to AT&T Wireless and the assignments to it from AT&T Wireless of a portion of the personal communication service licenses. The assignment and development of 21 licenses has been deferred by U.S. Cellular for a period of up to five years from the closing date, in accordance with the agreement. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with the service requirements of the FCC. On August 1, 2003, U.S. Cellular also received the $34 million in cash and the minority interests. The acquisition of the licenses in the exchange was accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular to AT&T Wireless was accounted for as a sale.

        The 15 licenses that have been transferred to U.S. Cellular as of December 31, 2003, with a fair value totaling $136.6 million, are accounted for in Licenses on the consolidated balance sheet. The 21 licenses that have not yet been assigned to U.S. Cellular, with a fair value totaling $42.0 million, are accounted for in License rights on the consolidated balance sheet. All asset values related to the properties acquired or pending, including license values, were determined using an independent valuation.

        Prior to the close of the AT&T Wireless exchange, U.S. Cellular allocated $70.0 million of goodwill related to the properties transferred to AT&T Wireless to assets of operations held for sale in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." A loss of $23.9 million was recorded in 2003 as a loss on assets held for sale (included in operating expenses), representing the difference between the book value of the markets transferred to AT&T Wireless and the fair value of the assets received or to be received in the transaction.

        Pending Divestiture of Markets to AT&T Wireless.    On November 26, 2003, U.S. Cellular entered into an agreement with AT&T Wireless, pursuant to which U.S. Cellular would sell its majority interests and operations in six cellular markets to AT&T Wireless for $95 million in cash, excluding a working capital adjustment. These six markets represent U.S. Cellular's entire southern Texas market area. As of the date of the agreement, U.S. Cellular accounted for the assets and liabilities to be sold as assets and liabilities of operations held for sale in accordance with SFAS No. 144

8

"Accounting for the Impairment or Disposal of Long-Lived Assets." The results of operations of the markets held for sale to AT&T Wireless at December 31, 2003 were included in results of operations through the transaction closing date in February 2004.

        A loss of $22.0 million was recorded in 2003 as a Loss on assets held for sale (included in operating expenses), representing the difference between the book value of the markets to be sold to AT&T Wireless and the cash to be received in the transaction.

Wireless Interests and Operating Market Areas

        U.S. Cellular 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 U.S. Cellular'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 U.S. Cellular certain economies in its capital and operating costs. These economies are made possible through the elimination of outbound roaming costs and increased sharing of facilities, personnel and other costs, enabling U.S. Cellular to maintain a relatively low per customer cost of service. The extent to which U.S. Cellular 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 following section details U.S. Cellular's wireless interests, including those it owned or had the right to acquire as of December 31, 2003. The table presented therein lists the markets that U.S. Cellular manages or has the right to manage, grouped according to operating market area. U.S. Cellular's operating structure shows the areas in which U.S. Cellular 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 table aggregates the total population of the consolidated licenses within each operating market area, regardless of U.S. Cellular's percentage ownership in the licenses included in such operating market areas. Those markets in which U.S. Cellular owns less than 100% of the license show U.S. Cellular's ownership percentage; in all others, U.S. Cellular owns 100% of the license. For licenses in which U.S. Cellular owns an investment interest, the related population equivalents are shown, defined as the total population of each licensed area multiplied by U.S. Cellular's ownership interest in each such license.

        The total population and population equivalents measures are provided to enable comparison of the relative size of each operating market area to U.S. Cellular's consolidated operations and to enable comparison of the relative size of U.S. Cellular's consolidated markets to its investment interests, respectively. The total population of U.S. Cellular's consolidated markets may have no direct relationship to the number of wireless customers or the revenues that may be realized from the operation of the related wireless systems.

9

U.S. CELLULAR'S WIRELESS INTERESTS

        The table below sets forth certain information with respect to the interests in wireless markets which U.S. Cellular owned or had the right to acquire pursuant to definitive agreements as of December 31, 2003.

        Some of the territory covered by the personal communication service licenses U.S. Cellular owns overlaps with territory covered by the cellular licenses it owns. For the purpose of tracking amounts in the "2002 Total Population" column in the table below, when U.S. Cellular acquires or agrees to acquire a licensed area that overlaps a licensed area it already owns, it does not duplicate the total population for any overlapping licensed area. Only non-overlapping, incremental population amounts are added to the amounts in the "2002 Total Population" 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				Current or Future Percentage Interest (1)		2002 Total Population (2)
Markets Currently Consolidated or Which Are Expected To Be Consolidated
MIDWEST MARKET AREA:
	Chicago Major Trading Area/Michigan
		Chicago, IL-IN-MI-OH 20MHz B Block MTA # (3) (4)
		Battle Creek, MI 20MHz A Block # (5)
		Jackson, MI 10MHz A Block # (5)
		Kalamazoo, MI 20MHz A Block # (5)
			Total Chicago Major Trading Area/Michigan			12,865,000
	Wisconsin/Minnesota
		Milwaukee, WI
		Madison, WI		92.50	%
		Columbia (WI 9)
		Appleton, WI
		Wood (WI 7)
		Rochester, MN 10MHz F Block #
		Vernon (WI 8)
		Green Bay, WI
		Racine, WI		92.15	%
		Kenosha, WI		99.32	%
		Janesville-Beloit, WI
		Door (WI 10)
		Sheboygan, WI
		La Crosse, WI		95.11	%
		Trempealeau (WI 6) (3)
		Pierce (WI 5) (3)
		Milwaukee, WI 10MHz D Block #
		Madison, WI 10MHz F Block #
			Total Wisconsin/Minnesota			4,700,000
	Iowa/Nebraska/South Dakota
		Des Moines, IA
		Davenport, IA-IL		97.37	%
		Sioux City, IA-NE-SD 10MHz F Block # (5)
		Cedar Rapids, IA		96.43	%
		Iowa (IA 6)
		Muscatine (IA 4)
		Waterloo-Cedar Falls, IA		93.03	%
		Hardin (IA 11)
		Iowa City, IA
		Jackson (IA 5)
		Kossuth (IA 14)
		Lyon (IA 16)
		Dubuque, IA		95.51	%
		Mitchell (IA 13)
		Audubon (IA 7)
		Union (IA 2)
		Fort Dodge, IA 10MHz D Block # (5)
		Des Moines, IA 10MHz D Block #
		Davenport, IA-IL 10MHz E Block #
		Clinton, IA-IL 10MHz E Block #
		Burlington, IA-IL-MO 10MHz E Block #
		Iowa City, IA 10MHz E Block #
		Ottumwa, IA 10MHz E Block #
			Total Iowa/Nebraska/South Dakota			2,727,000

10

Markets Currently Consolidated or Which Are Expected To Be Consolidated
MIDWEST MARKET AREA(continued):
	Illinois/Indiana
		Indianapolis, IN 10MHz F Block # (5) (6)
		Peoria, IL
		Jo Daviess (IL 1)
		Rockford, IL
		Bloomington-Bedford, IN 10MHz B Block # (5)
		Terre Haute, IN-IL 20MHz B Block #
		Adams (IL 4) *
		Carbondale-Marion, IL 10MHz A Block/10MHz D Block # (5)
		Mercer (IL 3)
		Miami (IN 4) *		85.71	%
		Muncie, IN 10MHz B Block # (5)
		Anderson, IN 10MHz B Block # (5)
		Lafayette, IN 10MHz B Block #
		Columbus, IN 10MHz B Block # (5)
		Warren (IN 5) *		33.33	%
		Mount Vernon-Centralia, IL 10MHz A Block #
		Kokomo-Logansport, IN 10MHz B Block #
		Richmond, IN 10MHz B Block # (5)
		Vincennes-Washington, IN-IL 10MHz B Block # (5)
		Marion, IN 10MHz B Block #
		Alton, IL *
		Rockford, IL 10MHz E Block #
		Peoria, IL 10MHz C Block # (7)		85.00	%
		Peoria, IL 10MHz E Block #
		Springfield, IL 10MHz E Block/10MHz F Block #
		Decatur-Effingham, IL 10MHz E Block/10MHz F Block #
		Bloomington, IL 10MHz E Block/10MHz F Block #
		Champaign-Urbana, IL 10MHz E Block/F Block #
		LaSalle-Peru-Ottawa-Streator, IL 10MHz C Block # (7)		85.00	%
		LaSalle-Peru-Ottawa-Streator, IL 10MHz F Block #
		Danville, IL-IN 15MHz C Block # (7)		85.00	%
		Galesburg, IL 30MHz C Block #
		Jacksonville, IL 10MHz F Block #
		Mattoon, IL 10MHz E Block/10MHz F Block #
			Total Illinois/Indiana			5,183,000
	Nebraska/Iowa/Missouri/Kansas
		Omaha, NE-IA 10 MHz A Block/10MHz E Block #
		Lincoln, NE 10MHz F Block #
		St. Joseph, MO-KS 10MHz E Block #
		Mills (IA 1)
			Total Nebraska/Iowa/Missouri/Kansas			1,558,000
	Missouri/Illinois/Arkansas
		St. Louis, MO/IL 10MHz A Block #
		Springfield, MO 20MHz A Block #
		Cape Girardeau-Sikeston, MO/IL 10MHz A Block/10MHz D Block # (5)
		Moniteau (MO 11)
		Columbia, MO *
		Poplar Bluff, MO/AR 10MHz A Block # (5)
		Stone (MO 15)
		Jefferson City, MO 10MHz A Block #
		Laclede (MO 16)
		Rolla, MO 10MHz A Block #
		Washington (MO 13)
		Callaway (MO 6) *
		Sedalia, MO 10MHz C Block # (8)
		Schuyler (MO 3)
		Shannon (MO 17)
		Linn (MO 5) (3)
		Columbia, MO 10MHz A Block #
		Harrison (MO 2) (3)
			Total Missouri/Illinois/Arkansas			4,637,000
TOTAL MIDWEST MARKET AREA						31,670,000

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Markets Currently Consolidated or Which Are Expected To Be Consolidated
MID-ATLANTIC MARKET AREA:
	Eastern North Carolina/South Carolina
		Harnett (NC 10)
		Rockingham (NC 7)
		Northampton (NC 8)
		Greenville (NC 14)
		Greene (NC 13)
		Hoke (NC 11)
		Wilmington, NC		98.83	%
		Chesterfield (SC 4)
		Chatham (NC 6)
		Jacksonville, NC		97.57	%
		Sampson (NC 12)
		Camden (NC 9)
			Total Eastern North Carolina/South Carolina			2,793,000
	Virginia/North Carolina
		Roanoke, VA
		Giles (VA 3)
		Bedford (VA 4)
		Ashe (NC 3)
		Lynchburg, VA
		Charlottesville, VA		95.37	%
		Buckingham (VA 7)
		Tazewell (VA 2) (3)
		Bath (VA 5)
			Total Virginia/North Carolina			1,457,000
	West Virginia/Maryland/Pennsylvania/Ohio
		Monongalia (WV 3) *
		Raleigh (WV 7) *
		Grant (WV 4) *
		Tucker (WV 5) *
		Hagerstown, MD *
		Cumberland, MD *
		Bedford (PA 10) * (3)
		Garrett (MD 1) *
			Total West Virginia/Maryland/Pennsylvania/Ohio			1,155,000
		TOTAL MID-ATLANTIC MARKET AREA				5,405,000
TEXAS/OKLAHOMA/MISSOURI/KANSAS/ARKANSAS MARKET AREA:
		Oklahoma City, OK 10MHz F Block #
		Tulsa, OK * (8)
		Wichita, KS 10MHz A Block # (5)
		Fayetteville-Springdale, AR 10MHz A Block # (5)
		Fort Smith, AR-OK 10MHz A Block # (5)
		Seminole (OK 6) (8)
		Garvin (OK 9)
		Joplin, MO *
		Elk (KS 15) *		75.00	%
		Wichita Falls, TX *		78.46	%
		Lawton, OK *		78.46	%
		Nowata (OK 4) * (3) (8)
		Lawrence, KS 10MHz E Block # (5)
		Jackson (OK 8) *		78.46	%
		Enid, OK 10MHz C Block # (8)
		Haskell (OK 10)
		Stillwater, OK 10MHz F Block #
		Ponca City, OK 30MHz C Block #
		Hardeman (TX 5) * (3)		78.46	%
		Briscoe (TX 4) * (3)		78.46	%
		Beckham (OK 7) * (3)		78.46	%
		TOTAL TEXAS/OKLAHOMA/MISSOURI//KANSAS/ARKANSAS MARKET AREA				5,177,000

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Markets Currently Consolidated or Which Are Expected To Be Consolidated
MAINE/NEW HAMPSHIRE/VERMONT MARKET AREA:
		Portland-Brunswick, ME 10MHz A Block #
		Burlington, VT 10MHz Block #
		Manchester-Nashua, NH		94.10	%
		Carroll (NH 2)
		Coos (NH 1) *
		Kennebec (ME 3)
		Bangor, ME		91.88	%
		Somerset (ME 2)
		Addison (VT 2) * (3)
		Lewiston-Auburn, ME		83.63	%
		Washington (ME 4) *
		Oxford (ME 1)
		Rutland-Bennington, VT 10MHz Block #
		Lebanon-Claremont, NH-VT 10MHz A Block # (5)
		Burlington, VT 10MHz E Block # (5)
		TOTAL MAINE/NEW HAMPSHIRE/VERMONT MARKET AREA
						2,781,000
NORTHWEST MARKET AREA:
	Washington/Oregon/Idaho
		Clark (ID 6)
		Yakima, WA *		87.81	%
		Richland-Kennewick-Pasco, WA *
		Pacific (WA 6) *
		Butte (ID 5) (9)
		Umatilla (OR 3) *
		Okanogan (WA 4)
		Hood River (OR 2) *
		Kittitas (WA 5) * (3)		98.24	%
		Skamania (WA 7) *
			Total Washington/Oregon/Idaho			1,568,000
	Oregon/California
		Coos (OR 5)
		Crook (OR 6) *
		Del Norte (CA 1)
		Medford, OR *
		Mendocino (CA 9)
		Modoc (CA 2)
			Total Oregon/California			1,098,000
		TOTAL NORTHWEST MARKET AREA				2,666,000
EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET AREA:
		Knoxville, TN *		96.03	%
		Asheville, NC *
		Henderson (NC 4) * (3)
		Bledsoe (TN 7) * (3)		96.03	%
		Hamblen (TN 4) * (3)
		Cleveland, TN 10MHz C Block # (8)
		Yancey (NC 2) * (3)
		TOTAL EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET AREA				1,490,000
SOUTHERN TEXAS MARKET AREA:
		Corpus Christi, TX (10)
		Atascosa (TX 19) (9) (10)
		Edwards (TX 18) (10)
		Laredo, TX (10)
		Wilson (TX 20) (10)
		Victoria, TX (10)
		TOTAL SOUTHERN TEXAS MARKET AREA				1,347,000

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Markets Currently Consolidated or Which Are Expected To Be Consolidated
Other Markets:
	Daytona Beach, FL 20MHz C Block # (7)		85.00	%
	Fort Pierce, FL *
	Jefferson (NY 1) *		60.00	%
	Franklin (NY 2) *		57.14	%
	Total Other Markets				1,324,000
		Total Markets Currently Consolidated or Which are Expected to Be Consolidated			51,860,000

Market Area/Market		2002 Total Population (2)	Current Percentage Interest (1)		Current and Acquirable Population Equivalents (11)
Investment Markets:
	Los Angeles/Oxnard, CA *	16,841,000	5.50	%	926,000
	Oklahoma City, OK *	1,061,000	14.60	%	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	%	152,000
	Ross (OH 9) *	244,000	49.00	%	119,000
	Raleigh-Durham/Fayetteville/Burlington, NC *	1,452,000	7.98	%	116,000
	Cherokee (NC 1) *	205,000	50.00	%	103,000
	Others (Fewer than 100,000 population equivalents each)				507,000
	Total Population Equivalents in Investment Markets				2,078,000

*

Designates wireline cellular licensed area.

#

Designates personal communication service licensed area.

(1)

Represents U.S. Cellular's ownership percentage in these licensed areas as of December 31, 2003 or as of the completion of any related transactions pending as of December 31, 2003. U.S. Cellular owns 100% of any licensed areas which do not indicate a percentage.

(2)

"2002 Total Population" represents the total population of the licensed area in which U.S. Cellular owns or has rights to own an interest, based on 2002 Claritas estimates (without duplication of the population counts of any overlapping licensed areas). In personal communication service licensed areas, this amount represents the portion of the personal communication service licensed areas owned that is not already served by a cellular licensed area in which U.S. Cellular owns a controlling interest. The "2002 Total Population" of Total Markets Currently Consolidated or which are expected to be consolidated includes rights to acquire licensed areas with a total population of 5,593,000. Excluding the population of these licensed areas to be acquired, U.S. Cellular's total population was 46,267,000 at December 31, 2003.

(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 U.S. Cellular owns an interest.

(4)

This personal communication service licensed area is made up of 18 basic trading areas, 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)

U.S. Cellular acquired the rights to these licensed areas during 2003. Pursuant to an agreement with the seller of these licensed areas, U.S. Cellular has deferred the assignment and development of these licensed areas until up to five years from the closing date of the original transaction.

(6)

U.S. Cellular acquired the rights to this licensed area during 2003. The assignment to U.S. Cellular of this licensed area will not occur until certain conditions are met which are dependent on the actions of third parties.

(7)

U.S. Cellular's interests in these licensed areas have been acquired through joint venture agreements with third parties. U.S. Cellular owns limited partnership interests in these joint ventures, which are controlled by the third parties, who own the general partner interests. U.S. Cellular includes the operations of these licensed areas in its consolidated results because it is considered to have the controlling financial interest for financial reporting purposes.

(8)

U.S. Cellular's owned less than 100% of these licensed areas as of December 31, 2003. Pursuant to an agreement entered into during 2003, it acquired the remaining interests in these licensed areas in January 2004, and thereafter will own 100% of such licensed areas.

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(9)

These licensed areas include territory and population equivalents of fill-in areas which were annexed from adjacent cellular licensed areas.

(10)

U.S. Cellular will divest its interests in these licensed areas, pursuant to an agreement entered into during 2003. The transfer of these interests to the acquiring party occurred in February 2004.

(11)

"Current and Acquirable Population Equivalents" are derived by multiplying the amount in the "2002 Total Population" column by the percentage interest indicated in the "Current Percentage Interest" column.

        System Design and Construction.    U.S. Cellular 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 which are compatible with its network technology, based on market and engineering studies which relate to specific markets. Such engineering studies are performed by U.S. Cellular personnel or third party engineering firms. U.S. Cellular's switching equipment is digital, which provides high-quality transmissions and is capable of interconnecting in a manner which minimizes costs of operation. Both analog and digital radio transmissions are made between cell sites and the wireless telephones. During 2003, over 90% of this traffic utilized digital radio transmissions. Network reliability is given careful consideration and extensive redundancy is employed in many aspects of U.S. Cellular's network design. 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, U.S. Cellular has selected high-capacity digital wireless switching systems that are capable of serving multiple markets through a single mobile telephone switching office. U.S. Cellular's wireless systems are designed to facilitate the installation of equipment which will permit microwave interconnection between the mobile telephone switching office and the cell site. U.S. Cellular has implemented such microwave interconnection in many of the wireless systems it operates. In other areas, U.S. Cellular's systems rely upon landline telephone connections to link cell sites with the mobile telephone switching office. 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.

        U.S. Cellular has continued to expand its wide area network 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 U.S. Cellular's mobile telephone switching offices and cell sites.

        In addition, the wide area network accommodates virtually all internal data communications between various U.S. Cellular office and retail locations to process customer activations. The wide area network is deployed in U.S. Cellular's six customer service centers ("Customer Care Centers") for all customer service functions using U.S. Cellular's billing and information system.

        Management believes that currently available technologies will allow sufficient capacity on U.S. Cellular's networks to meet anticipated demand for voice services over the next few years.

15

High-speed data and video services may require the acquisition of additional licenses to provide sufficient capacity in markets where U.S. Cellular offers these services.

Costs of System Construction and Financing

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

        The costs (exclusive of the costs to acquire licenses) to develop the systems in which U.S. Cellular owns a controlling interest have historically been financed through certain vendor financing, proceeds from debt and equity offerings and, in recent years, with cash generated by operations and proceeds from the sales of wireless interests. U.S. Cellular expects to meet its future funding requirements with cash generated by operations and borrowings under its revolving credit facilities. U.S. Cellular also may have access to public and private capital markets to help meet its long-term financing needs. In 2004, U.S. Cellular estimates its capital expenditures will total between $610 million and $630 million.

Marketing

        U.S. Cellular's marketing plan is focused on acquiring, retaining and growing customer relationships by offering high-quality products and services—built around customer needs—at fair prices, supported by outstanding customer service. U.S. Cellular increases customer awareness through the use of traditional media such as TV, radio, newspaper and direct mail advertising. U.S. Cellular has achieved its current level of penetration of its markets through a combination of promotional advertising and broad distribution, and has been able sustain a high customer retention rate based on its high-quality wireless network and outstanding customer service. U.S. Cellular 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 U.S. Cellular through those channels. U.S. Cellular maintains a low customer churn rate (relative to other wireless carriers) by focusing on 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 U.S. Cellular's service offerings and incorporates combinations of rate plans, additional value-added features and services 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. U.S. Cellular 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. U.S. Cellular 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 U.S. Cellular's 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.

        U.S. Cellular believes that operating decisions should be made close to the customer, and accordingly, it manages its operating market areas with a decentralized staff, including sales, marketing, network operations, engineering and finance personnel. U.S. Cellular 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 U.S. Cellular's nearly 450 Company-owned retail stores and kiosks and market wireless service primarily to the consumer and small business segments. U.S. Cellular 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.

16

        U.S. Cellular continues to expand its relationships with agents, dealers and non-Company retailers to obtain customers, and at year-end 2003 had contracts with over 800 of these businesses aggregating 1,800 locations. Agents and dealers are independent business people who obtain customers for U.S. Cellular on a commission basis. U.S. Cellular has provided additional support and training to its exclusive agents to increase customer satisfaction for customers they serve. U.S. Cellular's agents are generally in the business of selling wireless telephones, wireless service packages and other related products. U.S. Cellular's dealers include major appliance dealers, car stereo companies and mass merchants including national companies such as Wal-Mart, Radio Shack, Best Buy and American TV. Additionally, in support of its overall Internet initiatives, U.S. Cellular 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 U.S. Cellular's operating revenues during the past three years.

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

        U.S. Cellular's advertising is directed at gaining customers, improving customers' awareness of the U.S. Cellular® brand, increasing existing customers' usage of U.S. Cellular's services and increasing the public awareness and understanding of the wireless services it offers. U.S. Cellular attempts to select the advertising and promotion media that are most appealing to the targeted groups of potential customers in each local market. U.S. Cellular 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 U.S. Cellular and its brand. These programs are aimed at supporting the communities U.S. Cellular serves. The programs range from loaning phones to public service operations in emergencies, to assisting victims of domestic abuse through U.S. Cellular's Stop Abuse From Existing programs, to supporting safe driving programs.

        U.S. Cellular continues to migrate customers in its cellular licensed areas from analog to digital service plans, and as of year-end 2003 over 85% of U.S. Cellular's customers were using U.S. Cellular's digital services. Additionally, during the second half of 2003, U.S. Cellular began offering its easyedge^SM brand of enhanced data services in many of its operating market areas where it has implemented CDMA 1XRTT digital radio technology, supporting that effort using a wide variety of media. The initial results of the easyedge^SM rollout have been encouraging, as both new customers and existing customers have signed up for data service plans. These enhanced data services include downloading news/weather/sports information/games, ringtones and other consumer services as well as wireless modem capabilities to use with personal computers. U.S. Cellular plans on expanding its easyedge^SM services in 2004 and beyond. In October 2003, Edge Wireless, LLC ("Edge Wireless") filed a complaint against U.S. Cellular for trademark infringement alleging that the easyedge^SM mark infringes certain of Edge Wireless's marks. In December 2003, a court preliminarily enjoined U.S. Cellular from marketing or offering the easyedge^SM service in the markets in which it competes with Edge Wireless, which include portions of U.S. Cellular's service areas in California, Oregon and Idaho. A trial is scheduled for May 2004. U.S. Cellular intends to vigorously contest this matter.

        The FCC mandated that all wireless carriers that provide service in the top 100 metropolitan statistical areas had to be capable of facilitating wireless number portability beginning on November 24, 2003. Carriers that provide service outside the top 100 metropolitan statistical areas are required to facilitate number portability beginning on May 24, 2004. See "Regulation." In conjunction with this mandate, U.S. Cellular began tailoring certain of its advertising to those customers who may be interested in switching wireless carriers and keeping their current wireless telephone number. To date, U.S. Cellular has been successful in accommodating those customers who switch to U.S. Cellular service from other carriers and wish to keep their wireless telephone numbers. U.S. Cellular has also been successful in accommodating those customers who wish to change from U.S. Cellular to another carrier and keep their wireless telephone number.

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        The following table summarizes, by operating market area, the total population, U.S. Cellular's customer units and penetration for U.S. Cellular's consolidated markets as of December 31, 2003.

Operating Market Areas	Population (1)	Customers	Penetration
Midwest Market Area	27,536,000	2,296,000	8.34	%
Mid-Atlantic Market Area	5,405,000	669,000	12.38	%
Texas/Oklahoma/Missouri/Kansas Market Area	3,747,000	342,000	9.13	%
Maine/New Hampshire/Vermont Market Area	2,752,000	334,000	12.14	%
Northwest Market Area	2,666,000	414,000	15.53	%
Eastern Tennessee/Western North Carolina Market Area	1,490,000	180,000	12.08	%
Southern Texas Market Area (2)	1,347,000	74,000	5.49	%
Other Markets	1,324,000	100,000	7.55	%
	46,267,000	4,409,000	9.53	%

(1)

Represents 100% of the population of the licensed areas in which U.S. Cellular has a controlling financial interest for financial reporting purposes, based on 2002 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.

(2)

U.S. Cellular has entered into an agreement to divest each of the licensed areas and associated customer base included in this market area.

Customers and System Usage

        U.S. Cellular provides service to a broad range of customers from a wide spectrum of demographic segments. U.S. Cellular 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 as well as various professionals. Increasingly, U.S. Cellular 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 U.S. Cellular's recent customer and revenue growth is from these users.

        On average, the retail customers in U.S. Cellular's consolidated markets used their wireless systems approximately 422 minutes per unit each month and generated retail service revenue of approximately $39 per month during 2003, compared to 304 minutes and $38 per month in 2002. Revenue generated by roamers using U.S. Cellular's systems ("inbound roaming"), together with local retail, toll and other revenues, brought U.S. Cellular's total average monthly service revenue per customer unit to $47 during 2003. Average monthly service revenue per customer unit increased less than 1% during 2003. This result was primarily due to an increase in the number of minutes used by both retail customers and roamers, almost fully 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 U.S. Cellular'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 2003. The decrease in inbound roaming revenue per minute was primarily due to the general downward trend in per minute prices for roaming negotiated between U.S. Cellular and other wireless operators. U.S. Cellular anticipates that average monthly retail service revenue per customer unit will not change significantly in the near future, while total monthly service revenue per customer is expected to decline slightly in the future, primarily due to the decline in inbound roaming revenues. However, this effect is anticipated to be more than offset by increases in U.S. Cellular's customer base; therefore, U.S. Cellular anticipates that total revenues will continue to grow for the next few years.

        U.S. Cellular'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. U.S. Cellular has entered into roaming agreements with operators of other wireless systems covering virtually all systems in the

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United States, Canada and Mexico. Roaming agreements offer customers the opportunity to roam on these systems. These reciprocal agreements automatically pre-register the customers of U.S. Cellular's systems in the other carriers' systems. Also, a customer of a participating system roaming (i.e., traveling) in a U.S. Cellular market where this arrangement is in effect is able to make and receive calls on U.S. Cellular's system. The charge for this service is negotiated as part of the roaming agreement between U.S. Cellular and the roaming customer's carrier. U.S. Cellular bills this charge to the customer's home carrier, which then bills the customer. In some instances, based on competitive factors, many carriers, including U.S. Cellular, 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 U.S. Cellular's consolidated operations.

			Year Ended or At December 31,
			2003		2002		2001		2000		1999
Majority-owned and managed markets:
	Wireless markets included in consolidated operations (1)		182		178		168		139		139
	Total population of markets in service (000s)		46,267		41,048		28,632		24,912		24,861
	Customer Units:
		at beginning of period (2)	4,103,000		3,461,000		3,061,000		2,602,000		2,183,000
		acquired (divested) during period (3)	(141,000	)	332,000		46,000		(24,000	)	15,000
		additions during period (2)	1,357,000		1,244,000		1,095,000		1,154,000		1,000,000
		disconnects during period (2)	(910,000	)	(934,000	)	(741,000	)	(671,000	)	(596,000	)
		at end of period (2)	4,409,000		4,103,000		3,461,000		3,061,000		2,602,000
Market penetration at end of period (4)			9.53	%	10.00	%	12.09	%	12.29	%	10.47	%

(1)

Represents the number of licensed areas in which U.S. Cellular owned a controlling financial interest at the end of each respective period. The revenues and expenses of these licensed areas are included in U.S. Cellular's consolidated revenues and expenses for each period.

(2)

Represents the number of revenue-generating wireless telephones served by U.S. Cellular in the licensed areas referred to in footnote (1). The revenue generated by such wireless telephones is included in consolidated revenues.

(3)

Represents the number of revenue-generating wireless telephones added to or subtracted from U.S. Cellular'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 consolidated markets in service as estimated by Claritas (1998-2002) for the years 1999-2003, respectively.

Products and Services

        Wireless Telephones and Installation.    U.S. Cellular offers a full range of wireless telephones for use by its customers, including both analog and digital handsets. U.S. Cellular's digital service offerings include additional features such as caller ID, short messaging services and data transmission, and in certain markets it offers enhanced data services which include camera features, downloading and wireless modem capabilities. 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. These types of wireless telephones and associated features 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. Dual-mode and tri-mode wireless telephones also enable customers to enjoy virtually seamless roaming regardless of their travel patterns. U.S. Cellular emphasizes these types of wireless telephones in its marketing efforts.

        U.S. Cellular negotiates volume discounts with its wireless telephone suppliers. U.S. Cellular significantly increased its purchasing power in 2002 by implementing a distribution software system that enables it to sell and distribute handsets to its agents, and has expanded its sales of handsets to agents throughout 2003. U.S. Cellular 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

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U.S. Cellular at the time the handset sale takes place. U.S. Cellular also works with wireless equipment manufacturers in promoting specific equipment in its local advertising.

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

        Wireless Services.    U.S. Cellular's customers are able to choose from a variety of packaged voice and data pricing plans which are designed to fit different usage patterns and customer needs. The ability to help a customer find the right technology and the right pricing plan is central to U.S. Cellular's brand positioning. U.S. Cellular 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 rate plans are offered to companies to meet their unique needs. U.S. Cellular'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, U.S. Cellular is continually reviewing its prepaid TalkTracker® offering to streamline it and make it more compatible with the lifestyles of the customers who want to buy this product. U.S. Cellular also has a small number of reseller customers who purchase blocks of minutes and resell them to their customers.

        U.S. Cellular's customer bills typically show separate charges for custom usage features, airtime in excess of the packaged amount (such packages may include roaming and toll usage), roaming and toll calls and data usage. Custom usage features provided by U.S. Cellular include wide-area call delivery, call forwarding, voice mail, call waiting, three-way calling and no-answer transfer.

Regulation

        Regulatory Environment.    U.S. Cellular's operations are subject to FCC and state regulation. The wireless telephone licenses U.S. Cellular holds are granted by the FCC for the use of radio frequencies in the 800 megahertz band ("cellular" licenses), and in the 1900 megahertz band ("personal communication service" licenses), and are an important component of the overall value of U.S. Cellular'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 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—Wireless Service.    For cellular telephone licensing purposes, the FCC has divided the United States into separate geographic markets (metropolitan statistical areas and rural service areas). In each market, the allocated cellular frequencies are divided into two equal blocks.

        Since January 1, 2002, an entity which controls one cellular system in a metropolitan statistical area has been able to control the competing cellular system in that metropolitan statistical area. The FCC determined that wireless competition in metropolitan statistical areas among cellular, personal communication service and certain specialized mobile radio carriers, such as Nextel, which interconnect with the public switched telephone network, was sufficient to permit relaxation of the former prohibition on metropolitan statistical area cross-ownership. However, the FCC has retained the rule which prohibits any entity which controls a cellular system in a rural service area from owning an interest exceeding five percent in another cellular system in the same rural service area, though that rule may be waived in appropriate circumstances.

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        The FCC commenced a rulemaking proceeding in which it tentatively concluded to retain the current cellular cross-ownership rule in rural service areas with three or fewer commercial mobile radio service competitors, but is considering whether to remove the rule as it applies to other rural service areas and to non-controlling investments in all rural service area licensees. The timing and possible outcome of this proceeding cannot be predicted at this time.

        The FCC has also allocated a total of 140 megahertz for broadband personal communication service, 20 megahertz to unlicensed operations and 120 megahertz to licensed operations, originally consisting of two 30 megahertz blocks in each of 51 major trading areas and one 30 megahertz block and three 10 megahertz blocks in each of 493 basic trading areas. Certain of the 30 megahertz basic trading area frequency blocks were split into 15 megahertz segments when the original licensees, unable to pay their installment payments in full to the FCC, returned part of their assigned spectrum to the FCC and it was subsequently reauctioned. Subject to some conditions, the FCC also permits licensees to split their licenses and assign a portion, on either a geographic or frequency basis, or both, to a third party.

        Prior to January 1, 2003, no entity was allowed to have a controlling interest in more than 55 megahertz of cellular, personal communication service, or "covered" specialized mobile radio spectrum in a given major trading area or basic trading area. Cellular systems have 25 megahertz of spectrum, and personal communication service systems may have 10, 15, or 30 megahertz of spectrum. As of January 1, 2003, this "spectrum cap" has been eliminated, and the FCC now determines whether acquisition of wireless licenses are in the public interest on a case-by-case basis under criteria which are being developed on a case-by-case basis.

        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.

        Licensing—Facilities.    The FCC must be notified each time an additional cell site is constructed which enlarges the service area of a given cellular 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. U.S. Cellular believes that it is in compliance with the FCC's tower registration requirements.

        Beginning in October 1997, wireless systems, which previously were 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. U.S. Cellular believes that its facilities are in compliance with these requirements. The FCC is currently considering changes to its rules to subject more proposed towers to environmental evaluation.

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        Licensing—Commercial Mobile Radio Service.    Pursuant to 1993 amendments to the Communications Act, cellular and personal communication services are classified as commercial mobile radio service, in that they are services offered to the public, for a fee, and are 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 commercial mobile radio service 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 personal communication service 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. In a pending rulemaking proceeding, the FCC is considering replacing those percentage coverage requirements for personal communication service carriers with a requirement that carriers provide substantial service to their licensed service areas, which would give carriers greater flexibility in providing service in accordance with customer demand.

        Cellular and personal communication service 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 U.S. Cellular's licenses which it applied to have renewed between 1994 and 2003 have been renewed.

        All of U.S. Cellular's approximately 1,100 FCC licenses for the microwave radio stations it uses to link its cell sites with each other and with its mobile telephone switching offices 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. Over the next few years, due to the licensing of new satellite services in the relevant frequency bands, it is likely that certain of U.S. Cellular's remaining microwave facilities will have to be shifted to other frequencies. It is anticipated that those changes will be made without affecting service to customers.

        U.S. Cellular 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, U.S. Cellular 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 U.S. Cellular's operations.

        Recent Events—E-911.    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

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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. U.S. Cellular has timely provided this information in compliance with the FCC's rules in most but not all of its markets.

        In 2001, U.S. Cellular 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 U.S. Cellular, were required to provide more precise phase two location information in response to qualifying requests from state or local 911 agencies. U.S. Cellular is in compliance with the revised phase two enhanced 911 requirements in most of its markets. However, there is no guarantee that U.S. Cellular 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.

        Recent Events—Wireless Number Portability.    The FCC mandated that all wireless carriers must be capable of facilitating wireless number portability beginning in November 2003. As of November 24, 2003, all wireless providers had to allow a customer to retain, subject to certain geographical limitations, their existing telephone number when switching from one telecommunications carrier to another. As a result, any wireless customer in the largest 100 Metropolitan Statistical Areas in the United States may switch carriers and keep their current wireless telephone number. U.S. Cellular had the infrastructure in place to accommodate wireless number portability prior to the November 2003 deadline.

        Now that wireless number portability has been implemented, FCC rules require that wireless providers and local exchange carriers, subject to certain exceptions, provide such wireless number portability in the 100 largest metropolitan statistical areas in compliance with certain FCC performance criteria, upon request from another carrier. For metropolitan statistical areas outside the largest 100, wireless providers that receive a request to allow an end user to port their number must be capable of doing so within six months of receiving the request or within six months after November 24, 2003, whichever is later. As of May 24, 2004, wireless carriers will be subject to number portability requirements throughout the entire country.

        U.S. Cellular is unable to predict the impact that the implementation of wireless number portability will have on its overall business. The implementation of wireless number portability will likely increase churn rates for U.S. Cellular and other wireless companies, as the ability of customers to retain their wireless telephone numbers removes a barrier for customers who wish to change wireless carriers. U.S. Cellular believes that it may be able to obtain additional new customers that wish to change their service from other wireless carriers as a result of wireless number portability. The future volume of any porting requests, and the processing costs related thereto, may increase U.S. Cellular's operating costs in the future. Any of the above factors could have an adverse affect on U.S. Cellular's competitive position, costs of obtaining new subscribers, liquidity, financial position and results of operations.

        Recent Events—Number Pooling.    Cellular and broadband personal communication service 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.

        U.S. Cellular is now in compliance with the FCC's thousands block number pooling requirements and the FCC's current number portability requirements. Both requirements are complex and have required extensive capital investment. A substantial portion of this investment has been made as of December 31, 2003.

        Recent Events—Reciprocal Compensation.    In another proceeding, the FCC in 1996 adopted rules regarding the method by which wireless carriers and local exchange carriers shall compensate each other for interconnecting wireless and local exchange facilities. The FCC rules provided for symmetrical and reciprocal compensation between local exchange carriers and

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wireless carriers, and also prescribed interim interconnection proxy rates, which are much lower than the rates formerly paid by wireless carriers to local exchange carriers. Symmetrical and reciprocal compensation means wireless carriers and local exchange carriers 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 local exchange carriers than they previously paid. This result was favorable to the wireless industry and somewhat unfavorable to local exchange carriers.

        The FCC is currently considering a proposal to eliminate reciprocal compensation between wireless carriers and local exchange carriers 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.

        Telecommunications Act—General.    The primary purpose and effect of the Telecommunications Act 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.

        Telecommunications Act—Universal Service.    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 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 which were based on a percentage of the total "billed revenue" of carriers for a given previous period of time, began in 1998.

        Since February 2003, such payments have been based on estimates of future revenues. Previously, these payments were based on historical 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 if they provide specified services in "high cost" areas. U.S. Cellular 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 those states.

        Communications Assistance to Law Enforcement Act.    Under a 1994 federal law, the Communications Assistance to Law Enforcement Act, all telecommunications carriers, including U.S. Cellular 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. U.S. Cellular is now

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substantially in compliance with the requirements of such act. However, issues exist as to the applicability of such act to transmissions of "packet data" and other "information services." U.S. Cellular will attempt to comply with the act's "information service" requirements as they are clarified and become applicable.

        Other Recent FCC Actions.    The FCC has also 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 has pending two proceedings which may have a considerable impact on wireless carriers. In the first proceeding, the FCC has preliminarily decided that commercial mobile radio service carriers may not obtain the use of certain facilities from wireline carriers, (for example, for telephone lines linking cell sites), at the unbundled network element prices now charged to competitive local exchange carriers, which are lower than those charged to commercial mobile radio service carriers. However, reconsideration is being sought. If the FCC determines that commercial mobile radio service carriers may obtain the use of wireline facilities at unbundled network element prices, that result would be favorable to wireless carriers. Currently, U.S. Cellular 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 will permit its licensees to offer terrestrial wireless service in competition with commercial mobile radio service carriers, provided the mobile satellite service licensees also offer satellite telephone service, which will involve building their proposed satellite networks. Assuming the mobile satellite service licensees do build their satellite networks and thus obtain "ancillary terrestrial authority," the increased competition could be unfavorable to existing commercial mobile radio service carriers. It is anticipated that those satellite networks may go into service in approximately 2005.

        In January 2000, the FCC took an action which may have an impact on both cellular and personal communication service licensees. Pursuant to a congressional directive, the FCC adopted service rules for licensing the commercial use of 30 megahertz of spectrum in the 747-762 megahertz and 777-792 megahertz spectrum bands. Subsequently, the FCC adopted service rules for the 688-746 megahertz 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 metropolitan statistical area and rural service area markets. The FCC has conducted two auctions for the metropolitan statistical area and rural service area licensed spectrum and certain other portions of the 688-746 megahertz spectrum which ended in September 2002 and June 2003, respectively. Additional auctions to license the 688-792 megahertz spectrum are anticipated in 2004.

        The FCC adopted service rules in October 2003 to provide for use of the 90 megahertz of spectrum, 1710-1755/2110-2155 megahertz, for advanced wireless uses. This advanced wireless spectrum is intended to provide high-speed data services as well as full-motion video and other services. The FCC has projected that this spectrum could be auctioned in 2004.

        In June 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 megahertz band for unlicensed services which remain pending. In November 2003 the FCC approved a significant expansion of the spectrum available for unlicensed uses by permitting 802.11b and Wi-Fi operations in the 5.4-5.7 gigahertz band.

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        The FCC adopted in May 2003 new spectrum leasing policies which permit licensees of cellular, personal communication service, and specialized mobile radio spectrum, among other bands, to lease to third parties any amount of spectrum in any geographic area encompassed by their licenses, and for any period of time not extending beyond the current term of the license. The FCC has also adopted streamlined processing rules for applications for assignment and transfer of control of telecommunications carrier licenses. These new rules and policies will take effect in 2004.

        The FCC also has pending proceedings commenced in April 2003 to develop service rules for multipoint distribution service, microwave multipoint distribution service and instructional television fixed service spectrum in the 2150-2162 megahertz and 2500-2690 megahertz bands which will foster uses of this spectrum for advanced wireless services, including commercial mobile services. This spectrum could create opportunities for new or expanded competition with existing commercial mobile radio service operators.

        State and Local Regulation.    U.S. Cellular 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 commercial mobile radio service carriers, even if such activities might have an incidental effect on wireless rates. This ruling has led to more state regulation of commercial mobile radio service carriers, particularly from the standpoint of consumer protection. Although U.S. Cellular intends to vigorously defend its activities, there can be no assurance that potential state regulatory proceedings and/or consumer lawsuits will not have a material adverse effect on its financial condition, results of operations, cash flows, business or prospects.

        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.

        U.S. Cellular 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. U.S. Cellular 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. U.S. Cellular's network facilities and the handsets it sells to customers comply with these standards.

        Radio Frequency Emissions.    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

26

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 U.S. Cellular'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, and that ruling was upheld in the U.S. Court of Appeals for the Fourth Circuit in October 2003. There can be no assurance, however, that the outcome of other lawsuits will not have a material adverse effect on the wireless industry, including U.S. Cellular. Currently, U.S. Cellular carries insurance with respect to such matters, but there is no assurance that such insurance will continue to be available or will not be cost-prohibitive in the future.

Competition

        U.S. Cellular competes directly with several wireless communication service providers, including enhanced specialized mobile radio service providers, in each of its markets. In general, there are between five and seven competitors in each wireless market. U.S. Cellular generally competes against each of the six near-nationwide wireless companies: Verizon Wireless, Sprint PCS (and affiliates), Cingular Wireless, AT&T Wireless, T-Mobile and Nextel. However, not all six competitors operate in each market where U.S. Cellular does business. These competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than U.S. Cellular.

        The use of national advertising and promotional programs by such national wireless operators may be a source of additional competitive and pricing pressures in all U.S. Cellular markets, even if those operators may not provide service in a particular market. U.S. Cellular provides wireless services comparable to the national competitors, but the other wireless companies operate in a wider geographic area and are able to offer no- or low-cost roaming and long-distance calling packages over a wider area on their own networks than U.S. Cellular can offer on its network. If U.S. Cellular offers the same calling area as one of these competitors, U.S. Cellular will incur roaming charges for calls made in portions of the calling area which are not part of its network.

        In the Midwest, U.S. Cellular's largest contiguous service area, it can offer larger regional service packages without incurring significant roaming charges than it is able to offer in other parts of its network. U.S. Cellular also employs a customer satisfaction strategy throughout its markets it believes has contributed to a relatively low churn rate and has had a positive impact on its cost to acquire and serve customers.

        Some of U.S. Cellular's competitors bundle other services, such as landline telephone service and internet access, with their wireless communications services, which U.S. Cellular either does not have the ability to offer or has chosen not to offer.

        In addition, U.S. Cellular competes against both larger and smaller regional wireless companies in certain areas, including ALLTEL, Western Wireless, Rural Cellular Corporation, and against resellers of wireless services. Since each of these competitors operates on systems using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers among 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.

        Since U.S. Cellular's competitors do not disclose their subscriber counts in specific regional service areas, market share for the competitors in each regional market cannot be precisely determined.

27

        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.

        In recent years, enhanced specialized mobile radio providers have initiated service in many of U.S. Cellular'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 enhanced specialized mobile radio service to provide for more competitors in each market.

Investments

        U.S. Cellular and its subsidiaries hold marketable equity securities that are publicly traded and can have volatile share prices. Minority positions are held in Vodafone Group Plc ("Vodafone") and Rural Cellular Corporation ("Rural Cellular"). In addition, U.S. Cellular holds certain warrants pursuant to which it has the right to purchase shares of Superconductor Technologies Inc.

        U.S. Cellular and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, exchanges or reorganizations of other investments. The investment in Vodafone resulted from certain sales or exchanges of non-strategic wireless investments to or settlements with AirTouch Communications in exchange for stock of AirTouch, which was then acquired by Vodafone for American Depositary Receipts representing Vodafone stock. The investment in Rural Cellular is the result of a consolidation of several cellular partnerships in which U.S. Cellular subsidiaries held interests in Rural Cellular, and the distribution of Rural Cellular stock in exchange for these interests. U.S. Cellular continues to hold these investments because their associated low tax cost basis would trigger a substantial taxable gain upon disposition.

        These assets are classified for financial reporting purposes as available-for-sale securities. The market value of these investments aggregated $260.2 million at December 31, 2003 and $186.0 million at December 31, 2002. As of December 31, 2003, U.S. Cellular recorded a net unrealized holding gain, net of tax and minority interest, included in accumulated other comprehensive income totaling $60.5 million. This amount was $15.5 million at December 31, 2002. In 2002, U.S. Cellular recognized, in the statement of operations, losses of $244.7 million ($145.6 million net of tax of $99.1 million), 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."

        In 2002, subsidiaries of U.S. Cellular entered into a number of forward contracts ("forward contracts") related to the Vodafone marketable equity securities that it holds. U.S. Cellular has provided guarantees to the lenders which provide assurance to the lenders that all principal and interest amounts are paid upon settlement of the contracts by such subsidiaries. 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 limit is hedged at or above the accounting cost basis, thereby eliminating the other than temporary risk on these contracted securities.

28

        Under the terms of the forward contracts, U.S. Cellular 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 U.S. Cellular'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 reduce U.S. Cellular's downside limit and upside potential on the contracted shares. The collars are typically adjusted for any changes in dividends on the contracted shares. If U.S. Cellular elects to settle in shares, it will be required to 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, U.S. Cellular 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 U.S. Cellular 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.

        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. Such deferred tax liabilities totaled $86.3 million at December 31, 2003 and $56.9 million at December 31, 2002.

        The following table summarizes certain facts surrounding the contracted securities as of December 31, 2003.

		Collar
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)		Loan Amount (000s)
Vodafone Group Plc	10,245,370	$	15.07-$16.07	$	21.56-$23.20	$	159,856

Employees

        U.S. Cellular had 6,225 employees as of December 31, 2003. None of U.S. Cellular's employees is represented by a labor organization. U.S. Cellular considers its relationship with its employees to be good.

29

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 U.S. Cellular operates could adversely affect its revenues or increase its costs to compete.



•

Advances or changes in telecommunications technology could render certain technologies used by U.S. Cellular obsolete, could reduce its revenues or could increase its cost of doing business. Competitors may have a lower fixed investment per customer because of technology changes.



•

Consolidation in the wireless industry may create stronger competitors, both operationally and financially, which could adversely affect U.S. Cellular's revenues and increase its costs to compete.



•

Changes in the telecommunications regulatory environment, such as wireless number portability and E-911 services, could adversely affect U.S. Cellular's financial condition or results of operations or ability to do business.



•

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



•

Conversions of debt, 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 U.S. Cellular'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 accounting standards or U.S. Cellular's accounting policies, estimates and/or the assumptions underlying its accounting estimates, including those described under Application of Critical Accounting Policies and Estimates in U.S. Cellular's Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference herein, could have a material effect on U.S. Cellular'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 could have an adverse effect on U.S. Cellular'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 U.S. Cellular's financial condition or results of operations.



•

Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, marketing and selling expenses and retention costs associated with wireless number portability, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on U.S. Cellular'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 U.S. Cellular's operations.

30

•

Changes in competitive factors with national and global wireless carriers could result in product and cost disadvantages and could have an adverse effect on U.S. Cellular's operations.



•

Lack of standards and roaming agreements for wireless data products could place U.S. Cellular's data services offerings at a disadvantage to those offered by other wireless carriers with more nationwide service territories.



•

Changes in guidance or interpretations of accounting requirements, changes in industry practice or changes in management assumptions could require amendments to or restatements of disclosures or financial information included in this or prior filings with the SEC.



•

Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets, other changes in market conditions, changes in U.S. Cellular's credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to U.S. Cellular, which could require U.S. Cellular to reduce its construction, development and acquisition programs.



•

Changes in the income tax rates or tax laws, regulations or rulings could have an adverse effect on U.S. Cellular's financial condition and results of operations.



•

War, conflicts, hostilities and/or terrorists attacks could have an adverse effect on U.S. Cellular's business.



•

Changes in general economic and business conditions, both nationally and in the market areas in which U.S. Cellular operates, could have an adverse effect on its business.

        U.S. Cellular 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.

31

PART II

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

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

Item 6.    Selected Consolidated Financial Data

        Incorporated by reference from Exhibit 13 to this document, Annual Report section entitled "Selected Consolidated Financial Data," except for ratios of earnings to fixed charges, which are incorporated herein by reference from Exhibit 12.1 to this Annual Report on Form 10-K.

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

        Incorporated by reference from Exhibit 13 to this document, 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 to this document, 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 to this document, 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 Auditors" and "Copy of Previously Issued Report of Independent Accountants."

Item 9A.    Controls and Procedures

        (a)    Evaluation of Disclosure Controls and Procedures.    Based on the evaluation required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, the principal executive officer and principal financial officer of U.S. Cellular have concluded that U.S. Cellular's disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report are effective to ensure that the information required to be disclosed by U.S. Cellular 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 over financial reporting.    There was no change in U.S. Cellular's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, U.S. Cellular's internal control over financial reporting.

32

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 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*
Consolidated Quarterly Income Information (Unaudited)	Annual Report*
Report of Independent Auditors—PricewaterhouseCoopers LLP	Annual Report*
Copy of Previously issued Report of Independent Accountants—Arthur Andersen LLP	Annual Report*

*

Incorporated by reference from Exhibit 13.

(2)

Schedules

		Location
Report of Independent Auditors on Financial Statement Schedule—PricewaterhouseCoopers LLP		page 35
Copy of Previously Issued Report of Independent Accountants on Financial Statement Schedule—Arthur Andersen LLP		page 36
II.	Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended December 31, 2003	page 37

        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	Summary of 2003 Bonus Program for Executive and Senior Vice Presidents of U.S. Cellular.**
10.9	Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.13 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1994.
10.10	United States Cellular Corporation Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 10.11 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2002.
10.11	United States Cellular Corporation 2003 Long-Term Incentive Plan, as amended, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's Notice of Annual Meeting to Shareholders and Proxy Statement dated April 17, 2003.

33

10.12	Retention Agreement for Kenneth R. Meyers dated September 13, 1999 is hereby incorporated by reference to Exhibit 10.27 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1999.
10.18	United States Cellular Corporation 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to U.S. Cellular's Registration Statement on Form S-8 (Registration No. 333-103543).

**

Previously filed as an exhibit to the United States Cellular Corporation Form 10-K for the year ended December 31, 2003.

(b)

Reports on Form 8-K filed during the quarter ended December 31, 2003.

        U.S. Cellular filed a current Report on Form 8-K dated October 22, 2003, for the purpose of furnishing a news release announcing certain operating data for the third quarter of 2003.

        U.S. Cellular filed a Current Report on Form 8-K dated October 31, 2003, for the purpose of furnishing a news release announcing earnings for the third quarter of 2003.

        U.S. Cellular filed a Current Report on Form 8-K dated December 2, 2003, for the purpose of filing a news release announcing the Asset Purchase and Sale Agreement between AT&T Wireless Services, Inc. and United States Cellular Corporation. The Current Report on Form 8-K was also filed for the purpose of announcing that, on December 2, 2003, Moody's Investors Service ("Moody's") downgraded the senior long-term debt ratings of both U.S. Cellular and its parent, Telephone and Data Systems, Inc. ("TDS"), to Baa1 from A3.

        U.S. Cellular filed a Current Report on Form 8-K dated December 4, 2003, for the purpose of filing a news release announcing the pricing of a public offering of $444 million of 6.70% Senior Notes due 2033. Certain agreements related to the Note offering were also included as exhibits.

        U.S. Cellular filed a Current Report on Form 8-K dated December 24, 2003, for the purpose of filing a news release announcing that it had amended its $325 million revolving credit agreement and increased the amount to $700 million. At the same time, U.S. Cellular announced that it had terminated its other revolving credit agreement, which was in the amount of $500 million and that U.S. Cellular's $105 million note to its parent, Telephone and Data Systems, Inc., is no longer subordinated to the amended revolving credit agreement.

34

REPORT OF INDEPENDENT AUDITORS
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 2, 2004, except as to Note 20, as to which the date is February 18, 2004, except as to the Reclassifications section of Note 1, as to which the date is March 9, 2004, and except as to the Restatement section of Note 1, as to which the date is May 7, 2004, appearing in the 2003 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/A) also included an audit of the financial statement schedule for the years ended December 31, 2003 and 2002 listed in Item 15(a)(2) of this Form 10-K/A. In our opinion, the financial statement schedule for the years ended December 31, 2003 and 2002 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The 2001 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 the financial statement schedule in their report dated January 25, 2002.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 2, 2004, except as to Note 20, as
to which the date is February 18, 2004,
except as to the Reclassifications
section of Note 1, as to which the date
is March 9, 2004, and except as to the
Restatement section of Note 1, as to
which the date is May 7, 2004.

35

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 YEAR ENDED DECEMBER 31, 2001. 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 U.S. Cellular'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.

36

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, 2003
Deducted from deferred state tax asset:
	For unrealized net operating losses	$	(13,224	)	$	3,391		$	(647	)	$	—	$	(10,480	)
Deducted from accounts receivable:
	For doubtful accounts		(17,866	)		(61,051	)		—			65,131		(13,786	)
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	)

37

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 May 14, 2004

        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	May 14, 2004
/s/  KENNETH R. MEYERS Kenneth R. Meyers	Director	May 14, 2004
/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.	Director	May 14, 2004
/s/  LEROY T. CARLSON LeRoy T. Carlson	Director	May 14, 2004
/s/  WALTER C. D. CARLSON Walter C. D. Carlson	Director	May 14, 2004
/s/  SANDRA L. HELTON Sandra L. Helton	Director	May 14, 2004
/s/  PAUL-HENRI DENUIT Paul-Henri Denuit	Director	May 14, 2004
/s/  J. SAMUEL CROWLEY J. Samuel Crowley	Director	May 14, 2004
/s/  HARRY J. HARCZAK, JR. Harry J. Harczak, Jr.	Director	May 14, 2004

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 U.S. Cellular'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. is hereby incorporated by reference to Exhibit 2.2 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2002.
2.3	Asset Purchase and Sale Agreement between United States Cellular Corporation and AT&T Wireless Services, Inc., dated as of November 26, 2003 is hereby incorporated by reference to Exhibit 2.1 to U.S. Cellular's Current Report on Form 8-K dated November 26, 2003, filed December 2, 2003.
3.1	Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to U.S. Cellular's Amendment No. 2 on Form 8 dated December 28, 1992, to U.S. Cellular's Report on Form 8-A.
3.2	Restated Bylaws, as amended as of July 24, 2001.*
4.1	Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to U.S. Cellular's Amendment No. 2 on Form 8 dated December 28, 1992 to U.S. Cellular's Report on Form 8-A.
4.2	Restated Bylaws, as amended as of July 24, 2001 are filed herewith as Exhibit 3.2.
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 liquid yield option notes is hereby incorporated by reference to U.S. Cellular'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 U.S. Cellular's 7.25% notes is hereby incorporated by reference to Exhibit 4 to U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.9(c)	Amended and Restated Revolving Credit Agreement dated December 19, 2003 among United States Cellular Corporation, the lenders named therein, Toronto Dominion (Texas), Inc., Wachovia Capital Markets, LLC, Citicorp North America,  Inc., LaSalle Bank National Association, and JPMorgan Chase Bank is hereby incorporated by reference to Exhibit 4.1 to United States Cellular Corporation's Current Report on Form 8-K dated December 19, 2003, filed December 24, 2003.
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 U.S. Cellular'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 U.S. Cellular's Current Report on Form 8-K dated October 31, 2002, filed November 1, 2002.
4.10(d)	Form of Third Supplemental Indenture dated as of December 3, 2003 between U.S. Cellular and BNY Midwest Trust Company, including form of the Registrant's 6.70% Senior Notes due 2033 is hereby incorporated by reference to Exhibit 4.1 to U.S. Cellular's Current Report on Form 8-K dated December 3, 2003, filed December 4, 2003.
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 U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
9.1(a)	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 U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-38644).
9.1(b)	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 U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1991.
9.1(c)	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 U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1992.

9.1(d)	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.
9.1(e)	Amendment effective as of March 28, 2003, to the Voting Trust Agreement dated as of June 30, 1989, as amended is incorporated by reference to Item 7(e) of the Schedule 13D filed by such Voting Trust dated March 28, 2003.
9.1(f)	Amendment effective as of March 28, 2003, to the Voting Trust Agreement dated as of June 30, 1989, as amended is incorporated by reference to Item 7(f) of the Schedule 13D filed by such Voting Trust dated March 28, 2003.
10.1	Tax Allocation Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.2	Cash Management Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.3	Registration Rights Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.4	Exchange Agreement, between U.S. Cellular and TDS, as amended, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.5	Intercompany Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.6	Employee Benefit Plans Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.7	Insurance Cost Sharing Agreement, between U.S. Cellular and TDS, is hereby incorporated by reference to an exhibit to U.S. Cellular's Registration Statement on Form S-1 (Registration No. 33-16975).
10.8	Summary of 2003 Bonus Program for Executive and Senior Vice Presidents of U.S. Cellular.*
10.9	Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.13 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1994.
10.10	United States Cellular Corporation Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 10.11 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2000.
10.11	United States Cellular Corporation 2003 Long-Term Incentive Plan, as amended, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's Notice of Annual Meeting to Shareholders and Proxy Statement dated April 17, 2003.
10.12	Retention Agreement for Kenneth R. Meyers dated September 13, 1999 is hereby incorporated by reference to Exhibit 10.27 to U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 1999.
10.13	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 U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.14	Guaranty dated as of May 14, 2002 by United States Cellular Corporation in favor of Citibank N.A. relating to monetization of Vodafone Group American Depositary Receipts is hereby incorporated by reference to Exhibit 10.1 to U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.15	Guarantee dated as of May 10, 2002 by United States Cellular Corporation in favor of Credit Suisse First Boston International relating to monetization of Vodafone Group American Depositary Receipts is hereby incorporated by reference to Exhibit 10.2 to U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.16	Guaranty dated as of May 15, 2002 by United States Cellular Corporation in favor of Wachovia Bank, National Association relating to monetization of Vodafone Group American Depositary Receipts is hereby incorporated by reference to Exhibit 10.3 to U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.17	Guaranty dated as of May 15, 2002 by United States Cellular Corporation in favor of Toronto Dominion (New York), Inc. relating to monetization of Vodafone Group American Depositary Receipts is hereby incorporated by reference to Exhibit 10.4 to U.S. Cellular's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.18	United States Cellular Corporation 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 to U.S. Cellular's Registration Statement on Form S-8 (Registration No. 333-103543).
11	Statement regarding computation of earnings per share (included in Note 3 to U.S. Cellular's consolidated financial statements as part of Exhibit 13 to this document).
12.1	Statement regarding computation of ratios for the year ended December 31, 2003.
12.2	Statement regarding computation of ratios for the nine months ended September 30, 2003.
12.3	Statement regarding computation of ratios for the six months ended June 30, 2003.
12.4	Statement regarding computation of ratios for the three months ended March 31, 2003.
13	Incorporated portions of 2003 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.
21	Subsidiaries of the Registrant.*
23.1	Consent of independent public accountants.
23.2	Notice regarding consent of Arthur Andersen LLP.
31.1	Chief Executive Officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
31.2	Chief Financial Officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
32.1	Chief Executive Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2	Chief Financial Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

*

Previously filed as an exhibit to the United States Cellular Corporation Form 10-K for the year ended December 31, 2003.

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

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Explanatory Note
PART I

Item 1. Business

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9A. Controls and Procedures

PART IV

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

SIGNATURES
INDEX TO EXHIBITS

EX-12.1

Exhibit 12.1

UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
For the Twelve Months Ended December 31, 2003

(Dollars In Thousands)
As Restated

EARNINGS:
	Income (loss) before income taxes and minority interest			$	106,150
		Add (Deduct):
			Earnings on Equity Method Investments		(52,063	)
			Distributions from Minority Subsidiaries		44,833
			Minority interest in income of majority-owned subsidiaries that do not have fixed charges		(14,622	)
					84,298
		Add fixed charges:
			Consolidated interest expense		63,048
			Deferred Debt Amortization Expense		1,559
			Interest Portion (1/3) of Consolidated Rent Expense		17,412
				$	166,317
FIXED CHARGES:
			Consolidated interest expense	$	63,048
			Deferred Debt Amortization Expense		1,559
			Interest Portion (1/3) of Consolidated Rent Expense		17,412
				$	82,019
RATIO OF EARNINGS TO FIXED CHARGES					2.03

EX-12.2

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Exhibit 12.2

UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
For the Nine Months ended September 30, 2003

(Dollars In Thousands)
As Restated

EARNINGS:
	Income before income taxes and minority interest			$	83,629
		Add (Deduct):
			Earnings on Equity Method Investments		(37,163	)
			Distributions from Minority Subsidiaries		21,228
			Minority interest in income of majority-owned subsidiaries that do not have fixed charges		(10,714	)
					56,980
		Add fixed charges:
			Consolidated interest expense		46,496
			Deferred Debt Amortization Expense		1,017
			Interest Portion (1/3) of Consolidated Rent Expense		17,795
				$	122,288
FIXED CHARGES:
			Consolidated interest expense	$	46,496
			Deferred Debt Amortization Expense		1,017
			Interest Portion (1/3) of Consolidated Rent Expense		17,795
				$	65,308
RATIO OF EARNINGS TO FIXED CHARGES					1.87

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UNITED STATES CELLULAR CORPORATION RATIO OF EARNINGS TO FIXED CHARGES For the Nine Months ended September 30, 2003 (Dollars In Thousands) As Restated

EX-12.3

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Exhibit 12.3

UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
For the Six Months ended June 30, 2003

(Dollars In Thousands)
As Restated

EARNINGS:
	Income (loss) before income taxes and minority interest			$	(8,637	)
		Add (Deduct):
			Earnings on Equity Method Investments		(25,862	)
			Distributions from Minority Subsidiaries		17,564
			Minority interest in income of majority-owned subsidiaries that do not have fixed charges		(6,071	)
					(23,006	)
		Add fixed charges:
			Consolidated interest expense		31,139
			Deferred Debt Amortization Expense		759
			Interest Portion (1/3) of Consolidated Rent Expense		11,734
				$	20,626
FIXED CHARGES:
			Consolidated interest expense	$	31,139
			Deferred Debt Amortization Expense		759
			Interest Portion (1/3) of Consolidated Rent Expense		11,734
				$	43,632
RATIO OF EARNINGS TO FIXED CHARGES					NA

        The dollar deficiency resulting in less than one-to-one coverage is $23,006 for the ratio of earnings to fixed charges.

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UNITED STATES CELLULAR CORPORATION RATIO OF EARNINGS TO FIXED CHARGES For the Six Months ended June 30, 2003 (Dollars In Thousands) As Restated

EX-12.4

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Exhibit 12.4

UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months ended March 31, 2003

(Dollars In Thousands)
As Restated

EARNINGS:
	Income (loss) before income taxes and minority interest			$	(10,639	)
		Add (Deduct):
			Earnings on Equity Method Investments		(12,378	)
			Distributions from Minority Subsidiaries		13,615
			Minority interest in income of majority-owned subsidiaries that do not have fixed charges		(3,465	)
					(12,867	)
		Add fixed charges:
			Consolidated interest expense		15,018
			Deferred Debt Amortization Expense		436
			Interest Portion (1/3) of Consolidated Rent Expense		5,847
				$	8,434
FIXED CHARGES:
			Consolidated interest expense	$	15,018
			Deferred Debt Amortization Expense		436
			Interest Portion (1/3) of Consolidated Rent Expense		5,847
				$	21,301
RATIO OF EARNINGS TO FIXED CHARGES					NA

        The dollar deficiency resulting in less than one-to-one coverage is $12,867 for the ratio of earnings to fixed charges.

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UNITED STATES CELLULAR CORPORATION RATIO OF EARNINGS TO FIXED CHARGES For the Three Months ended March 31, 2003 (Dollars In Thousands) As Restated

EX-13

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Exhibit 13

INCORPORATED PORTIONS OF THE UNITED STATES CELLULAR CORPORATION'S
2003 ANNUAL REPORT TO SECURITY HOLDERS

Selected Consolidated Financial Data

Year Ended or at December 31,		2003 (as restated)(a)			2002 (as restated)(a)			2001			2000			1999
		(Dollars in thousands, except per share amounts)
Operating Data
Service Revenues		$	2,423,789		$	2,098,893		$	1,826,385		$	1,653,922		$	1,525,660
Operating Income			118,983			281,166			317,212			292,313			255,842
Investment income			52,063			42,068			41,934			43,727			30,374
Gain (Loss) on marketable equity securities and other investments			(5,200	)		(295,454	)		—			96,075			266,744
Income (Loss) Before Income Taxes and Minority Interest			106,150			(12,388	)		331,337			377,165			523,158
Income (Loss) Before Cumulative Effect of Accounting Change			57,006			(18,385	)		173,876			197,568			300,758
Cumulative Effect of Accounting Change, net of tax			(14,346	)		(8,560	)		—			(4,661	)		—
Net Income (Loss)		$	42,660		$	(26,945	)	$	173,876		$	192,907		$	300,758
Basic Weighted Average Shares Outstanding (000s)			86,136			86,086			86,200			86,355			87,478
Basic Earnings per Share from:
	Income (Loss) Before Cumulative Effect of Accounting Change		0.67			(0.22	)		2.02			2.28			3.44
	Cumulative Effect of Accounting Change		(0.17	)		(0.09	)		—			(0.05	)		—
	Net Income (Loss)	$	0.50		$	(0.31	)	$	2.02		$	2.23		$	3.44
Diluted Earnings per Share from:
	Income (Loss) Before Cumulative Effect of Accounting Change		0.66			(0.22	)		1.99			2.27			3.28
	Cumulative Effect of Accounting Change		(0.17	)		(0.09	)		—			(0.05	)		—
	Net Income (Loss)	$	0.49		$	(0.31	)	$	1.99		$	2.22		$	3.28
Pro Forma(b)
Net Income (Loss)		$	57,006		$	(30,047	)	$	171,481		$	190,837		$	298,959
Basic Earnings (Loss) per Share			0.67			(0.34	)		1.99			2.21			3.42
Diluted Earnings (Loss) per Share		$	0.66		$	(0.34	)	$	1.97		$	2.20		$	3.26
Balance Sheet Data
Property, Plant and Equipment, net		$	2,173,884		$	2,033,791		$	1,419,341		$	1,145,623		$	1,071,005
Investments—
	Licenses		1,189,326			1,247,197			858,791			857,607			822,554
	Goodwill		430,256			504,744			473,975			400,966			380,866
	Marketable equity securities		260,188			185,961			272,390			377,900			540,711
	Unconsolidated entities		170,569			161,451			159,454			137,474			111,471
Total Assets			4,945,747			4,769,597			3,759,157			3,501,177			3,534,239
Long-term Debt (excluding current portion)			1,144,344			806,460			403,156			448,817			546,322
Common Shareholders' Equity		$	2,465,403		$	2,402,377		$	2,335,669		$	2,214,571		$	2,274,641
Current Ratio(c)			0.73			0.46			0.70			1.03			1.98
Return on Equity(d)			2.3	%		(0.8	)%		7.6	%		8.8	%		14.2	%

Results from previous years have been restated to conform to current period presentation.

(a)

Certain amounts have been restated to reflect changes to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," as discussed in the Restatement Section of Note 1 to the consolidated financial statements.

(b)

Pro forma amounts reflect the effect of the retroactive application of the change in accounting principle for the adoption of SFAS No. 143 "Accounting for Asset Retirement Obligations" in 2003.

(c)

Current Ratio is calculated by dividing Current Assets by Current Liabilities. These amounts are taken directly from the consolidated balance sheets.

(d)

Return on Equity is calculated by dividing Net Income (Loss) before Cumulative Effect of Accounting Change by the average of the beginning and ending Common Shareholders' Equity. These amounts are taken from the consolidated statements of operations and balance sheets. The result is shown as a percentage.

1

Management's Discussion and Analysis of Results of Operations and Financial Condition

        United States Cellular Corporation ("U.S. Cellular"—AMEX symbol: USM) owns, operates and invests in wireless markets throughout the United States. U.S. Cellular is an 82.1%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS").

        The following discussion and analysis should be read in conjunction with U.S. Cellular audited consolidated financial statements and footnotes included herein and the description of U.S. Cellular's business included in Item 1 of U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

        U.S. Cellular has restated certain portions of its management's discussion and analysis of results of operations and financial condition included in its Annual Report on Form 10-K for the year ended December 31, 2003 that was originally filed on March 12, 2004. The restatement of U.S. Cellular's 2003 and 2002 financial statements relates to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," which was adopted on January 1, 2002. Prior to January 1, 2002, U.S. Cellular allocated the excess of purchase price over tangible assets and liabilities acquired to investment in licenses and goodwill. At that time, the accounting treatment for U.S. Cellular's investment in licenses and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

        Based upon a subsequent review of goodwill, U.S. Cellular has restated the allocation of $138.9 million of purchase price recorded as goodwill to investment in licenses as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of U.S. Cellular's investment in licenses by a corresponding $90.7 million. Following these adjustments, U.S. Cellular reperformed the impairment tests for its investment in licenses as of January 1, 2002, and recorded an impairment loss of $12.7 million ($20.9 million before income taxes of $8.2 million). This impairment has been recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

        In the first quarter of 2003, U.S. Cellular had recorded a loss on assets held for sale related to the pending disposition of certain wireless properties. The investment in licenses upon which the impairment was recorded in the first quarter of 2002 included the investment in licenses of these properties. As a result, a portion of the originally recognized loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, loss on assets held for sale in 2003 has been reduced by $1.9 million, before income taxes of $0.8 million. In the third quarter of 2003, U.S. Cellular had originally recorded an income tax expense upon the closing of the disposition of such wireless properties. This tax expense has been reduced due to the reversal of additional deferred tax liabilities that were recorded with respect to the wireless properties exchanged in conjunction with the restatement from goodwill to investment in licenses. Consequently, income tax expense in 2003 has been reduced by $10.7 million.

        In addition, as a result of the restatement discussed above, U.S. Cellular also reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before income taxes of $19.6 million. This additional loss has been recorded in the second quarter of 2003. See the Restatement section of Note 1—Summary of Significant Accounting Policies.

        Amounts reported in this discussion and analysis for 2003 and 2002 reflect amounts as restated.

        U.S. Cellular owned, or had the right to acquire pursuant to certain agreements, either majority or minority interests in 165 cellular markets and 70 personal communication service markets at December 31, 2003. Of the 165 cellular markets, six were divested in February 2004, pursuant to an existing agreement. When all pending transactions are completed, U.S. Cellular will own majority or minority interests in 159 cellular markets and 70 personal communication service markets.

        A summary of the number of markets U.S. Cellular owns, has rights to acquire or has agreed to divest as of December 31, 2003 follows:

	Number of Markets
Consolidated markets	182
Consolidated markets to be acquired pursuant to existing agreements(1)	21
Consolidated markets to be divested pursuant to existing agreements(2)	(6	)
Minority interests accounted for using equity method	26
Minority interests accounted for using cost method	6
Total current and acquirable	229

(1)

Represents licenses to be acquired from AT&T Wireless (as defined below) over a five-year period beginning August 1, 2003.

(2)

Represents licenses to be sold to AT&T Wireless (as defined below) pursuant to an existing agreement.

Overview

        The following is a summary of certain selected information from the complete management discussion that follows the overview and does not contain all of the information that may be important. You should carefully read this entire management discussion and analysis and not rely solely on the overview.

U.S. Cellular positions itself as a regional operator, focusing its efforts on providing wireless service to customers in the geographic areas where it has licenses to provide such service. U.S. Cellular differentiates itself from its competitors through a customer satisfaction strategy, reflecting broad product distribution, a customer service focus and a high-quality wireless network.

Recent Acquisitions, Exchanges and Divestitures

        U.S. Cellular'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. Its largest contiguous service area is in the Midwest, where it serves 2.3 million customers and has licenses covering a total population of 27.5 million. U.S. Cellular's operating strategy is to strengthen the geographic areas where it can continue to build long-term operating synergies and to exit those areas where it does not have opportunities to build such synergies. Three of U.S. Cellular's most recent transactions are summarized below.

•

On August 1, 2003, U.S. Cellular completed the transfer of properties to AT&T Wireless Services, Inc., ("AT&T Wireless") and the assignments to it by AT&T Wireless of a portion of the wireless licenses covered by the agreement with AT&T Wireless. On the initial closing date, U.S. Cellular also received approximately $34.0 million in cash and minority interests in six wireless markets in which it currently owns a controlling interest. Also on the initial closing date, U.S. Cellular transferred wireless assets and customers in 10 markets in Florida and Georgia to AT&T Wireless.

U.S. Cellular has deferred the assignment and development of 21 licenses it has the right to acquire from AT&T Wireless for up to five years from the original closing date of August 1, 2003. When this transaction is fully consummated, U.S. Cellular will have received 36 wireless licenses in 13 states, approximately $34 million in cash and minority interests in six licenses in which it previously owned the controlling interest. The licenses received are contiguous to and overlap existing U.S. Cellular licensed areas in the Midwest and Northeast.

•

On November 26, 2003, U.S. Cellular announced that it had entered into a definitive agreement to sell certain wireless properties in six cellular markets in southern Texas to AT&T Wireless. The closing of the transaction occurred in February 2004. The U.S. Cellular assets sold to AT&T Wireless in this transaction included wireless properties and 76,000 customers.



•

On August 7, 2002, U.S. Cellular completed the acquisition of a 20 megahertz license in the Chicago basic trading area (excluding Kenosha, Wisconsin). U.S. Cellular acquired wireless properties and 320,000 customers in this transaction. This acquisition filled in U.S. Cellular's coverage area in the Midwest, enabling it to expand its network to cover a contiguous area including most of Illinois, Wisconsin and Iowa.

Operating Results

        U.S. Cellular's operating income decreased 58% in 2003 and 11% in 2002. The decrease in 2003 is primarily due to the increased costs of acquiring, serving and retaining U.S. Cellular's customers, the ongoing development of the Chicago market, losses on assets held for sale related to the exchange and sale transactions entered into with AT&T Wireless and loss on impairment of intangible assets. The decrease in 2002 is primarily due to increased costs related to the acquisition of and subsequent brand launch in the Chicago market. Operating income margins (as a percent of service revenues) were 4.9% in 2003, 13.4% in 2002 and 17.4% in 2001.

        U.S. Cellular anticipates that there will be continued pressure on its operating income and margins in the next few years related to the following factors:

•

slower customer growth;

2

•

customer acquisition and retention;



•

competition;



•

increased customer use of its services;



•

launching service in new areas; and



•

continued enhancements to its wireless network.

        In the exchange and divestiture transactions discussed above, U.S. Cellular has divested operations that were generating revenues, cash flows from operations and operating income; however, a significant portion of such revenues, cash flows from operations and operating income was attributable to inbound roaming traffic and was not primarily generated by U.S. Cellular's customers in those markets. In exchange, U.S. Cellular received or will receive licenses that will be in a development phase for several years and also received cash. U.S. Cellular anticipates that it may require debt or equity financing over the next few years for capital expenditures, for the development of new markets and to further its growth in Chicago and its other recently launched markets.

Financing Initiatives

        U.S. Cellular had cash and cash equivalents totaling $9.8 million and $700 million of availability under its revolving credit facilities as of December 31, 2003. U.S. Cellular is also generating substantial cash flows from operations. Cash flows from operating activities totaled $621.7 million in 2003, $620.1 million in 2002 and $440.3 million in 2001. In addition, U.S. Cellular has access to public and private capital markets to help meet its long-term financing needs. Management believes that cash on hand, expected future cash flows from operations and existing sources of external financing provide substantial financial flexibility and are sufficient to permit U.S. Cellular to finance its contractual obligations and anticipated capital expenditures.

        U.S. Cellular is committed to maintaining a strong balance sheet and its investment grade rating. During 2003 and 2002, U.S. Cellular entered into several financing transactions that have provided financial flexibility as it continues to grow its wireless business. These transactions are summarized as follows:

2003

•

Sold $444 million of 30-year, 6.7% Senior Notes under an existing shelf registration statement and repaid all borrowings under its revolving credit facilities.



•

Amended its $325 million revolving credit facility entered into in 2002 to increase the capacity to $700 million.



•

Canceled its revolving credit facility entered into in 1997, which had previously had a capacity of $500 million.

2002

•

Monetized its investment in Vodafone Group Plc through forward contracts which mature in five years, receiving $159.9 million in cash.



•

Established a five-year, $325 million revolving credit facility with a series of banks.



•

Sold $130 million of 30-year, 8.75% Senior Notes under an existing shelf registration statement.

        See "Financial Resources" and "Liquidity and Capital Resources."

Results Of Operations

        Following is a table of summarized operating data for U.S. Cellular's consolidated operations.

Year Ended or At December 31,(1)	2003			2002			2001
Total market population(2)		46,267,000			41,048,000			28,632,000
Customers		4,409,000			4,103,000			3,461,000
Market penetration(3)		9.53	%		10.00	%		12.09	%
Markets in operation		147			149			142
Total employees		6,225			6,100			5,150
Cell sites in service		4,184			3,914			2,925
Average monthly service revenue per customer(4)	$	47.38		$	47.25		$	46.28
Post-pay churn rate per month(5)		1.5	%		1.8	%		1.7	%
Sales and marketing cost per gross customer addition(6)	$	380		$	365		$	322

(1)

Amounts in 2003 include the results of the 10 markets transferred to AT&T Wireless through July 31, and include the results of the 15 markets acquired and transferred from AT&T Wireless from the transfer date through December 31. Amounts in 2002 include the operations of USCOC of Chicago (as defined below) from August 7—December 31.

(2)

Represents 100% of the population of U.S. Cellular's consolidated markets, regardless of whether the market has begun marketing operations. Market penetration is calculated using 2002, 2001, and 2000 Claritas population estimates for 2003, 2002, and 2001, respectively.

(3)

Market penetration is calculated by dividing customers by total market population.

(4)

Average monthly service revenue per customer is calculated as follows:

Year Ended or At December 31,	2003		2002		2001
Service Revenue (000s)	$	2,423,789	$	2,098,893	$	1,826,385
Divided by average customers during period (000s)		4,263		3,702		3,289
Divided by twelve months in each period		12		12		12
Average monthly revenue per customer	$	47.38	$	47.25	$	46.28

(5)

Post-pay churn rate per month represents the percentage of the customer base on post-pay service plans (i.e., service plans where customers are billed in arrears for service) which disconnects service each month. The calculation divides the total number of customers on post-pay service plans who disconnect service during the period by the number of months in such period, then divides that quotient by the average monthly post-pay service customer base for such period.

(6)

For a discussion of the components of this calculation, see "Operating Expenses—Selling, General and Administrative".

        On August 1, 2003, U.S. Cellular completed the transfer of the wireless assets and customers in 10 markets in Florida and Georgia to AT&T Wireless. In exchange, U.S. Cellular received rights to acquire controlling interests in 36 personal communication service licenses and approximately $34 million in cash and minority interests in six markets in which it previously owned a controlling interest. Of the 36 licenses, 15 were transferred to U.S. Cellular in 2003. The assignment and development of the remaining 21 licenses yet to be transferred from AT&T Wireless will be deferred by U.S. Cellular for a period of up to five years from the original closing date of August 1, 2003. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with the service requirements of the Federal Communications Commission ("FCC"). The Florida and Georgia markets that were transferred to AT&T Wireless are included in consolidated operations for the first seven months of 2003.

3

        On August 7, 2002, U.S. Cellular completed the acquisition of the assets and certain liabilities of Chicago 20MHz, LLC, now known as United States Cellular Operating Company of Chicago, LLC ("USCOC of Chicago" or the "Chicago market") from PrimeCo Wireless Communications LLC. USCOC of Chicago operates a wireless system in the Chicago major trading area. USCOC of Chicago is the holder of certain FCC licenses, including a 20 megahertz personal communication service license in the Chicago major trading area (excluding Kenosha County, Wisconsin). The Chicago market's operations are included in consolidated operations for the entire year of 2003, but only for the period from August 7—December 31 of 2002. The Chicago market's operations contributed to the increases in U.S. Cellular's operating revenues and expenses in both 2003 and 2002.

        Prior to the fourth quarter of 2003, U.S. Cellular separately disclosed marketing and selling expenses and general and administrative expenses in its statements of operations. In the fourth quarter of 2003, U.S. Cellular combined the marketing and selling expense and general and administrative expense captions into one caption designated as selling, general and administrative expense. Previously, costs for equipment sold to retain current customers were included in selling, general and administrative expense. Prior to the fourth quarter of 2003 and in part of 2002, these costs were partially offset by equipment sales revenues received from these customers. In part of 2002 and all of 2001, equipment sales revenues related to retaining current customers were included in equipment sales revenues. In the fourth quarter of 2003, U.S. Cellular changed its policy for classifying retention costs and has reclassified the equipment sales revenue and cost of equipment sold related to the retention of current customers out of selling, general and administrative expense into equipment sales revenues and cost of equipment sold, respectively, for each of the years presented. These reclassifications increased equipment sales revenues by $27.3 million and $13.1 million in 2003 and 2002, respectively, and increased cost of equipment sold by $106.6 million, $57.2 million and $42.7 million in 2003, 2002 and 2001, respectively. Selling, general and administrative expense was reduced by $79.3 million, $44.1 million and $42.7 million in 2003, 2002 and 2001, respectively, to reflect the amounts reclassified to equipment sales revenues and cost of equipment sold. These reclassifications did not have any impact on income from operations, net income, earnings per share, financial position or cash flows of U.S. Cellular for any of the years presented.

Revenues

Year Ended December 31,		2003		2002		2001
		(Dollars in thousands)
Retail service		$	1,984,671	$	1,682,020	$	1,408,253
Inbound roaming			221,737		255,443		272,361
Long-distance and other			217,381		161,430		145,771
	Service Revenues		2,423,789		2,098,893		1,826,385
Equipment sales			158,994		98,693		68,445
	Total Operating Revenues	$	2,582,783	$	2,197,586	$	1,894,830

        Operating revenues increased $385.2 million, or 18%, to $2,582.8 million in 2003 from $2,197.6 million in 2002 and increased $302.8 million, or 16%, in 2002 from $1,894.8 million in 2001.

        Service revenues increased $324.9 million, or 15%, to $2,423.8 million in 2003 from $2,098.9 million in 2002 and increased $272.5 million, or 15%, in 2002 from $1,826.4 million in 2001. Service revenues primarily consist of: (i) charges for access, airtime, roaming and value-added services provided to U.S. Cellular's retail customers ("retail service"); (ii) charges to other wireless carriers whose customers use U.S. Cellular's wireless systems when roaming ("inbound roaming"); and (iii) charges for long-distance calls made on U.S. Cellular's systems. The increases in both years were primarily due to the growth in the number of retail customers in each year. Monthly service revenue per customer averaged $47.38 in 2003, $47.25 in 2002 and $46.28 in 2001.

        Retail service revenues increased $302.7 million, or 18%, to $1,984.7 million in 2003 from $1,682.0 million in 2002 and increased $273.7 million, or 19%, in 2002 from $1,408.3 million in 2001. Growth in U.S. Cellular's average customer base of 15% and 13% in 2003 and 2002, respectively, and an increase in average monthly retail service revenue per customer were the primary reasons for the increases in retail service revenue in both years. The average number of customers is affected by the timing of acquisitions and divestitures in both years, including the acquisition of the Chicago market in August 2002 and the disposition of markets to AT&T Wireless in August 2003.

        Management anticipates that growth in the customer base in U.S. Cellular's wireless markets will be slower in the future, primarily as a result of the increased competition in its markets and continued penetration of the consumer market. However, as U.S. Cellular expands its operations in Chicago and into its other recently acquired markets in future years, it anticipates adding customers and revenues in those markets, increasing its overall customer and revenue growth rates.

        Average monthly retail service revenue per customer increased 2% to $38.80 in 2003 from $37.86 in 2002 and increased 6% in 2002 from $35.68 in 2001. These increases were driven by an increase in average minutes of use per customer, the effect of which was partially offset by a decline in average revenue per minute of use.

        Monthly local retail minutes of use per customer averaged 422 in 2003, 304 in 2002 and 216 in 2001. The increases in monthly local retail minutes of use in both years were driven by U.S. Cellular's focus on designing sales incentive programs and customer billing rate plans to stimulate overall usage, as well as the acquisition of the Chicago market in 2002, whose customers used more minutes per month than the U.S. Cellular average. The impact on retail service revenue of the increased minutes of use in both years was partially offset by a decrease in average revenue per minute of use. The decrease in average revenue per minute of use reflects the effects of increasing competition, which has led to the inclusion of an increasing number of minutes in package pricing plans. Management anticipates that U.S. Cellular'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 $33.7 million, or 13%, to $221.7 million in 2003 from $255.4 million in 2002 and decreased $16.9 million, or 6%, from $272.3 million in 2001. The decreases in revenue related to inbound roaming on U.S. Cellular's systems in both years primarily resulted from a decrease in revenue per roaming minute of use, partially offset by an increase in roaming minutes used. Also contributing to the decrease in 2003 was the transfer of the Florida and Georgia markets to AT&T Wireless in August 2003; these markets had historically provided substantial amounts of inbound roaming revenue. 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 three factors:

•

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



•

the divestiture of U.S. Cellular's markets in Florida and Georgia in August 2003 and in southern Texas in February 2004, which have historically provided substantial inbound roaming minutes of use; and



•

U.S. Cellular's roaming partners may switch their business from U.S. Cellular to other operators or to their own systems.

        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 $55.9 million, or 35%, to $217.4 million in 2003 from $161.5 million in 2002 and increased

4

$15.7 million, or 11%, in 2002 from $145.8 million in 2001. The increase in 2003 is primarily related to the $47.2 million increase in amounts billed to U.S. Cellular's customers to offset costs related to certain regulatory mandates, such as universal service funding, wireless number portability and E-911 infrastructure. In particular, the amounts U.S. Cellular charges to its customers to offset universal service funding costs increased significantly due to changes in FCC regulations beginning April 1, 2003.

        The remainder of the increases in long-distance and other revenue in both years were driven by an increase in the volume of long-distance calls billed by U.S. Cellular to other wireless carriers whose customers used U.S. Cellular'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 U.S. Cellular's increasing use of pricing plans for its customers which include long-distance calling at no additional charge.

        Equipment sales revenues increased $60.3 million, or 61%, to $159.0 million in 2003 from $98.7 million in 2002 and increased $30.3 million, or 44%, in 2002 from $68.4 million in 2001. The increases in equipment sales revenues in both years primarily reflect a change in U.S. Cellular's method of distributing handsets to its agent channel. Beginning in the second quarter of 2002, U.S. Cellular began selling handsets to its agents at a price approximately equal to U.S. Cellular's cost before applying any rebates. Previously, U.S. Cellular's agents purchased handsets from third parties. Selling handsets to agents enables U.S. Cellular to provide better control over handset quality, set roaming preferences and pass along quantity discounts. Management anticipates that U.S. Cellular 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.

        In these transactions, 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 U.S. Cellular at the time these agents provide handsets to sign up new customers or retain current customers.

        Handset sales to agents, net of all rebates, increased equipment sales revenues by $52.7 million in 2003 and $20.8 million in 2002. Equipment sales to customers through U.S. Cellular's non-agent channels increased $7.6 million, or 10%, to $85.5 million in 2003 from $77.9 million in 2002 and increased $9.5 million, or 14%, in 2002 from $68.4 million in 2001. Customers added to U.S. Cellular's customer base through its marketing distribution channels ("gross customer activations"), the primary driver of equipment sales revenues, increased 9% in 2003 and 14% in 2002. Gross customer activations from non-agent channels increased 5% in 2003 and 8% in 2002.

        The increases in gross customer activations from non-agent channels in both years were driven by an increase in store traffic in U.S. Cellular's markets and the acquisition of the Chicago market in August 2002, which added to U.S. Cellular's distribution network. The increases in equipment sales revenues from U.S. Cellular's non-agent channels in both years were primarily attributable to the increase in handsets sold to customers for retention purposes, as U.S. Cellular continued to focus on retaining customers by offering existing customers handset pricing similar to that offered to new customers, particularly as these customers near the expiration date of their service contracts. This impact was partially offset by lower revenue per handset in both years, reflecting the reduction in sales prices to end users as a result of increased competition.

Operating Expenses

Year Ended December 31,		2003 (as restated)		2002		2001
		(Dollars in thousands)
System operations (excluding depreciation shown below)		$	576,159	$	492,750	$	421,114
Cost of equipment sold			355,150		242,523		166,759
Selling, general and administrative			1,004,655		829,993		689,087
Depreciation			374,769		311,993		237,346
Amortization and accretion			57,564		39,161		63,312
Loss on impairment of intangible assets			49,595		—		—
Loss on assets held for sale			45,908		—		—
	Total Operating Expenses	$	2,463,800	$	1,916,420	$	1,577,618

        Operating expenses increased $547.4 million, or 29%, to $2,463.8 million in 2003 from $1,916.4 million in 2002 and increased $338.8 million, or 21%, in 2002 from $1,577.6 million in 2001.

        System operations expenses (excluding depreciation) increased $83.4 million, or 17%, to $576.2 million in 2003 from $492.8 million in 2002 and increased $71.7 million, or 17%, in 2002 from $421.1 million in 2001. System operations expenses include charges from landline telecommunications service providers for U.S. Cellular's customers' use of their facilities, costs related to local interconnection to the landline network, charges for maintenance of U.S. Cellular's network, long-distance charges and outbound roaming expenses. The increases in system operations expenses in both years were due to the following factors:

•

increases of 7% and 34%, respectively, in the number of cell sites within U.S. Cellular's systems, to 4,184 in 2003 from 3,914 in 2002 and from 2,925 in 2001, as U.S. Cellular continues to expand and enhance coverage in its service areas both through acquisitions and internal growth; and



•

increases in minutes of use both on U.S. Cellular's systems and by U.S. Cellular's customers using other systems while roaming.

        The ongoing reductions both in the per-minute cost of usage on U.S. Cellular'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 U.S. Cellular's systems increased $46.5 million, or 38%, in 2003 and $33.9 million, or 38%, in 2002;



•

maintenance, utility and cell site expenses increased $40.3 million, or 31%, in 2003 and $28.1 million, or 27%, in 2002, as the average number of cell sites in service increased 17% and 30% in 2003 and 2002, respectively; in markets where U.S. Cellular maintains two digital radio equipment technologies, the related costs increased on a per cell site basis as well; and



•

expenses incurred when U.S. Cellular's customers used other systems when roaming decreased $3.4 million, or 1%, in 2003 and increased $9.6 million, or 4%, in 2002.

5

        System operations expenses increased in both years due to the August 2002 acquisition of the Chicago market, as a full year of activity in the Chicago market is included in 2003 compared to only the period from August 7—December 31 in 2002. The increases in expenses in the Chicago market in both periods were partially offset by reductions in expenses in other markets, primarily in the Midwest, when certain customers in surrounding markets used the Chicago system. Prior to acquiring the Chicago market, U.S. Cellular paid roaming charges to third parties when any of its customers roamed in the Chicago market.

        Monthly system operations expenses per customer increased 2% to $11.26 in 2003 and increased 4% to $11.09 in 2002 from $10.67 in 2001. This measurement is calculated by dividing total system operations expenses as reported for each of the annual periods by 12, then dividing that quotient by average customers during each respective 12-month period as defined previously in footnote 4 to the table of summarized operating data. Management uses this measurement to assess the cost of customer usage and network usage and maintenance on a per unit basis.

        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 U.S. Cellular's systems as it continues to add capacity and enhance quality in all markets, and begins development activities in new markets; and



•

increases in minutes of use, both on U.S. Cellular's systems and by U.S. Cellular'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 U.S. Cellular's systems and on other carriers' networks. The Chicago area has historically been a high-volume roaming destination for U.S. Cellular's customers. Management anticipates that the continued integration of the Chicago market into its operations will result in a further increase in minutes of use by U.S. Cellular'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 U.S. Cellular's customers on other systems. Such a shift in minutes of use would reduce U.S. Cellular's per-minute cost of usage in the future, to the extent that U.S. Cellular's customers use U.S. Cellular's systems rather than other carriers' networks. Additionally, U.S. Cellular's acquisition and subsequent buildout of licensed areas received in the AT&T Wireless exchange transaction may shift more minutes of use to U.S. Cellular's systems, as many of these licensed areas are major roaming destinations for U.S. Cellular's current customers.

        Cost of equipment sold increased $112.7 million, or 46%, to $355.2 million in 2003 from $242.5 million in 2002 and increased $75.7 million, or 45%, in 2002 from $166.8 million in 2001. The increases in both years are primarily due to the $80.7 million and $56.1 million increases, respectively, in handset costs related to the sale of handsets to agents beginning in the second quarter of 2002. Cost of equipment sold from non-agent channels increased $31.9 million, or 17%, in 2003 and increased $19.7 million, or 12%, in 2002. The increase in cost of equipment sold from non-agent channels in both years primarily reflects the increase in handsets sold to customers for retention purposes, as U.S. Cellular continued to focus on retaining customers by offering existing customers handset pricing similar to that offered to new customers as the expiration date of customers' service contracts approached. Also contributing were the respective 5% and 8% increases in gross customer activations from non-agent channels in 2003 and 2002.

        Selling, general and administrative expenses increased $174.7 million, or 21%, to $1,004.7 million in 2003 from $830.0 million in 2002 and increased $140.9 million, or 20%, in 2002 from $689.1 million in 2001. Selling, general and administrative expenses primarily consist of salaries, commissions and expenses of field sales and retail personnel and offices; agent commissions and related expenses; corporate marketing, merchandise management and telesales department salaries and expenses; advertising; and public relations expenses. Selling, general and administrative expenses also include the costs of operating U.S. Cellular's customer care centers, the costs of serving customers and the majority of U.S. Cellular's corporate expenses.

        The increase in selling, general and administrative expenses in 2003 is primarily due to the following factors:

•

a $38.4 million increase in advertising costs, primarily related to the continued marketing of the U.S. Cellular brand in the Chicago market and the marketing of U.S. Cellular's data-related wireless services;



•

a $30.1 million increase in expenses related to payments into the federal universal service fund, based on an increase in rates due to changes in the FCC regulations, substantially all of which is offset by increases in long-distance and other revenue for amounts passed through to customers; and



•

a $29.3 million increase in billing-related expenses, primarily due to the expenses related to the maintenance of the Chicago market's billing system and the transition to the system used in U.S. Cellular's other operations in July 2003.

        In 2002, the increase in selling, general and administrative expenses was primarily due to the following factors:

•

a $40.0 million increase in general and administrative expenses due to the acquisition and operation of the Chicago market;



•

a $35.0 million increase in bad debt expense; and



•

a $25.7 million increase in advertising costs, primarily related to the launch of the U.S. Cellular brand in the Chicago market.

        In both years, increases were also attributable to the rise in salaries and other employee-related expenses associated with acquiring, serving and retaining customers, primarily as a result of the acquisition of the Chicago market as well as the increase in U.S. Cellular's customer base.

        In 2003, the increase in salaries and other sales-related costs is also attributable to the expenses incurred in preparation for U.S. Cellular's launch of data-related wireless services in its markets. In 2002, the increase was also related to enhancements made to U.S. Cellular's merchandise management and telesales processes and the development of data services strategies.

        In 2002, U.S. Cellular changed its accounting for commissions expenses, reflecting a change in its application of Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements."

6

Effective January 1, 2002, U.S. Cellular began deferring expense recognition of a portion of its commissions expenses, equal to the amount of deferred activation fees revenue. U.S. Cellular recognizes the related commissions expense over the average customer service period, currently estimated to be 48 months. This change resulted in a reduction in selling, general and administrative expenses of $2.8 million in 2002. Pursuant to this change, beginning in 2002 equivalent amounts of revenue and expense are deferred and amortized, which results in better matching for purposes of reporting operating income, net income and diluted earnings per share. See "Cumulative Effect of a Change in Accounting Principle" for more information on the impact of SAB No. 101 on U.S. Cellular's results.

        Sales and marketing cost per gross customer activation totaled $380 in 2003, $365 in 2002 and $322 in 2001. Sales and marketing cost per gross customer activation is not calculable using financial information derived directly from the statements of operations. The definition of sales and marketing cost per gross customer activation that U.S. Cellular uses as a measure of the cost to acquire additional customers through its marketing distribution channels may not be comparable to similarly titled measures that are reported by other companies. Below is a summary of sales and marketing cost per gross customer activation for each period:

Year ended December 31,		2003			2002			2001
		(Dollars in thousands, except per customer amounts)
Components of cost
	Selling, general and administrative expenses related to the acquisition of new customers(1)	$	428,944		$	368,888		$	297,239
	Cost of equipment sold to new customers(2)		248,539			185,283			124,028
	Less equipment sales revenues from new customers(3)		(162,402	)		(100,164	)		(68,445	)
Total cost		$	515,081		$	454,007		$	352,822
Gross customer activations (000s)(4)			1,357			1,244			1,095
Sales and marketing cost per gross customer activation		$	380		$	365		$	322

(1)

Selling, general and administrative expenses related to the acquisition of new customers is reconciled to total selling, general and administrative expenses as follows:

Year ended December 31,	2003			2002			2001
	(Dollars in thousands)
Selling, general and administrative expenses as reported	$	1,004,655		$	829,993		$	689,087
Less expenses related to serving and retaining customers		(575,711	)		(461,105	)		(391,848	)
Selling, general and administrative expenses related to the acquisition of new customers	$	428,944		$	368,888		$	297,239

(2)

Cost of equipment sold, excluding amounts related to the retention of existing customers is reconciled to total cost of equipment sold as follows:

Year ended December 31,	2003			2002			2001
	(Dollars in thousands)
Cost of equipment sold as reported	$	355,150		$	242,523		$	166,759
Less cost of equipment sold related to the retention of existing customers		(106,611	)		(57,240	)		(42,731	)
Cost of equipment sold to new customers	$	248,539		$	185,283		$	124,028

(3)

Equipment sales revenues, excluding amounts related to the retention of existing customers is reconciled to total equipment sales revenues as follows:

Year ended December 31,	2003			2002			2001
	(Dollars in thousands)
Equipment sales revenues as reported	$	158,994		$	98,693		$	68,445
Less equipment sales revenues related to the retention of existing customers, excluding agent rebates*		(27,328	)		(13,108	)		—
Add agent rebate reductions of equipment sales revenues related to the retention of existing customers		30,736			14,579			—
Equipment sales revenues from new customers	$	162,402		$	100,164		$	68,445

*

In part of 2002 and all of 2001, equipment sales revenues related to retaining current customers were included in equipment sales revenues. In 2003 and part of 2002, these revenues were recorded in selling, general and administrative expenses as a reduction of the cost of equipment sold to retain current customers. In order to conform the operating results for 2003 and the part of 2002 for which these revenues were recorded in selling, general and administrative expenses to the current period presentation, U.S. Cellular reclassified the revenues related to retaining current customers in these periods as equipment sales revenues.

(4)

Gross customer activations represent customers added to U.S. Cellular's customer base, during the respective periods presented, through its marketing distribution channels.

        Monthly general and administrative expenses per customer, including the net costs related to the renewal or upgrade of service contracts of existing U.S. Cellular customers ("net customer retention costs"), increased 15% to $13.40 in 2003 and increased 6% to $11.70 in 2002 from $11.01 in 2001. Management uses this measurement to assess the cost of serving and retaining its customers on a per unit basis.

        This measurement is reconciled to total selling, general and administrative expenses as follows:

Year ended December 31,		2003			2002			2001
		(Dollars in thousands, except per customer amounts)
Components of cost(1)
	Selling, general and administrative expenses as reported	$	1,004,655		$	829,993		$	689,087
	Less selling, general and administrative expenses related to the acquisition of new customers		(428,944	)		(368,888	)		(297,239	)
	Add cost of equipment sold related to the retention of existing customers		106,611			57,240			42,731
	Less equipment sales revenues related to the retention of existing customers, excluding agent rebates		(27,328	)		(13,108	)		—
	Add agent rebate reductions of equipment sales revenues related to the retention of existing customers		30,736			14,579			—
Net cost of serving and retaining customers		$	685,730		$	519,816		$	434,579
Divided by average customers during period (000s)(2)			4,263			3,702			3,289
Divided by twelve months in each period			12			12			12
Average monthly general and administrative expenses per customer		$	13.40		$	11.70		$	11.01

(1)

These components were previously identified in the table which calculates sales and marketing cost per customer activation and related footnotes.

(2)

Average customers for each respective period were previously defined in footnote 4 to the table of summarized operating data.

7

        Depreciation expense increased $62.8 million, or 20%, to $374.8 million in 2003 from $312.0 million in 2002 and increased $74.7 million, or 31%, in 2002, from $237.3 million in 2001. The increases in both years reflect rising average fixed asset balances, which increased 23% in 2003 and 31% in 2002. Increased fixed asset balances in both 2003 and 2002 resulted from the following factors:

•

the addition of 507 and 437 new cell sites in 2003 and 2002, respectively, built to improve coverage and capacity in U.S. Cellular's markets;



•

the acquisition of the Chicago market in 2002;



•

U.S. Cellular's migration of its network toward a single digital equipment platform, which began during the second half of 2002;



•

the addition of digital radio channels to U.S. Cellular's network to accommodate increased usage; and



•

investments in U.S. Cellular's billing and office systems.

        See "Liquidity and Capital Resources—Capital Expenditures" for further discussion of U.S. Cellular's capital expenditures.

        In addition to the above factors, in 2003, U.S. Cellular took certain cell sites, in which its antennae were co-located on third parties' towers, out of service, writing off the remaining net book value of the related assets. This write-off increased depreciation expense $7.0 million in 2003. These cell sites were acquired from another carrier in a 2001 transaction. U.S. Cellular recorded $11.6 million less depreciation expense in 2003 than in 2002 as depreciation on the properties transferred to AT&T Wireless in the exchange transaction was only recorded through March 2003 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."

        In 2002, depreciation expense increased $15.0 million due to a charge to reflect the write-off of certain analog equipment based on fixed asset inventory reviews performed in 2002.

        Amortization and accretion expense increased $18.4 million, or 47%, to $57.6 million in 2003 from $39.2 million in 2002 and decreased $24.2 million, or 38%, in 2002 from $63.4 million in 2001. The increase in 2003 is primarily driven by the $11.1 million increase in amortization related to the customer list intangible assets and other deferred charges acquired in the USCOC of Chicago transaction during 2002. The customer list assets are amortized based on the average customer retention periods related to each customer list.

        In accordance with SFAS No. 143 "Accounting for Asset Retirement Obligations," as of January 1, 2003, U.S. Cellular began accreting liabilities for future remediation obligations associated with leased properties. Such accretion expense totaled $4.4 million in 2003.

        In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," effective January 1, 2002, U.S. Cellular 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. In 2001, amortization of these intangibles totaled $36.5 million.

        Loss on impairment of intangible assets totaled $49.6 million in 2003. In conjunction with the restatement related to SFAS No. 142, U.S. Cellular reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. The carrying value of the licenses in each reporting unit was compared to the estimated fair value of the licenses in each reporting unit. The license values in two reporting units were determined to be impaired and a loss of $49.6 million was recorded.

        See "Application of Critical Accounting Policies and Estimates—Investment in Licenses and Goodwill" for further discussion of U.S. Cellular's intangible asset impairment testing.

        Loss on assets held for sale totaled $45.9 million in 2003. Of this total, $23.9 million represents the difference between the fair value of the assets U.S. Cellular received and expects to receive in the AT&T Wireless exchange transaction completed on August 1, 2003, as determined by an independent valuation, and the recorded value of the Florida and Georgia market assets it transferred to AT&T Wireless. The loss also includes a $22.0 million write-down related to the wireless assets to be sold to AT&T Wireless in February 2004.

Operating Income

        Operating income decreased $162.2 million, or 58%, to $119.0 million in 2003 from $281.2 million in 2002 and decreased $36.0 million, or 11%, in 2002 from $317.2 million in 2001. The operating income margins (as a percent of service revenues) were 4.9% in 2003, 13.4% in 2002 and 17.4% in 2001.

        The declines in operating income and operating income margin in both years reflect the following:

•

increased selling, general and administrative expenses, primarily driven by the acquisition and subsequent transition of the Chicago market's operations and billing system; and additional costs related to advertising and marketing the U.S. Cellular brand, especially in the Chicago market, and related to the launch of U.S. Cellular's data-related wireless services in certain markets;



•

increased depreciation expense, driven by an increase in average fixed assets related to ongoing improvements to and the expansion of U.S. Cellular's wireless network;



•

increased system operations expenses, primarily driven by increases in the number of cell sites in and the number of minutes used by U.S. Cellular's customers and roaming customers on U.S. Cellular's network; and



•

increased equipment subsidies, primarily due to U.S. Cellular's practice of selling handsets to agents; this practice began in 2002, and increased the volume of handset sales, as well as the increase in customer retention-related equipment transactions.

        Operating income and operating income margin in 2003 also reflect:

•

the losses on assets held for sale related to both the exchange transaction and pending sale transaction involving AT&T Wireless; and



•

the loss on impairment of intangible assets.

        These expense increases were partially offset by increased service revenues, which were driven by growth in the number of customers served by U.S. Cellular's systems and increases in average monthly revenue per customer.

        U.S. Cellular expects most of the above factors, except for those related to the transition of the Chicago market and the losses on assets held for sale and impairments, 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 U.S. Cellular's operating results, may cause operating income and operating margins to fluctuate over the next several quarters.

        Related to U.S. Cellular's acquisition and subsequent transition of the Chicago market's operations, U.S. Cellular plans to incur additional expenses in 2004 as it competes in the Chicago market. Additionally, U.S. Cellular plans to build out its network into other as yet unserved portions of its licensed areas, and will begin sales and marketing operations in those areas in the next few years. U.S. Cellular also incurred additional expenses related to its launch of data-related wireless services in many of its markets in 2003, and expects to incur expenses related to its continued marketing of data-related wireless services in

8

the next few years. As a result, depending on the timing and effectiveness of these initiatives, U.S. Cellular's operating income may range from $160 million to $210 million in 2004, compared to operating income of $119 million in 2003. Its corresponding operating margins may range from 6% to 8% in 2004, compared to an operating margin of 4.9% in 2003.

        U.S. Cellular anticipates that service revenues will total approximately $2.5 billion in 2004, compared to service revenues of $2.4 billion in 2003. The anticipated service revenue growth in 2004 reflects the effects of the sale of properties to AT&T Wireless in February 2004, the markets transferred to AT&T Wireless in the exchange transaction completed in August 2003, the continued growth in U.S. Cellular's customer base and the continued marketing of data-related wireless services in its markets.

        Depending on the timing and effectiveness of its marketing efforts in new markets, U.S. Cellular anticipates that its customer base will grow by 7% to 8% in 2004, substantially all from net customer additions gained through its marketing channels. However, management anticipates that average monthly service revenue per customer will decrease slightly, as retail service revenue per minute of use and inbound roaming revenue per minute of use decline.

        Depending on the timing and effectiveness of its marketing efforts in new markets, U.S. Cellular anticipates that its operating expenses will increase by a range of 3% to 5% during 2004. U.S. Cellular does not anticipate recording a significant adjustment to the loss on assets held for sale in 2004 related to the sale of properties to AT&T Wireless in February 2004. U.S. Cellular anticipates that its net costs associated with customer growth, service and retention, initiation of new services, launches in new markets and fixed asset additions will continue to grow, causing overall expenses to increase compared to 2003.

        U.S. Cellular anticipates that its net customer retention costs will increase in the future as it migrates to a single digital technology platform and certain customers will require new handsets. In addition, continued competitive pressures and an increase in per unit handset costs will require U.S. Cellular to incur increased net customer retention costs.

        Management believes there exists a seasonality in both service revenues, which tend to increase more slowly in the first and fourth quarters due to variations in customer usage patterns in those periods, 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 may 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 to reflect ongoing, rather than seasonal, promotions of U.S. Cellular's products.

Effects of Competition on Operating Income

        U.S. Cellular competes directly with several wireless communications services providers, including enhanced specialized mobile radio service providers, in each of its markets. In general, there are between five and seven competitors in each wireless market in which U.S. Cellular provides service. U.S. Cellular generally competes against each of the six near-nationwide wireless companies: Verizon Wireless, Sprint PCS (and affiliates), Cingular Wireless, AT&T Wireless, T-Mobile and Nextel. However, not all six competitors operate in each market where U.S. Cellular does business. U.S. Cellular believes that these competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than it does.

        The use of national advertising and promotional programs by such national wireless operators may be a source of additional competitive and pricing pressures in all U.S. Cellular markets, even if those operators may not provide service in a particular market. U.S. Cellular provides wireless services comparable to the national competitors, but the other wireless companies operate in a wider geographic area and are able to offer no- or low-cost roaming and long-distance calling packages over a wider area on their own networks than U.S. Cellular can offer on its network. If U.S. Cellular offers the same calling area as one of these competitors, it will incur roaming charges for calls made in portions of the calling area that are not part of its network.

        In the Midwest, U.S. Cellular's largest contiguous service area, it can offer larger regional service packages without incurring significant roaming charges than it is able to offer in other parts of its network. U.S. Cellular also employs a customer satisfaction strategy throughout its markets which it believes has contributed to a relatively low churn rate and has had a positive impact on its cost to acquire and serve customers.

        Some of U.S. Cellular's competitors bundle other services, such as landline telephone service and internet access, with their wireless communications services, which U.S. Cellular either does not have the ability to offer or has chosen not to offer.

        In addition, U.S. Cellular competes against both larger and smaller regional wireless companies in certain areas, including ALLTEL, Western Wireless, Rural Cellular Corporation, and against resellers of wireless services. Since each of these competitors operates on systems using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers among 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.

        Since U.S. Cellular's competitors do not disclose their subscriber counts in specific regional service areas, market share for the competitors in each regional market cannot be accurately determined.

Effects of Wireless Number Portability on Operating Income

        The FCC mandate requiring that all wireless carriers be capable of facilitating wireless number portability became effective on November 24, 2003. At that time, all wireless providers in the largest 100 metropolitan statistical areas in the United States allowed a customer to retain, subject to certain geographical limitations, their existing telephone number when switching from one telecommunications carrier to another. For metropolitan statistical areas outside the largest 100, wireless providers that receive a request to allow an end user to port their number must be capable of doing so within six months of receiving the request or within six months after November 24, 2003, whichever is later.

9

        U.S. Cellular has been successful in facilitating number portability requests in a timely manner. The implementation of wireless number portability has not had a material effect on U.S. Cellular's results of operations to date. However, U.S. Cellular is unable to predict the impact that the implementation of number portability will have on its overall business. The implementation of wireless number portability will likely increase churn rates for U.S. Cellular and other wireless companies, as the ability of customers to retain their wireless telephone numbers removes a significant barrier for customers who wish to change wireless carriers. U.S. Cellular believes that it may be able to obtain additional new customers who wish to change their service from other wireless carriers as a result of wireless number portability. The future volume of any porting requests, and the processing costs related thereto, may increase U.S. Cellular's operating costs in the future. Any of the above factors could have an adverse effect on U.S. Cellular's competitive position, costs of obtaining new subscribers, liquidity, financial position and results of operations.

Investment and Other Income (Expense)

        Investment and other income (expense) totaled ($12.8) million in 2003, ($293.6) million in 2002 and $14.1 million in 2001.

        Investment income was $52.1 million in 2003, $42.1 million in 2002 and $41.9 million in 2001. Investment income primarily represents U.S. Cellular's share of net income from the markets managed by others that are accounted for by the equity method. The aggregate net income of these investment markets increased significantly in 2003, resulting in a corresponding increase in investment income.

        Interest income totaled $1.6 million in 2003, $4.4 million in 2002 and $10.3 million in 2001. The decreases in 2003 and 2002 are primarily due to lower average cash balances in those years than in the respective comparable years.

        Interest expense totaled $64.6 million in 2003, $47.9 million in 2002 and $35.2 million in 2001. Interest expense is summarized by related debt instrument in the following table:

Year Ended December 31,	2003		2002		2001
	(Dollars in millions)
7.25% Notes	$	18.5	$	18.5	$	18.5
8.75% Senior Notes		11.4		1.8		—
Revolving credit facilities		9.8		5.8		5.1
6% zero coupon convertible debentures		9.4		8.9		9.8
8.1% Intercompany Note(1)		8.6		3.5		—
Forward contracts(2)		2.9		2.1		—
6.7% Notes		2.0		—		—
9% Series A Notes		—		4.6		—
Other		2.0		2.7		1.8
Total Interest Expense	$	64.6	$	47.9	$	35.2

(1)

In August 2002, U.S. Cellular entered into a loan agreement with TDS under which it borrowed $105 million. The loan bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with prepayments optional. In February 2004, U.S. Cellular repaid all outstanding principal and interest related to this Note. For further information regarding this Note, see "Certain Relationships and Related Transactions."

(2)

In May 2002, U.S. Cellular entered into the forward contracts, which were negotiated with third parties relating to its investment in 10.2 million Vodafone American Depositary Receipts. Taken together, the forward contracts allowed U.S. Cellular to borrow an aggregate of $159.9 million against the stock. The forward contracts bear interest, payable quarterly, at the London InterBank Offered Rate ("LIBOR") plus 0.5% for a rate of 1.65% based on the three-month LIBOR rate at December 31, 2003. For further information regarding the forward contracts, see "Market Risk."

        In 2003, interest expense related to the revolving credit facilities increased primarily due to the increase in average borrowings outstanding. Interest expense on the 8.75% Senior Notes, 8.1% Intercompany Notes and 6.7% Notes increased due to the increased length of time they were outstanding in 2003 compared to 2002.

        In 2002, interest expense related to the 8.75% Senior Notes, 8.1% Intercompany Note, Forward contracts and 9% Series A Notes increased due to the fact that none of these debt instruments were outstanding during 2001.

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

        The zero coupon convertible debentures, also known as Liquid Yield Option Notes, 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 for purposes of calculating interest expense.

        For further information regarding U.S. Cellular's 8.75% Senior Notes, 6.7% Notes and 9% Series A Notes, see "Liquidity and Capital Resources—Long-Term Financing." For further information regarding U.S. Cellular's revolving credit facilities, see "Liquidity and Capital Resources—Revolving Credit Facilities." For further information on the forward contracts, see "Market Risk." For information regarding the 8.1% Intercompany Note, see "Certain Relationships and Related Transactions."

        Loss on marketable equity securities and other investments totaled $5.2 million in 2003 and $295.5 million in 2002. In 2003, a $3.5 million license impairment loss was recorded related to U.S. Cellular's investment in a non-operational market in Florida that remained with U.S. Cellular after the exchange with AT&T Wireless was completed. Also in 2003, a $1.7 million impairment loss was recorded related to U.S. Cellular's minority investment in a wireless market that it accounts for using the cost method.

        U.S. Cellular and its subsidiaries hold a substantial amount of marketable equity securities, the majority of which are the result of sales or trades of non-strategic assets. These securities are publicly traded and can have volatile share prices. U.S. Cellular and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, trades or reorganizations of other assets. U.S. Cellular continues to hold these investments because their associated low tax basis would trigger a substantial taxable gain upon disposal. See "Liquidity and Capital Resources—Marketable Equity Securities and Forward Contracts" for a discussion of marketable equity securities.

        In 2002, management determined that the decline in value of certain marketable equity securities relative to their book basis was other than temporary and charged a $244.7 million loss to the statements of operations. U.S. Cellular has subsequently utilized derivative financial instruments to eliminate any future other than temporary losses related to these marketable equity securities. See "Market Risk" for a discussion of other than temporary losses.

        Also in 2002, U.S. Cellular recorded a $38.1 million write-down in the value of notes receivable related to the 2000 sales of certain minority interests. Additionally, U.S. Cellular recorded losses of $8.5 million related to the withdrawal from a partnership in which it had owned

10

an investment interest and $4.2 million related to the reduction in value of a land purchase option.

Income Taxes

        Income tax expense (benefit) totaled an expense of $37.2 million in 2003, a benefit of $7.5 million in 2002 and an expense of $147.3 million in 2001. The overall effective tax expense (benefit) rate was 35% in 2003, (61%) in 2002 and 44% in 2001. The effective tax rates in 2003 and 2002 were impacted by the losses on assets held for sale and the losses on investments, which have different tax rates than U.S. Cellular's overall operations. See Note 2—Income Taxes in the Notes to Consolidated Financial Statements for further discussion of the effective tax rate.

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

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

Cumulative Effect of Accounting Changes

        Cumulative effect of accounting changes, net of tax and minority interest, reduced income by $14.3 million, net of taxes of $9.7 million and minority interest of $0.5 million, or $0.17 per diluted share, in 2003, reflecting the implementation of SFAS No. 143, and $8.6 million, or $0.09 per diluted share in 2002, reflecting an initial impairment upon adoption of SFAS No. 142 and U.S. Cellular's change in its application of SAB No. 101.

        Effective January 1, 2003, U.S. Cellular implemented SFAS No. 143. The cumulative effect in 2003 represents the aggregate impact of this accounting change for periods prior to 2003.

        Effective January 1, 2002, U.S. Cellular adopted SFAS No. 142 and determined that wireless licenses have indefinite lives. Upon initial adoption, U.S. Cellular reviewed its investment in licenses and determined there was an impairment loss on certain licenses. The cumulative effect of the initial impairment upon the adoption of SFAS No. 142 reduced net income in 2002 by $12.7 million, net of taxes of $8.2 million, or $(0.14) per diluted share.

        Effective January 1, 2002, U.S. Cellular began deferring expense recognition of a portion of its commissions expenses, in the amount of deferred activation fees revenue. The cumulative effect in 2002 represents the aggregate impact of this accounting change for periods prior to 2002 was recorded in 2002 increasing net income by $4.1 million, net of tax of $3.0 million, or $0.05 per diluted share.

Net Income (Loss)

        Net income (loss) totaled income of $42.7 million in 2003, a loss of $26.9 million in 2002 and income of $173.9 million in 2001. Diluted earnings (loss) per share was $0.49 in 2003, ($0.31) in 2002 and $1.99 in 2001. In 2002, reduced operating income, primarily related to the launch of U.S. Cellular's brand in the Chicago market, and losses on marketable equity securities and other investments led to the decline in net income and diluted earnings per share from 2001. In 2003, losses on investments were significantly reduced, leading to the increase in net income and diluted earnings per share.

Inflation

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

RECENT ACCOUNTING PRONOUNCEMENTS

        Financial Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," was issued in January 2003, and is effective for all variable interests in variable interest entities created after January 31, 2003, and is effective October 1, 2003 for variable interests in variable interest entities created before February 1, 2003. This Interpretation modifies the requirements for consolidation of investments previously contained in Accounting Research Bulletin No. 51 "Consolidated Financial Statements." Under FIN 46, certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered variable interest entities and are potentially subject to consolidation by an investor other than the investor with the majority equity interest. In December 2003, the FASB issued FIN 46R, "Consolidation of Variable Interest Entities," which among other things, deferred the application of FIN 46 by public entities with interest in variable interest entities referred to as special purpose entities until periods ending after December 15, 2003 and by public entities for all other types of variable interest entities until periods ending after March 15, 2004. U.S. Cellular has reviewed the provisions of FIN 46R, and does not anticipate that the adoption of FIN 46R will have a material impact on U.S. Cellular's future financial position or results of operations.

FINANCIAL RESOURCES

        U.S. Cellular operates a capital- and marketing-intensive business. In recent years, U.S. Cellular has generated cash from its operations, received cash proceeds from divestitures, used its short-term credit facilities and used long-term debt financing to fund its network construction costs and operating expenses. U.S. Cellular anticipates further increases in wireless customers, revenues, operating expenses, cash flows from operating activities and fixed assets 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 $621.7 million in 2003, $620.1 million in 2002 and $440.3 million in 2001. Income excluding adjustments to reconcile income (loss) to net cash provided by operating activities, excluding noncash items and changes in assets and liabilities from operations ("noncash" items) totaled $578.7 million in 2003, $599.9 million in 2002 and $505.0 million in 2001. Changes in assets and liabilities from operations provided $42.9 million in 2003, provided $20.2 million in 2002 and required $64.7 million in 2001, reflecting primarily timing differences in the payment of accounts payable and accrued taxes and the receipt of accounts receivable. Income taxes and interest paid totaled $22.3 million in 2003, $69.9 million in 2002 and $154.0 million in 2001.

11

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

Year Ended December 31,	2003 (as restated)		2002 (as restated)			2001
	(Dollars in thousands)
Net income (loss)	$	42,660	$	(26,945	)	$	173,876
Noncash items included in income from continuing operations		536,052		626,882			331,165
Income from continuing operations excluding noncash items		578,712		599,937			505,041
Changes in assets and liabilities from operations		42,943		20,143			(64,693	)
	$	621,655	$	620,080		$	440,348

        Cash flows from investing activities required $556.1 million in 2003, $1,099.6 million in 2002 and $671.8 million in 2001. Cash required for property, plant and equipment and system development expenditures totaled $632.5 million in 2003, $730.6 million in 2002 and $503.3 million in 2001. These expenditures were financed primarily with internally generated cash and borrowings from U.S. Cellular's revolving credit facilities. These expenditures represent the construction of 507, 437 and 377 cell sites in 2003, 2002 and 2001, respectively, as well as other plant additions and costs related to the development of U.S. Cellular's office systems. In 2003 and 2002, these plant additions included approximately $58 million and $215 million, respectively, for the migration to a single digital equipment platform. 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, plus notes issued to the sellers of USCOC of Chicago in 2002, required $5.1 million in 2003, $452.9 million in 2002 and $186.3 million in 2001. Proceeds from the exchange transaction with AT&T Wireless totaled $34.0 million in 2003. Cash distributions from wireless entities in which U.S. Cellular has an interest provided $44.8 million in 2003, $28.9 million in 2002 and $14.8 million in 2001. In 2002, U.S. Cellular was refunded $56.1 million of its deposit with the FCC related to the January 2001 FCC spectrum auction.

        Cash flows from financing activities required $70.6 million in 2003 and provided $465.5 million in 2002 and $136.1 million in 2001. In 2003, U.S. Cellular repaid the remaining principal amount outstanding on its 9% Series A Notes with $40.7 million in cash, which was financed using U.S. Cellular's revolving credit facilities. The 9% Series A Notes are now retired. On December 8, 2003, U.S. Cellular received $432.9 million net proceeds from the issuance of its $444.0 million of 6.7% Notes due December 2033. These proceeds were subsequently used to repay all outstanding borrowings under the revolving credit facility entered into in 1997. In 2002, U.S. Cellular received $159.9 million from the monetization of its Vodafone investment through the forward contracts, $129.8 million net proceeds from the 8.75% Senior Notes offering and $105.0 million through the Intercompany Note, all of which were used primarily to finance the USCOC of Chicago acquisition. In 2002, U.S. Cellular repurchased $129.8 million of its 9% Series A Notes using the net proceeds from the 8.75% Senior Notes offering. U.S. Cellular repaid $739.3 million in 2003, $346.6 million in 2002 and $22.5 million in 2001 under its revolving credit facilities. Borrowings under the revolving credit facilities totaled $279.3 million in 2003, primarily to fund capital expenditures; $542.6 million in 2002, primarily to fund the USCOC of Chicago acquisition and capital expenditures; and $231.5 million in 2001, primarily to fund capital expenditures.

        In 2001, U.S. Cellular 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 Liquid Yield Option Notes by the holders.

        Also, in 2001, U.S. Cellular 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. See "Repurchase of Securities" for a description of U.S. Cellular's Common Share repurchase programs. An additional 157,000 Common Shares were purchased in 2001 pursuant to a previously authorized program to repurchase a limited amount of shares on a quarterly basis, primarily for use in employee benefit plans.

ACQUISITIONS, EXCHANGES AND DIVESTITURES

        U.S. Cellular assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from its operating markets. U.S. Cellular also reviews attractive opportunities for the acquisition of additional wireless spectrum.

Acquisitions

Acquisition of USCOC of Chicago

        On August 7, 2002, U.S. Cellular completed the acquisition of USCOC of Chicago, for approximately $618 million, including working capital and other adjustments. U.S. Cellular financed the purchase using its revolving credit facilities, 9% Series A Notes and the Intercompany Note. Net of cash acquired in the transaction and notes issued to the sellers of USCOC of Chicago, U.S. Cellular used cash totaling $431.9 million for the acquisition of USCOC of Chicago.

Other Acquisitions

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

        In 2001, U.S. Cellular, on its own behalf and through joint ventures, acquired majority interests in licenses in 27 wireless markets for $182.3 million in cash, which excluded $4.1 million of deposits on potential future acquisitions. These deposits were returned to U.S. Cellular in 2002 and no additional interests were acquired related to the deposits. The interests U.S. Cellular acquired through joint ventures are 100% owned by the joint ventures, and U.S. Cellular is considered to have the controlling financial interest in these joint ventures for financial reporting purposes.

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        At December 31, 2003, U.S. Cellular had entered into an agreement to purchase the remaining equity interests in three licenses in which it currently owns controlling interests for $34.8 million in cash. This transaction was completed in January 2004.

Exchanges

        On August 1, 2003, U.S. Cellular completed the transfer of properties to AT&T Wireless and the assignments to it by AT&T Wireless of a portion of the wireless licenses covered by the agreement with AT&T Wireless. On the initial closing date, U.S. Cellular also received approximately $34.0 million in cash and minority interests in six wireless markets in which it currently owns a controlling interest. Also on the initial closing date, U.S. Cellular transferred wireless assets and customers in 10 markets in Florida and Georgia to AT&T Wireless. U.S. Cellular has deferred the assignment and development of 21 licenses it has the right to acquire from AT&T Wireless until later periods. The value of these licenses is recorded as License rights on the balance sheet. When this transaction is fully consummated, U.S. Cellular will have received wireless licenses in 13 states contiguous to and that overlap existing properties in the Midwest and Northeast.

Divestitures

        On November 26, 2003, U.S. Cellular announced that it had entered into a definitive agreement to sell its southern Texas wireless properties to AT&T Wireless for $95 million in cash plus a working capital adjustment, subject to certain closing provisions. The closing of the transaction occurred in February 2004. The U.S. Cellular assets sold to AT&T Wireless include wireless properties and 76,000 customers. Service revenues from the markets sold totaled $60.6 million for the year ended December 31, 2003, while operating income totaled $17.1 million. Operating income does not include shared services costs that have been allocated to the markets from the U.S. Cellular corporate office.

        The sale was accounted for in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." The balance sheet at December 31, 2003 reflects assets and liabilities of the wireless properties to be sold as assets and liabilities of operations held for sale. The revenues and expenses of the markets were included in operations until the completion of the sale in February 2004.

        The following table summarizes the recorded value of the assets and liabilities of the markets that U.S. Cellular transferred.

December 31,		2003
		(Dollars in thousands)
Current assets		$	5,363
Property, plant and equipment, net			45,710
Other assets			316
Licenses, net			63,569
Goodwill			7,565
Loss on assets held for sale			(22,000	)
	Total assets	$	100,523
Current liabilities			2,189
Non-current liabilities			238
	Total liabilities	$	2,427
Net assets to be transferred		$	98,096

        In 2002 and 2001, U.S. Cellular had no material divestitures of wireless interests.

FCC Auction 35 Transactions

        U.S. Cellular 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.

LIQUIDITY AND CAPITAL RESOURCES

        Management believes that U.S. Cellular's cash flows from operations, existing cash balances and funds available from lines of credit arrangements provide substantial financial flexibility for U.S. Cellular to meet both its short-and long-term needs. U.S. Cellular also may have access to public and private capital markets to help meet its long-term financing needs. U.S. Cellular 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 U.S. Cellular's control. If at any time financing is not available on terms acceptable to U.S. Cellular, 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. U.S. Cellular 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 U.S. Cellular'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 U.S. Cellular, which could require U.S. Cellular to reduce its construction, development and acquisition programs.

Revolving Credit Facilities

        In December 2003, U.S. Cellular increased the capacity of its bank revolving credit facility originally entered into in 2002 to $700 million from $325 million. This facility expires in June 2007. Borrowings under this facility accrue interest at the London InterBank Offered Rate

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("LIBOR") plus 55 basis points (for a rate of 1.67% based on the one-month LIBOR rate at December 31, 2003). 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. U.S. Cellular pays annual facility and administrative fees in addition to interest on any borrowings; these fees are recorded as interest expense. As of December 31, 2003, U.S. Cellular had $699.8 million available, net of outstanding letters of credit of $0.2 million. In February 2004, U.S. Cellular repaid the entire $105 million Intercompany Note, plus accrued interest of $1 million, to TDS using cash borrowed under the revolving credit facility.

        At December 31, 2002, and up until December 23, 2003, U.S. Cellular had a $500 million revolving credit facility with a group of banks. This credit facility was terminated on December 23, 2003 in connection with the amendment of U.S. Cellular's $325 million credit facility to $700 million, discussed above. Borrowings under this facility accrued interest at the LIBOR rate plus 19.5 basis points. Other terms of this facility were similar to those in the recently amended facility discussed above.

        U.S. Cellular is generating cash from its operations and anticipates financing the 2004 obligations listed above with internally generated cash and with borrowings under its revolving credit facilities, as the timing of such expenditures warrants. U.S. Cellular had $9.8 million of cash and cash equivalents at December 31, 2003.

        The continued availability of the revolving credit facility requires U.S. Cellular to comply with certain negative and affirmative covenants, maintain certain financial ratios and to represent certain matters at the time of each borrowing.

        The restatements of the financial statements for the years ended December 31, 2003 and 2002 resulted in defaults under the revolving credit agreement between U.S. Cellular and certain lenders. U.S. Cellular has not failed to make nor expects to fail to make any scheduled payment of principal or interest under such revolving credit agreement. U.S. Cellular has received waivers from the lenders under which the lenders agreed to waive any defaults that may have occurred as a result of the restatements.

        U.S. Cellular's interest costs related to the revolving credit facility would increase if its credit rating goes down, which would increase its cost of financing, but the facility would not cease to be available solely as a result of a decline in its credit rating. A downgrade in U.S. Cellular's credit rating could adversely affect its ability to renew existing, or obtain access to new, credit facilities in the future.

Marketable Equity Securities and Forward Contracts

        U.S. Cellular and its subsidiaries hold a substantial amount of marketable equity securities that are publicly traded and can have volatile share prices. U.S Cellular and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, trades or reorganizations of other assets. The investment in Vodafone resulted from certain sales or trades of non-strategic cellular investments to or settlements with AirTouch Communications in exchange for stock of AirTouch, which was then acquired by Vodafone for American Depositary Receipts representing Vodafone stock. The investment in Rural Cellular Corporation is the result of a consolidation of several cellular partnerships in which U.S. Cellular subsidiaries held interests in Rural Cellular Corporation, and the distribution of Rural Cellular Corporation stock in exchange for these interests. U.S. Cellular has not disposed of the investments because their low tax basis would trigger a substantial taxable gain upon disposal.

        U.S. Cellular and its subsidiaries have entered into a number of variable prepaid forward contracts ("forward contracts") related to the marketable equity securities that they hold. The forward contracts mature in May 2007 and, at U.S. Cellular's option, may be settled in shares of the respective security or cash. U.S. Cellular has provided guarantees to the lenders which provide assurance to the lenders that all principal and interest amounts are paid upon settlement of the contracts by its subsidiary. If shares are delivered in the settlement of the forward contract, U.S. Cellular would incur a 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 through maturity. 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, 2003, such deferred tax liabilities totaled $86.3 million.

        The restatements of the financial statements for the years ended December 31, 2003 and 2002 resulted in defaults under certain forward contracts between a subsidiary of U.S. Cellular and a counterparty. U.S. Cellular has not failed to make nor expects to fail to make any scheduled payment of principal or interest under such forward contracts. U.S. Cellular and its subsidiaries have received waivers from the counterparty under which the counterparty agreed to waive any defaults that may have occurred as a result of the restatements.

Long-Term Financing

        In August 2002, U.S. Cellular issued the $175 million principal amount of 9% Series A Notes in conjunction with the acquisition of USCOC of Chicago. These Notes were originally issued in a private placement to the parties who sold USCOC of Chicago to U.S. Cellular and were due in August 2032. In November 2002, U.S. Cellular repurchased $129.8 million of the 9% Series A Notes with the proceeds of its 8.75% Senior Notes issuance. In January 2003, U.S. Cellular 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.

        In November 2002, U.S. Cellular sold $130 million of 8.75% Senior Notes. Interest is payable quarterly. These Notes are callable by U.S. Cellular, at the principal amount plus accrued and unpaid interest, at any time on and after November 7, 2007.

        In December 2003, U.S. Cellular sold $444 million of 6.7% Senior Notes. Interest is payable semi-annually. These Notes may be redeemed, in whole or in part, at any time prior to maturity at a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus accrued but unpaid interest, or (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus .30%.

        At December 31, 2003, U.S. Cellular is in compliance with all covenants and other requirements set forth in long-term debt indentures. U.S. Cellular does not have any rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in U.S. Cellular's credit rating could adversely affect its ability to issue additional debt in the future.

Capital Expenditures

        Anticipated capital expenditures for 2004 primarily reflect U.S. Cellular's plans for construction, system expansion, the buildout of certain of its personal communication service licensed areas and additional expenditures related to its plans to migrate to a single digital equipment platform. U.S. Cellular plans to finance its construction program using internally generated cash and short-term financing. U.S. Cellular's

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estimated capital spending for 2004 is $610 million to $630 million. These expenditures primarily address the following needs:

•

Expand and enhance U.S. Cellular's coverage in its service areas.



•

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



•

Build out certain licensed areas acquired in 2001, 2002 and 2003.



•

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



•

Enhance U.S. Cellular's retail store network and office systems.

        U.S. Cellular's overlay of existing technologies with CDMA is largely completed, and when the project is fully completed in 2004 it anticipates total expenditures related to the project to be no more than $300 million. U.S. Cellular will utilize CDMA technology in building out the licenses it has acquired and expects to acquire in the future from AT&T Wireless.

        The cost estimates for the CDMA migration project have been revised from the original estimate of $400 to $450 million to reflect divestitures of markets, more favorable pricing than expected and additional efficiencies in the conversion process. U.S. Cellular contracted with multiple infrastructure vendors to provide a substantial portion of the equipment related to the conversion.

        U.S. Cellular expects capital expenditures related to the buildout of the licensed areas it acquired in 2001 through 2003, including those in the AT&T Wireless exchange transaction, to be substantial. U.S. Cellular plans to build networks to serve these licensed areas and launch commercial service in these areas over the next several years. Approximately $100 million of the estimated capital spending for 2004 is allocated to the buildout of certain of these licenses, and U.S. Cellular expects a significant portion of its capital spending over the next few years to be related to the buildout of its wireless licensed areas.

Repurchase of Securities

        U.S. Cellular has no current plans to repurchase a significant number of its Common Shares. U.S. Cellular's primary repurchase program expired in December 2003. U.S. Cellular did not repurchase any Common Shares in 2003 and 2002. However, U.S. Cellular continues to have authorization to repurchase a limited amount of additional Common Shares on a quarterly basis, primarily for use in employee benefit plans.

        U.S. Cellular's Board of Directors has authorized management to opportunistically repurchase its 6% zero coupon convertible debentures, or Liquid Yield Option Notes, in private transactions. U.S. Cellular may also purchase a limited amount of such Notes in open-market transactions from time to time. U.S. Cellular's Liquid Yield Option Notes are convertible, at the option of their holders, at any time prior to maturity, redemption or purchase, into Common Shares at a conversion rate of 9.475 Common Shares per $1,000 of Notes. Upon conversion, U.S. Cellular has the option to deliver to holders either Common Shares or cash equal to the market value of the Common Shares into which the Liquid Yield Option Notes are convertible. U.S. Cellular may redeem the Liquid Yield Option Notes for cash at the issue price plus accrued original issue discount through the date of redemption.

Contractual Obligations

        As of December 31, 2003, the resources required for contractual obligations were as follows:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		2 - 3 Years		4 - 5 Years		More than 5 Years
	(Dollars in millions)
Long-term Debt Obligations(1)	$	1,092.5	$	108.0	$	—	$	250.0	$	734.5
Forward Contracts		159.9		—		—		159.9		—
Operating Leases(2)		285.5		62.2		100.7		56.7		65.9
Purchase Obligations(3)(4)		255.2		211.2		42.5		1.5		—
	$	1,793.1	$	381.4	$	143.2	$	468.1	$	800.4

(1)

Scheduled debt repayments include long-term debt and the current portion of long-term debt but exclude $160.3 million of unamortized discount on certain long-term debt instruments. See Note 14—Long-term Debt in the Notes to Consolidated Financial Statements.

(2)

Represents the amount due under operating leases for the periods specified. U.S. Cellular has no material capitalized leases.

(3)

Includes obligations due under equipment vendor contracts. The 2004 amounts due under equipment vendor contracts are also included in estimated capital expenditures. See "Capital Expenditures" for further discussion. Also includes amounts payable under other agreements to purchase goods or services, including open purchase orders.

(4)

Does not include amounts in any period for other post-retirement benefits because U.S. Cellular does not have any post-retirement benefit plans.

        For further information regarding U.S. Cellular's contractual obligations see Note 19—Commitments and Contingencies.

Off-Balance Sheet Arrangements

        U.S. Cellular has no transactions, agreements or other contractual arrangements with unconsolidated entities or involving "off-balance sheet arrangements," as defined by SEC rules, 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, revenues or expenses.

        U.S. Cellular has certain variable interests in investments in unconsolidated entities where U.S. Cellular holds a minority interest. The investments in unconsolidated entities total $170.6 million as of December 31, 2003 and are accounted for using either the equity or cost method. U.S. Cellular's maximum loss exposure for these variable interests is limited to the aggregate carrying amount of the investments.

Indemnity Agreements

        U.S. Cellular enters into agreements in the normal course of business that provide for indemnification of counterparties. These include certain asset sales and financings with other parties. The term of the indemnification varies by agreement. The events or circumstances that would require U.S. Cellular to perform under these indemnities are transaction specific, however these agreements may require U.S. Cellular to indemnify the counterparty for costs and losses incurred from litigation or claims arising from the underlying transaction. U.S. Cellular is unable to estimate the maximum potential liability for these types of indemnifications as the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, U.S. Cellular has not made any significant indemnification payments under such agreements.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        U.S. Cellular prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. U.S. Cellular'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.

        Management believes the following critical accounting estimates reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements. U.S. Cellular'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 U.S. Cellular's Board of Directors.

Investment in Licenses and Goodwill

        As of December 31, 2003, U.S. Cellular reported $1,189.3 million of investment in licenses and $430.3 million of goodwill, as a result of acquisitions of interests in wireless licenses and businesses. In addition, U.S. Cellular reported $42.0 million of License rights related to licenses that will be received when the AT&T Wireless exchange transaction is fully completed. Included in Assets of Operations Held for Sale was $63.6 million of license costs and $7.6 million of goodwill at December 31, 2003.

        See Note 4—Investment in Licenses and Goodwill for a schedule of investments in licenses and goodwill activity in 2003 and 2002.

        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. U.S. Cellular performs the annual impairment review on investments in licenses and goodwill during the second quarter. 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, as identified in accordance with SFAS No. 142, 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. To calculate the implied fair value of goodwill, an enterprise allocates the fair value of the reporting unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities of the reporting unit is the implied fair value of 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 factors that are highly uncertain and can result in a range of values, including future cash flows, the appropriate discount rate and other factors and inputs. Different assumptions for these inputs or valuation methodologies could create materially different results.

        U.S. Cellular tests goodwill for impairment at the level of reporting referred to as a reporting unit. U.S. Cellular has identified seven reporting units pursuant to paragraph 30 of SFAS No. 142. The seven reporting units represent seven geographic groupings of FCC licenses, constituting seven markets or service areas. U.S. Cellular combines its FCC licenses into seven units of accounting for purposes of testing the licenses for impairment pursuant to Emerging Issues Task Force Statement 02-7 "Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets" ("EITF 02-7") and SFAS No. 142, using the same geographic groupings as its reporting units.

        U.S. Cellular retained a third-party valuation firm to prepare valuations of the seven reporting units. A discounted cash flow approach was used to value each of the reporting units, using value drivers and risks specific to each individual geographic region. The cash flow estimates incorporate assumptions that market participants would use in their estimates of fair value. Key assumptions made in this process were the selection of a discount rate, estimated future cash flow levels, projected capital expenditures, and selection of terminal values.

        U.S. Cellular also retained a third party valuation firm to prepare valuations of the seven groupings of FCC licenses (units of accounting pursuant to EITF 02-7). The valuations were prepared using an excess earnings methodology, through the use of a discounted cash flow approach. This excess earnings methodology estimates the fair value of the intangible assets (FCC license units of accounting) by measuring the future cash flows of the license groups, reduced by charges for contributory assets such as working capital, trademarks, existing subscribers, fixed assets, assembled workforce and goodwill.

        U.S. Cellular recorded an impairment loss on its investment in licenses totaling $49.6 million in 2003 related to the impairment of two reporting units. Upon adoption of SFAS No. 142 in 2002, U.S. Cellular recorded an initial impairment loss on investment in licenses of $12.7 million ($20.9 million net of income taxes of $8.2 million) as a cumulative effect of an accounting change.

        In 2003, a license impairment loss of $3.5 million was recorded related to U.S. Cellular's investment in a non-operational market in Florida that remains after the exchange with AT&T Wireless is completed. Also in 2003, U.S. Cellular reduced the carrying value of one of its cost method investments by $1.7 million based on a cash flow analysis of the investment. Both charges were

16

included in Loss on marketable equity securities and other investments in the statements of operations.

Asset Retirement Obligations

        SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June 2001, and became effective for U.S. Cellular 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 obligations are 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. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to retire the asset and the liability recorded is recognized in the statements of operations as a gain or loss.

        The calculation of the asset retirement obligation for U.S. Cellular is a critical accounting estimate because changing the factors used in calculating the obligation could result in a larger or smaller estimated obligation that could have a significant impact on U.S. Cellular's results of operations and financial condition. Such factors may include probabilities or likelihood of remediation, cost estimates, lease renewals and salvage values. Actual results may differ materially from estimates under different assumptions or conditions.

        U.S. Cellular is subject to asset retirement obligations associated primarily with its cell sites, retail sites and office locations. Asset retirement obligations generally include costs to remediate leased land on which U.S. Cellular's cell sites and switching offices are located. U.S. Cellular is also generally required to return leased retail store premises and office space to their pre-existing conditions.

        U.S. Cellular determined that it had an obligation to remove long-lived assets in its cell sites, retail sites and office locations as described by SFAS No. 143, and has recorded an initial $54.4 million liability upon the adoption of SFAS No. 143 on January 1, 2003. Current year additions and accretion have increased the December 31, 2003 asset retirement obligation to $64.5 million.

        See Asset Retirement Obligation in Note 1—Summary of Significant Accounting Policies for a schedule of the changes in asset retirement obligations in 2003.

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 U.S. Cellular's financial condition, changes in financial condition and results of operations.

        The preparation of the consolidated financial statements requires U.S. Cellular 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 as well as estimating the impact of potential adjustments to filed tax returns. These temporary differences result in deferred tax assets and liabilities, which are included in U.S. Cellular's consolidated balance sheet. U.S. Cellular 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. U.S. Cellular's current net deferred tax asset was $16.8 million as of December 31, 2003, representing primarily the deferred tax effects of the allowance for doubtful accounts on accounts receivable.

        The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities as of December 31, 2003 are as follows:

December 31,		2003 (as restated)
		(Dollars in thousands)
Deferred Tax Asset
	Net operating loss carryforwards	$	30,671
	Unearned revenue		1,772
	Derivative accounting		22,015
	Other		5,222
			59,680
Less valuation allowance			(10,480	)
Total Deferred Tax Asset			49,200
Deferred Tax Liability
	Property, plant and equipment		222,213
	Licenses		206,129
	Marketable equity securities		86,251
	Partnership investments		30,511
Total Deferred Tax Liability			545,104
	Net Deferred Income Tax Liability	$	495,904

        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 $86.3 million at December 31, 2003 represents deferred income taxes calculated on the difference between the book basis and the tax basis of the marketable equity securities. Income taxes will be payable when U.S. Cellular sells the marketable equity securities.

        U.S. Cellular is routinely subject to examination of its income tax returns by the Internal Revenue Service ("IRS") and other tax authorities. U.S. Cellular 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 U.S. Cellular's income tax expense. The IRS has completed audits of U.S. Cellular'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, U.S. Cellular 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, U.S. Cellular would increase the income tax expense or decrease the income tax benefit by an equivalent amount.

17

        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 the TDS Tax Allocation Agreement. The TDS Tax Allocation 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 tax and credits as if they comprised a separate affiliated group. Under the TDS Tax Agreement, U.S. Cellular remits its applicable income tax payments to TDS.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        In August 2002, U.S. Cellular entered into a loan agreement with TDS under which it borrowed $105 million, which was used for the Chicago market purchase. The loan bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with prepayments optional. The terms of the loan do not contain restrictive covenants that are greater than those included in U.S. Cellular's senior debt, except that the loan agreement provides that U.S. Cellular 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. U.S. Cellular's Board of Directors, including independent directors, approved the terms of this loan and determined that such terms were fair to U.S. Cellular and all of its shareholders. On January 9, 2004, U.S. Cellular notified TDS of its intent to repay this note, and such repayment was made in February 2004. Consequently, U.S. Cellular has classified this note as a current liability as of December 31, 2003.

        U.S. Cellular is billed for all services it receives from TDS, pursuant to the terms of various agreements between U.S. Cellular and TDS. The majority of these billings are included in U.S. Cellular's selling, general and administrative expenses. Some of these agreements were established at a time prior to U.S. Cellular's initial public offering when TDS owned more than 90% of U.S. Cellular'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 U.S. Cellular's operations are described in Item 13 of U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2003. Management believes the method TDS uses to allocate common expenses is reasonable and that all expenses and costs applicable to U.S. Cellular are reflected in U.S. Cellular's financial statements on a basis which is representative of what they would have been if U.S. Cellular operated on a stand-alone basis.

        The following persons are partners of Sidley Austin Brown & Wood LLP, the principal law firm of U.S. Cellular and its subsidiaries: Walter C.D. Carlson, a director of U.S. Cellular, 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 General Counsel of TDS and an Assistant Secretary of TDS and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel and/or an Assistant Secretary of U.S. Cellular and certain other subsidiaries of TDS. Walter C.D. Carlson does not provide legal services to TDS, U.S. Cellular or their subsidiaries.

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 U.S. Cellular operates could adversely affect its revenues or increase its costs to compete.



•

Consolidation in the wireless industry may create stronger competitors both operationally and financially which could adversely affect U.S. Cellular's revenues and increase its costs to compete.



•

Advances or changes in telecommunications technology could render certain technologies used by U.S. Cellular obsolete, could reduce its revenues or could increase its cost of doing business.



•

Changes in the telecommunications regulatory environment, such as wireless number portability and E-911 services, could adversely affect U.S. Cellular's financial condition or results of operations or ability to do business.

18

•

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



•

Conversions of debt, early redemptions of debt or repurchases of debt, changes in prepaid forward contracts, operating leases, purchase obligations or other factors or developments could cause the amounts reported under Contractual Obligations to be different from the amounts presented.



•

Changes in accounting standards or U.S. Cellular's accounting policies, estimates and/or the assumptions underlying the accounting estimates, including those described under Application of Critical Accounting Policies and Estimates, could have a material effect on its 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 could have an adverse effect on U.S. Cellular'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 U.S. Cellular's financial condition or results of operations.



•

Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, selling expenses and net customer retention costs associated with wireless number portability, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on U.S. Cellular'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 U.S. Cellular's operations.



•

Changes in competitive factors with national and global wireless carriers could result in product and cost disadvantages and could have an adverse effect on U.S. Cellular's operations.



•

Lack of standards and roaming agreements for wireless data products could place U.S. Cellular's data services offerings at a disadvantage to those offered by other wireless carriers with more nationwide service territories.



•

Changes in guidance or interpretations of accounting requirements, changes in industry practice or changes in management assumptions could require amendments to or restatements of disclosures or financial information included in this or prior filings with the SEC.



•

Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets, other changes in market conditions, changes in U.S. Cellular's credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to it, which could require it to reduce its construction, development and acquisition programs.



•

Changes in the income tax rates or tax laws, regulations or rulings could have an adverse effect on U.S. Cellular's financial condition and results of operations.



•

War, conflicts, hostilities and/or terrorist attacks could have an adverse effect on U.S. Cellular's business.



•

Changes in general economic and business conditions, both nationally and in the markets in which U.S. Cellular operates, could have an adverse effect on U.S. Cellular's business.

        U.S. Cellular 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.

MARKET RISK

Long-Term Debt

        U.S. Cellular is subject to market rate risks due to fluctuations in interest rates and equity markets. U.S. Cellular 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, 2003, U.S. Cellular 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 as follows:

		Payments Due by Period
		Total			2004			2005			2006			2007			2008			After 5 Years
		(Dollars in millions)
Long-term
	Debt Obligations(1)	$	1,092.5		$	108.0		$	—		$	—		$	250.0		$	—		$	734.5
Average Interest Rate on Debt(2)			7.1	%		8.1	%		—	%		—	%		7.3	%		—	%		6.8	%
Forward Contracts		$	159.9		$	—		$	—		$	—		$	159.9		$	—		$	—
Average Interest
	Rate on Forward Contracts(3)		1.8	%		—	%		—	%		—	%		1.7	%		—	%		—	%

(1)

Scheduled debt repayments include long-term debt and current portion of long-term debt, but exclude $160.3 million of unamortized discount on certain long-term debt instruments.

(2)

Represents the average interest rate on all long-term debt shown for the indicated period.

(3)

Average interest rate is variable based on the LIBOR rate plus 50 basis points. The December 31, 2003 three-month LIBOR rate of 1.15% was used for 2004-2007.

        At December 31, 2003 and 2002, the estimated fair value of long-term debt was $1,152.5 million and $636.3 million, and the average interest rate on the debt was 7.1% and 6.6%, respectively. The estimated fair value of the forward contract loans was $156.8 million at December 31, 2003 and 2002. The fair value was estimated using market prices for the 8.75% Senior Notes and the Liquid Yield Option Notes and discounted cash flow analysis for the remaining debt.

19

Marketable Equity Securities and Derivatives

        U.S. Cellular maintains a portfolio of available-for-sale marketable equity securities, which resulted from the sale of non-strategic investments. The market value of these investments aggregated $260.2 million at December 31, 2003 and $186.0 million at December 31, 2002. As of December 31, 2003, U.S. Cellular recorded a net unrealized holding gain, net of tax, included in accumulated other comprehensive income totaling $60.5 million. This amount was $15.5 million at December 31, 2002. In 2002, U.S. Cellular recognized, in the statements of operations, losses of $244.7 million ($145.6 million net of tax of $99.1 million), related to investments in marketable equity securities as a result of management's determination that unrealized losses with respect to the investments were "other than temporary."

        A subsidiary of U.S. Cellular has entered into a number of forward contracts related to the Vodafone marketable equity securities that it holds. See Note 15—Financial Instruments and Derivatives in the Notes to Consolidated Financial Statements for a description of the forward contracts. U.S. Cellular has provided guarantees to the lenders which provide assurance to the lenders that all principal and interest amounts are paid upon settlement of the contracts by such subsidiary. 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 limit of the Vodafone securities is hedged at a range of $15.07 to $16.07 per share, which is at or above the cost basis, thereby eliminating the other than temporary risk on these contracted securities. The upside potential is a range of $21.56 to $23.20 per share.

        Under the terms of the forward contracts, U.S. Cellular continues 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 U.S. Cellular'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 U.S. Cellular's downside risk and upside potential on the contracted shares. The collars are typically adjusted for any changes in dividends on the contracted shares. If U.S. Cellular elects to settle in shares, it will be required to 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, U.S. Cellular would incur a 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 U.S. Cellular 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.

        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. Such deferred tax liabilities totaled $86.3 million at December 31, 2003, and $56.9 million at December 31, 2002.

        The following table summarizes certain facts surrounding the contracted securities as of December 31, 2003.

		Collar
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)		Loan Amount (000s)
Vodafone	10,245,370	$	15.07 - $16.07	$	21.56 - $23.20	$	159,856

        The following analysis presents the hypothetical change in the fair value of U.S. Cellular's marketable equity securities and derivative instruments at December 31, 2003, and December 31, 2002, using the Black-Scholes model, 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 inferred to suggest that U.S. Cellular has any intention of selling any marketable equity securities or canceling any derivative instruments.

				Valuation of investments assuming indicated increase
	December 31, 2003 Fair Value
				+10%			+20%			+30%
	(Dollars in millions)
Marketable Equity Securities	$	260.2		$	286.2		$	312.2		$	338.2
Derivative Instruments(1)	$	(55.7	)	$	(77.1	)	$	(99.2	)	$	(122.0	)

				Valuation of investments assuming indicated decrease
	December 31, 2003 Fair Value
				-10%			-20%			-30%
	(Dollars in millions)
Marketable Equity Securities	$	260.2		$	234.2		$	208.2		$	182.1
Derivative Instruments(1)	$	(55.7	)	$	(35.3	)	$	(15.9	)	$	2.5

				Valuation of investments assuming indicated increase
	December 31, 2002 Fair Value
				+10%			+20%			+30%
	(Dollars in millions)
Marketable Equity Securities	$	186.0		$	204.6		$	223.2		$	241.7
Derivative Instruments(1)	$	(8.7	)	$	(24.3	)	$	(40.3	)	$	(56.4	)

				Valuation of investments assuming indicated decrease
	December 31, 2002 Fair Value
				- -10%		- -20%		- -30%
	(Dollars in millions)
Marketable Equity Securities	$	186.0		$	167.4	$	148.8	$	130.2
Derivative Instruments(1)	$	(8.7	)	$	7.1	$	22.2	$	37.0

(1)

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

20

Consolidated Statements of Operations

			Year Ended December 31,
			2003 (as restated)			2002 (as restated)			2001
			(Dollars in thousands, except per share amounts)
Operating Revenues
	Service		$	2,423,789		$	2,098,893		$	1,826,385
	Equipment sales			158,994			98,693			68,445
		Total Operating Revenues		2,582,783			2,197,586			1,894,830
Operating Expenses
	System operations (excluding Depreciation shown separately below)			576,159			492,750			421,114
	Cost of equipment sold			355,150			242,523			166,759
	Selling, general and administrative			1,004,655			829,993			689,087
	Depreciation			374,769			311,993			237,346
	Amortization and accretion			57,564			39,161			63,312
	Loss on impairment of intangible assets			49,595			—			—
	Loss on assets held for sale			45,908			—			—
		Total Operating Expenses		2,463,800			1,916,420			1,577,618
Operating Income				118,983			281,166			317,212
Investment and Other Income (Expense)
	Investment income			52,063			42,068			41,934
	Interest income			1,560			4,411			10,300
	Other income, net			3,351			3,299			4,011
	Loss on marketable equity securities and other investments			(5,200	)		(295,454	)		—
	Loss on extinguishment of debt			—			—			(6,956	)
	Interest (expense)			(64,607	)		(47,878	)		(35,164	)
		Total Investment and Other Income (Expense)		(12,833	)		(293,554	)		14,125
Income (Loss) Before Income Taxes and Minority Interest				106,150			(12,388	)		331,337
Income tax expense (benefit)				37,232			(7,541	)		147,315
Income (Loss) Before Minority Interest				68,918			(4,847	)		184,022
Minority share of income				(11,912	)		(13,538	)		(10,146	)
Income (Loss) Before Cumulative Effect of Accounting Change				57,006			(18,385	)		173,876
	Cumulative effect of accounting change, net of tax			(14,346	)		(8,560	)		—
Net Income (Loss)			$	42,660		$	(26,945	)	$	173,876
Basic Weighted Average Shares Outstanding (000s)				86,136			86,086			86,200
Basic Earnings per Share
	Income (Loss) Before Cumulative Effect of Accounting Change		$	0.67		$	(0.22	)	$	2.02
	Cumulative Effect of Accounting Change			(0.17	)		(0.09	)		—
	Net Income (Loss)		$	0.50		$	(0.31	)	$	2.02
Diluted Weighted Average Shares Outstanding (000s)				86,602			86,086			89,977
Diluted Earnings per Share
	Income (Loss) Before Cumulative Effect of Accounting Change		$	0.66		$	(0.22	)	$	1.99
	Cumulative Effect of Accounting Change			(0.17	)		(0.09	)		—
	Net Income (Loss)		$	0.49		$	(0.31	)	$	1.99

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

21

Consolidated Statements of Cash Flows

			Year Ended December 31,
			2003 (as restated)			2002 (as restated)			2001
			(Dollars in thousands)
Cash Flows from Operating Activities
	Net Income (Loss)		$	42,660		$	(26,945	)	$	173,876
	Add (Deduct) adjustments to reconcile net income (loss) to net cash provided by operating activities
		Depreciation, amortization and accretion		432,333			351,154			300,658
		Deferred income tax provision		21,069			(11,743	)		41,961
		Investment income		(52,063	)		(42,068	)		(41,934	)
		Minority share of income		11,912			13,538			10,146
		Loss on extinguishment of debt		—			—			6,956
		Cumulative effect of accounting change		14,346			8,560			—
		Loss on impairment of intangible assets		49,595			—			—
		Loss on assets held for sale		45,908			—			—
		Loss on marketable equity securities and other investments		5,200			295,454			—
		Other noncash expense		7,752			11,987			13,378
	Changes in assets and liabilities from operations
		Change in accounts receivable		11,526			(35,383	)		(26,464	)
		Change in inventory		(16,499	)		2,639			(7,198	)
		Change in accounts payable		(15,620	)		68,472			(12,910	)
		Change in accrued taxes		47,180			(37,177	)		(22,663	)
		Change in customer deposits and deferred revenues		15,983			17,268			(302	)
		Change in other assets and liabilities		373			4,324			4,844
				621,655			620,080			440,348
Cash Flows from Investing Activities
	Additions to property, plant and equipment			(616,359	)		(698,636	)		(487,813	)
	System development costs			(16,167	)		(32,009	)		(15,521	)
	Refund of deposit from FCC			—			56,060			—
	Acquisitions, excluding cash acquired			(5,125	)		(452,936	)		(186,269	)
	Cash received from mergers and exchanges			33,953			—			—
	Distributions from unconsolidated entities			44,833			28,881			14,813
	Other investing activities			2,751			(1,001	)		2,965
				(556,114	)		(1,099,641	)		(671,825	)
Cash Flows from Financing Activities
	Proceeds from prepaid forward contracts			—			159,856			—
	Sale of long-term notes			432,944			129,800			—
	Affiliated long-term debt borrowings			—			105,000			—
	Repurchase and conversion of debt			—			—			(31,963	)
	Repurchase of common shares			—			—			(40,862	)
	Increase in notes payable			279,278			542,610			231,500
	Repayment of notes payable			(739,278	)		(346,610	)		(22,500	)
	Common shares reissued			7,231			787			4,103
	Capital (distributions) to minority partners			(7,632	)		(7,776	)		(4,141	)
	Repurchase of long-term debt			(40,680	)		(129,800	)		—
	Other financing activities			(2,420	)		11,617			—
				(70,557	)		465,484			136,137
Net Decrease in Cash and Cash Equivalents				(5,016	)		(14,077	)		(95,340	)
Cash and Cash Equivalents—
	Beginning of year			14,864			28,941			124,281
	End of year		$	9,848		$	14,864		$	28,941

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

22

Consolidated Balance Sheets—Assets

			December 31,
			2003 (as restated)		2002 (as restated)
			(Dollars in thousands)
Current Assets
	Cash and cash equivalents
		General funds	$	9,822	$	14,155
		Affiliated cash equivalents		26		709
				9,848		14,864
	Accounts receivable
		Customers, less allowance of $13,786 and $17,866, respectively		227,651		220,430
		Roaming		35,362		53,545
		Other		23,967		41,276
	Inventory			70,963		55,490
	Prepaid expenses			22,396		19,749
	Prepaid income taxes			2,407		26,610
	Other current assets			31,511		21,309
				424,105		453,273
Investments
	Licenses			1,189,326		1,247,197
	License rights			42,037		—
	Goodwill			430,256		504,744
	Customer lists, net of accumulated amortization of $22,206 and $6,567, respectively			24,448		40,087
	Marketable equity securities			260,188		185,961
	Investments in unconsolidated entities			170,569		161,451
	Notes and interest receivable—long-term			6,476		7,287
				2,123,300		2,146,727
Property, Plant and Equipment
	In service and under construction			3,441,177		3,085,583
	Less accumulated depreciation			1,267,293		1,051,792
				2,173,884		2,033,791
Deferred Charges
	System development costs, net of accumulated amortization of $114,673 and $89,320, respectively			97,370		114,642
	Other, net of accumulated amortization of $5,815 and $5,023, respectively			26,565		21,164
				123,935		135,806
Assets of Operations Held for Sale				100,523		—
	Total Assets		$	4,945,747	$	4,769,597

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

23

Consolidated Balance Sheets—Liabilities and Shareholders' Equity

			December 31,
			2003 (as restated)			2002 (as restated)
			(Dollars in thousands)
Current Liabilities
	Current portion of long-term debt		$	3,000		$	45,200
	Current portion of long-term debt—affiliated			105,000			—
	Notes payable			—			460,000
	Accounts payable
		Affiliated		4,252			4,958
		Trade		281,306			301,929
	Customer deposits and deferred revenues			93,789			82,639
	Accrued interest			11,416			9,295
	Accrued taxes			24,228			24,401
	Accrued compensation			39,257			30,279
	Other current liabilities			19,648			22,453
				581,896			981,154
Deferred Liabilities and Credits
	Net deferred income tax liability			495,904			441,814
	Derivative liability			55,735			8,709
	Asset retirement obligation			64,501			—
	Other			75,440			74,015
				691,580			524,538
Long-term Debt
	6.7% notes			436,829			—
	Long-term debt-affiliated			—			105,000
	6% zero coupon convertible debentures			157,659			148,604
	7.25% notes			250,000			250,000
	8.75% notes			130,000			130,000
	Variable prepaid forward contracts			159,856			159,856
	Other			10,000			13,000
				1,144,344			806,460
Liabilities of Operations Held for Sale				2,427			—
Commitments and Contingencies (Note 19)
Minority Interest				60,097			55,068
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		1,308,963			1,307,185
		Treasury Shares, at cost, 1,900,254 and 1,932,322 shares, respectively		(115,156	)		(117,262	)
		Accumulated other comprehensive income		26,789			10,307
		Retained earnings		1,156,755			1,114,095
				2,465,403			2,402,377
		Total Liabilities and Shareholders' Equity	$	4,945,747		$	4,769,597

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

24

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, 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 (loss)—				—		—		—			—		$	(26,945	)		—			(26,945	)
	Other comprehensive income:
		Net unrealized gain (loss) on—
			Derivative instrument		—		—		—			—			(5,181	)		(5,181	)		—
			Marketable equity securities		—		—		—			—			94,485			94,485			—
		Comprehensive income			—		—		—			—		$	62,359			—			—
Balance, December 31, 2002 (as restated)				$	55,046	$	33,006	$	1,307,185		$	(117,262	)				$	10,307		$	1,114,095
Add (Deduct)
	Employee benefit plans				—		—		1,778			2,106						—			—
	Net income				—		—		—			—		$	42,660			—			42,660
	Other comprehensive income:
		Net unrealized gain (loss) on—
			Derivative instrument		—		—		—			—			(28,539	)		(28,539	)		—
			Marketable equity securities		—		—		—			—			45,021			45,021			—
		Comprehensive income			—		—		—			—		$	59,142			—			—
Balance, December 31, 2003 (as restated)				$	55,046	$	33,006	$	1,308,963		$	(115,156	)				$	26,789		$	1,156,755

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

25

Notes to Consolidated Financial Statements

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        United States Cellular Corporation ("U.S. Cellular"), a Delaware Corporation, is an 82.1%-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. U.S. Cellular owned interests in 235 wireless markets, representing a total population of approximately 46.3 million, as of December 31, 2003. U.S. Cellular's 182 majority-owned markets served 4.4 million customers in 28 states as of December 31, 2003. U.S. Cellular operates as one reportable segment.

Restatement

        On April 19, 2004, U.S. Cellular announced that it would restate its 2003 and 2002 financial statements relating to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," which was adopted on January 1, 2002. Prior to January 1, 2002, U.S. Cellular allocated the excess of purchase price over tangible assets and liabilities acquired to investment in licenses and goodwill. At that time, the accounting treatment for U.S. Cellular's investment in licenses and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

        Based upon a subsequent review of goodwill, U.S. Cellular has restated the allocation of $138.9 million of purchase price recorded as goodwill to investment in licenses as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of U.S. Cellular's investment in licenses by a corresponding $90.7 million. Following these adjustments, U.S. Cellular reperformed the impairment tests for its investment in licenses as of January 1, 2002, and recorded an impairment loss of $12.7 million, net of taxes ($20.9 million before income taxes of $8.2 million). This impairment has been recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

        In the first quarter of 2003, U.S. Cellular had recorded a loss on assets held for sale related to the pending disposition of certain wireless properties. The investment in licenses upon which the impairment was recorded in the first quarter of 2002 included the investment in licenses of these properties. As a result, a portion of the originally recognized loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, loss on assets held for sale in 2003 has been reduced by $1.9 million, before income taxes of $0.8 million. In the third quarter of 2003, U.S. Cellular had originally recorded an income tax expense upon the closing of the disposition of such wireless properties. This tax expense has been reduced due to the reversal of additional deferred tax liabilities that were recorded with respect to the wireless properties exchanged in conjunction with the restatement from goodwill to investment in licenses. Consequently, income tax expense in 2003 has been reduced by $10.7 million.

        In addition, as a result of the restatement discussed above, U.S. Cellular also reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before income taxes of $19.6 million. This additional loss has been recorded in the second quarter of 2003. A summary of the changes to the affected captions in the 2003 and 2002 statement of operations and balance sheets are included below:

		Year Ended or at December 31, 2003
		As Originally Reported			Effects of 2003 Accounting Changes			As Restated
		(Dollars in thousands, except per share amounts)
Statement of Operations:
Operating Expenses
	(Loss) on assets held for sale	$	(47,847	)	$	1,939		$	(45,908	)
	(Loss) on impairment of intangible assets		—			(49,595	)		(49,595	)
Operating Income			166,639			(47,656	)		118,983
Income (Loss) Before Income Taxes and Minority Interest			153,806			(47,656	)		106,150
Income tax expense (benefit)
	Tax effect of changes to loss on assets held for sale					(9,952	)
	Tax effect of impairments					(19,590	)
			66,774			(29,542	)		37,232
Income (loss) before cumulative effect of accounting change			75,120			(18,114	)		57,006
Cumulative effect of accounting change, net of tax			(14,346	)		—			(14,346	)
Net income (loss)		$	60,774		$	(18,114	)	$	42,660
Basic earnings (loss) per share
Income (loss) before cumulative effect of accounting change		$	0.88		$	(0.21	)	$	0.67
Cumulative effect of accounting change			(0.17	)		—			(0.17	)
Net income (loss)		$	0.71		$	(0.21	)	$	0.50
Diluted earnings (loss) per share
Income (loss) before cumulative effect of accounting change		$	0.87		$	(0.21	)	$	0.66
Cumulative effect of accounting change			(0.17	)		—			(0.17	)
Net income (loss)		$	0.70		$	(0.21	)	$	0.49

		Year Ended or at December 31, 2003
		As Originally Reported		Effects of 2003 Accounting Changes			As Restated
		(Dollars in thousands)
Balance Sheet:
Investment in licenses
	Restatement from goodwill			$	138,885
	Increase in deferred tax liability on restatement of investment in licenses				90,677
	2002 impairment				(20,921	)
	2003 impairment				(49,595	)
	Adjustment to amount transferred to Assets of operations held for sale				(21,759	)
		$	1,052,039		137,287		$	1,189,326
Goodwill
	Restatement to investment in licenses				(138,885	)
	Adjustment to amount transferred to Assets of operations held for sale				23,698
			545,443		(115,187	)		430,256
Total Assets		$	4,923,647	$	22,100		$	4,945,747
Net deferred income tax liability
	Increase in deferred tax liability on restatement to investment in licenses			$	90,677
	Tax on 2002 impairment				(8,264	)
	Tax on 2003 impairment				(19,590	)
	Tax effect of changes to loss on assets held for sale				(9,952	)
		$	443,033		52,871		$	495,904
Retained Earnings
	2002 cumulative effect impact				(12,657	)
	2003 impact				(18,114	)
			1,187,526		(30,771	)		1,156,755
Total Liabilities and Shareholders' Equity		$	4,923,647	$	22,100		$	4,945,747

			Year Ended or at December 31, 2002
			As Originally Reported			Effects of 2002 Accounting Changes			As Restated
			(Dollars in thousands, except per share amounts)
Statement of Operations:
Income (loss) before cumulative effect of accounting change			$	(18,385	)	$	—		$	(18,385	)
Cumulative effect of accounting change				4,097			(12,657	)		(8,560	)
Net income (loss)			$	(14,288	)	$	(12,657	)	$	(26,945	)
Basic earnings (loss) per share
Continuing Operations			$	(0.22	)	$	—		$	(0.22	)
Cumulative effect of accounting change				0.05			(0.14	)		(0.09	)
Net income (loss)			$	(0.17	)	$	(0.14	)	$	(0.31	)
Diluted earnings (loss) per share
Continuing Operations			$	(0.22	)	$	—		$	(0.22	)
Cumulative effect of accounting change				0.05			(0.14	)		(0.09	)
Net income (loss)			$	(0.17	)	$	(0.14	)	$	(0.31	)
Balance Sheet:
Investment in licenses
	Restatement from goodwill					$	138,885
	Increase in deferred tax
		Liability on restatement of wireless costs					90,677
	2002 impairment						(20,921	)
			$	1,038,556			208,641		$	1,247,197
Goodwill
	Restatement of goodwill			643,629			(138,885	)		504,744
Total Assets			$	4,699,841		$	69,756		$	4,769,597
Net deferred income tax liability
	Increase in deferred tax liability on restatement of wireless license costs					$	90,677
	Tax on 2002 impairment						(8,264	)
			$	359,401			82,413		$	441,814
Retained Earnings				1,126,752			(12,657	)		1,114,095
Total Liabilities and Stockholders' Equity			$	4,699,841		$	69,756		$	4,769,597

Principles of Consolidation

        The accounting policies of U.S. Cellular conform to accounting principles generally accepted in the United States of America ("GAAP"). 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 or has a controlling financial interest. All material intercompany accounts and transactions have been eliminated.

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 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 net income and shareholders' equity.

        Prior to the fourth quarter of 2003, U.S. Cellular separately disclosed marketing and selling expenses and general and administrative expenses in its statements of operations. In the fourth quarter of 2003, U.S. Cellular combined the marketing and selling expense and general and administrative expense captions into one caption designated as selling, general and administrative expense. Previously, costs for equipment sold to retain current customers were included in selling, general and administrative expense. Prior to the fourth quarter of 2003 and in part of 2002, these costs were partially offset by equipment sales revenues received from these customers. In part of 2002 and all of 2001, equipment sales revenues related to retaining current customers were included in equipment sales revenues. In the fourth quarter of 2003, U.S. Cellular changed its policy for classifying retention costs and has reclassified the equipment sales revenue and cost of equipment sold related to the retention of current customers out of selling, general and administrative expense into equipment sales revenues and cost of equipment sold, respectively, for each of the years presented. These reclassifications increased equipment sales revenues by $27.3 million and $13.1 million in 2003 and 2002, respectively, and increased cost of equipment sold by $106.6 million, $57.2 million and $42.7 million in 2003, 2002 and 2001, respectively. Selling, general and administrative expense were reduced by $79.3 million, $44.1 million and $42.7 million in 2003, 2002 and 2001, respectively, to reflect the amounts reclassified to equipment sales revenues and cost of equipment sold. These reclassifications did not have any impact on income from operations, net income, earnings per share, financial position or cash flows of U.S. Cellular for any of the years presented.

        Statement of Financial Accounting Standards ("SFAS") No. 145 "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13, 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. U.S. Cellular elected to adopt SFAS No. 145 early and as a result no longer reports the retirement of debt as extraordinary. Loss on extinguishment of debt of $7.0 million for the year ended December 31, 2001, previously recorded as an extraordinary item, has been reclassified to the Investment and Other Income (Expense) section of U.S. Cellular's statements of operations.

Cash and Cash Equivalents

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

        Outstanding checks totaled $22.3 million and $14.2 million at December 31, 2003 and 2002, respectively, 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 equity securities may fall below the accounting cost basis of such securities. 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 non-operating loss in the statements of operations.

        Factors that management considers in determining whether a decrease in the market value of its securities is an other than temporary decline include if 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 carrying value; 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 the accounting cost basis.

        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, 2003 and 2002,

26

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 risk of an other than temporary loss being recorded on these contracted securities.

Derivative Instruments

        U.S. Cellular utilizes derivative financial instruments to reduce marketable equity security market value risk. U.S. Cellular does not hold or issue derivative financial instruments for trading purposes. U.S. Cellular 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 statements of operations or Accumulated 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 depends on the derivative's 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.

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.

        Management has determined that wireless licenses are intangible assets with indefinite useful lives, based on the following factors:

—

Radio spectrum is not a depleting asset.



—

The ability to use radio spectrum is not limited to any one technology.



—

U.S. Cellular and its consolidated subsidiaries are licensed to use radio spectrum through the FCC licensing process, which enables licensees to utilize specified portions of the spectrum for the provision of wireless service.



—

U.S. Cellular and its consolidated subsidiaries are required to renew their FCC licenses every ten years. To date, all of U.S. Cellular's license renewal applications, filed for unique cellular licenses in every year from 1994 to the present, have been granted by the FCC. Generally, license renewal applications filed by wireless licensees otherwise in compliance with FCC regulations are routinely granted. If, however, a license renewal application is challenged, either by a competing applicant for the license or by a petition to deny the renewal application, the license will be renewed if the licensee can demonstrate its entitlement to a "renewal expectancy." Licensees are entitled to such an expectancy if they can demonstrate to the FCC that they have provided "substantial service" during their license term and have "substantially complied" with FCC rules and policies. U.S. Cellular believes that it could demonstrate its entitlement to a renewal expectancy in any of its markets in the unlikely event any of its license renewal applications were challenged and therefore believes that it is probable that its future license renewal applications will be granted.

        An intangible asset that is not subject to amortization is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists 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 its fair value, an impairment loss shall be recognized in an amount equal to that excess.

License Rights

        In accordance with the exchange agreement with AT&T Wireless, U.S. Cellular has deferred the assignment and development of certain licenses for a period of up to five years from the closing date, August 1, 2003. The 21 licenses that have not yet been assigned to U.S. Cellular, with fair value totaling $42.0 million, are included in License rights on the balance sheet. All asset values related to the properties acquired or pending, including license values, were determined using an independent valuation. See Note 11—Acquisitions, Divestitures and Exchanges for a discussion of the AT&T Wireless exchange.

Goodwill

        U.S. Cellular has goodwill as a result of the acquisition of wireless licenses and markets. Included in goodwill is the portion of the purchase price of acquisitions of interests in operating wireless markets that was not assigned to the fair values of the other acquired assets, including wireless licenses. No deferred taxes have been provided on this goodwill. U.S. Cellular adopted SFAS No. 142 on January 1, 2002, and no longer amortizes goodwill. Prior to 2002, goodwill was amortized over 40 years. Goodwill is tested for impairment annually. The impairment test consists of a comparison of the implied fair value of the goodwill with its carrying amount. 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.

Investments 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 and limited liability companies. 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 and limited liability companies, or where U.S. Cellular does not have the ability to exercise significant influence.

Accounts Receivable

        Accounts receivable consists of amounts owed by customers for both service provided and equipment sales, by agents for equipment sales, by other wireless carriers whose customers have used U.S. Cellular's wireless systems, and by unaffiliated third party partnerships or corporations pursuant to equity distribution declarations.

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Inventory

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

Property, Plant and Equipment

        U.S. Cellular's property, plant and equipment is stated at the original cost of construction including capitalized costs of certain taxes, payroll-related expenses and estimated costs to remove the assets in accordance with SFAS No. 143 "Accounting for Asset Retirement Obligations."

        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.

Deferred Charges

        Costs of developing new information systems are capitalized in accordance with Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1") 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 U.S. Cellular's various borrowing instruments, and are amortized over the respective financing periods of each instrument.

Assets and Liabilities of Operations Held for Sale

        U.S. Cellular accounts for the disposal of long-lived assets in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". When long-lived assets meet the held for sale criteria set forth in SFAS No. 144, the balance sheet reflects the assets and liabilities of the properties to be disposed of as assets and liabilities of operations held for sale. The assets and liabilities of operations held for sale are presented separately in the asset and liability sections of the balance sheet. The revenues and expenses of the properties to be disposed of are included in operations until the transaction is completed. See Note 9—Operations Held for Sale for the discussion of the sale and exchange of long-lived assets.

Asset Retirement Obligation

        Statement of Financial Accounting Standards ("SFAS") No. 143 "Accounting for Asset Retirement Obligations" was issued in June 2001, and became effective for U.S. Cellular 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 obligations are 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. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the obligations, any difference between the cost to retire an asset and the liability recorded is recognized in the statements of operations as a gain or loss.

        U.S. Cellular is subject to asset retirement obligations associated primarily with its cell sites, retail sites and office locations. Legal obligations include obligations to remediate leased land on which U.S. Cellular's cell sites and switching offices are located. U.S. Cellular is also required to return leased retail store premises and office space to their pre-existing conditions.

        U.S. Cellular determined that it had an obligation to remove long-lived assets in its cell sites, retail sites and office locations as described by SFAS No. 143, and has recorded a liability and related asset retirement obligation accretion expense. The change in asset retirement obligation during 2003 was as follows:

(Dollars in thousands)
Beginning balance—January 1, 2003		$	54,438
	Additional liabilities accrued		5,641
	Accretion expense		4,422
Ending balance—December 31, 2003		$	64,501

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 carriers whose customers 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 rebates from U.S. Cellular at the time the agents sign up new customers or retain current customers. U.S. Cellular 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 rather than at the time the agent signs up a new customer or retains a current customer.

        Activation fees charged with the sale of service only are deferred and recognized over the average customer service period.

        Effective January 1, 2002, U.S. Cellular adopted 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,

28

this generally results in the recognition of the activation fee as additional handset revenue at the time of sale. Upon the initial adoption of Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" in 2000, had U.S. Cellular 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.

        During December 2003, the SEC issued SAB 104, "Revenue Recognition," which revised and rescinded portions of SAB 101. The issuance of SAB 104 did not impact U.S. Cellular's revenue recognition policies.

Cumulative Effect of Accounting Changes

        Effective January 1, 2003, U.S. Cellular adopted SFAS No. 143 "Accounting for Asset Retirement Obligations" and recorded the initial liability for legal obligations associated with an asset retirement. The cumulative effect of the implementation of this accounting standard on periods prior to 2003 was recorded in the first quarter of 2003, decreasing net income by $14.3 million, net of taxes of $9.7 million and minority interest of $0.5 million, or $0.17 per basic and diluted share.

        The following pro forma amounts show the effect of the retroactive application of the change in accounting principle for the adoption of SFAS No. 143:

Year Ended December 31,		2003 (as restated)		2002 (as restated)			2001
		(Dollars in thousands, except per share amounts)
Actual
	Net income (loss)	$	42,660	$	(26,945	)	$	173,876
	Basic earnings (loss) per share	$	0.50	$	(0.31	)	$	2.02
	Diluted earnings (loss) per share	$	0.49	$	(0.31	)	$	1.99
Pro forma
	Net income (loss)	$	57,006	$	(30,047	)	$	171,481
	Basic earnings (loss) per share	$	0.67	$	(0.34	)	$	1.99
	Diluted earnings (loss) per share	$	0.66	$	(0.34	)	$	1.97

		December 31,
						January 1, 2001
		2002		2001
		(Dollars in thousands)
Pro forma—Balance Sheet data
	Asset retirement obligation	$	54,438	$	45,246	$	36,806

        Effective January 1, 2002, U.S. Cellular adopted SFAS No. 142 and determined that wireless licenses have indefinite lives. Upon initial adoption, U.S. Cellular reviewed its investment in licenses and determined there was an impairment loss on certain licenses. The cumulative effect of the initial impairment upon the adoption of SFAS No. 142 reduced net income in 2002 by $12.7 million, net of taxes of $8.2 million, or $(0.14) per diluted share.

        Effective January 1, 2002, U.S. Cellular changed its method of accounting for commissions expenses related to customer activations and began deferring expense recognition of a portion of commissions expenses in the amount of deferred activation fees revenue. U.S. Cellular 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, net of taxes of $3.0 million and minority interest of $0.4 million, or $.05 per diluted share. Upon the initial adoption of SAB 101, had U.S. Cellular deferred expense recognition for a portion of commission expenses in the amount of deferred activation fees revenue, Net Income and Basic and Diluted Earning per Share would have been $174.4 million, $2.02 and $2.00, respectively, for the year ended December 31, 2001.

Advertising Costs

        U.S. Cellular expenses advertising costs as incurred. Advertising costs totaled $130.0 million, $91.6 million and $66.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Bad Debt Expense

        Bad debt expense totaled $61.1 million, $63.7 million and $28.7 million in 2003, 2002 and 2001, 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 Tax Allocation 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 Tax Allocation Agreement, U.S. Cellular remits its applicable income tax payments to TDS. U.S. Cellular had a tax receivable balance with TDS of $5.4 million and $28.0 million as of December 31, 2003 and 2002.

        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

        U.S. Cellular accounts for stock options 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."

        No compensation costs have been recognized for the stock option and employee stock purchase plans. Had compensation cost for all plans been determined consistent with SFAS No. 123, U.S. Cellular's net income (loss) and earnings per share would have been reduced to the following pro forma amounts:

29

Year Ended December 31,		2003 (as restated)			2002 (as restated)			2001
		(Dollars in thousands, except per share amounts)
Net Income (Loss):
	As Reported	$	42,660		$	(26,945	)	$	173,876
	Pro Forma Expense		(8,391	)		(5,324	)		(1,746	)
	Pro Forma		34,269			(32,269	)		172,130
Basic Earnings Per Share:
	As Reported		0.50			(0.31	)		2.02
	Pro Forma Expense		(0.10	)		(0.06	)		(0.02	)
	Pro Forma		0.40			(0.37	)		2.00
Diluted Earnings Per Share:
	As Reported		0.49			(0.31	)		1.99
	Pro Forma Expense		(0.10	)		(0.06	)		(0.02	)
	Pro Forma	$	0.39		$	(0.37	)	$	1.97

Pension Plan

        U.S. Cellular 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 $7.0 million, $5.0 million and $3.4 million in 2003, 2002 and 2001, respectively.

Asset Impairment

        U.S. Cellular reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. U.S. Cellular 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

        Financial Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," was issued in January 2003. It is effective for all variable interests in variable interest entities created after January 31, 2003 and is effective October 1, 2003 for variable interests in variable interest entities created before February 1, 2003. This Interpretation modifies the requirements for consolidation of investments previously contained in Accounting Research Bulletin No. 51, "Consolidated Financial Statements." Under FIN 46 certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered variable interest entities and are potentially subject to consolidation by an investor other than the investor with the majority equity interest. In December 2003, the FASB issued FIN 46R, "Consolidation of Variable Interest Entities," which among other things, deferred the application of FIN 46 by public entities with interest in variable interest entities referred to as special purpose entities until periods ending after December 15, 2003 and by public entities for all other types of variable interest entities until periods ending after March 15, 2004. U.S. Cellular has reviewed the provisions of FIN 46R and does not anticipate that the adoption of FIN 46R will have a material impact on U.S. Cellular's future financial position or results of operations.

Note 2 Income Taxes

        Income tax provisions charged to Income (loss) before cumulative effect of accounting change are summarized as follows:

Year Ended December 31,		2003 (as restated)			2002			2001
		(Dollars in thousands)
Federal income taxes
	Current	$	1,097		$	444		$	88,345
	Deferred		28,560			(4,674	)		36,974
State income taxes
	Current		15,066			3,758			17,009
	Deferred		(7,491	)		(7,069	)		4,987
Total income tax expense (benefit)		$	37,232		$	(7,541	)	$	147,315

        Included in cumulative effect of accounting changes were deferred tax benefits of $9.7 million in 2003 and $5.3 million in 2002.

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

	2003 (as restated)
						2002					2001
Year Ended December 31,
	Amount			Rate		Amount			Rate		Amount			Rate
	(Dollars in millions)
Statutory federal income tax expense (benefit)	$	37.1		35.0	%	$	(4.3	)	(35.0	)%	$	116.0		35.0	%
State income taxes, net of federal benefit		1.2		1.2			(2.4	)	(19.1	)		14.3		4.3
Amortization of license acquisition costs		—		—			—		—			3.6		1.1
Effects of minority share of income excluded from consolidated federal income tax return		(5.0	)	(4.5	)		(4.5	)	(36.3	)		(2.9	)	(0.9	)
Effects of gains (losses) on marketable equity securities, other investments and assets held for sale		2.2		2.0			2.9		23.6			—		—
Resolution of prior period tax issues		1.8		1.6			9.7		78.0			13.0		3.9
Loss on extinguishment of debt		—		—			—		—			2.4		0.7
Deferred tax rate change(1)		—		—			(8.4	)	(68.2	)		—		—
Other		(0.1	)	(0.1	)		(0.5	)	(3.9	)		0.9		0.4
Effective income tax expense (benefit)	$	37.2		35.2	%	$	(7.5	)	(60.9	)%	$	147.3		44.5	%

(1)

Represents a reassessment of the rate at which U.S. Cellular provides for deferred taxes.

30

        U.S. Cellular had current deferred tax assets totaling $16.8 million and $10.8 million at December 31, 2003 and 2002, respectively, resulting primarily from the allowance for customer receivables.

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

December 31,		2003 (as restated)			2002 (as restated)
		(Dollars in thousands)
Deferred Tax Asset
	Net operating loss carryforward	$	30,671		$	43,291
	Unearned revenue		1,772			7,099
	Derivative accounting		22,015			3,527
	Other		5,222			2,040
			59,680			55,957
Less valuation allowance			(10,480	)		(13,224	)
Total Deferred Tax Asset			49,200			42,733
Deferred Tax Liability
	Property, plant and equipment		222,213			202,314
	Licenses		206,129			223,654
	Marketable equity securities		86,251			56,925
	Partnership investments		30,511			1,654
Total Deferred Tax Liability			545,104			484,547
	Net Deferred Income Tax Liability	$	495,904		$	441,814

        U.S. Cellular and certain subsidiaries had $62.0 million of federal net operating loss carryforwards (generating a $15.2 million deferred tax asset) at December 31, 2003 expiring between 2004 and 2023. In addition, U.S. Cellular and certain subsidiaries had $264.2 million of state net operating loss ("NOL") carryforward (generating a $15.5 million deferred tax asset) at December 31, 2003. The state NOL carryforward, available to offset future taxable income, is primarily from the individual subsidiaries which generated the loss, and expires between 2004 and 2023. 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. Diluted earnings per share is computed using net income (loss) and weighted average common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and conversion of debentures.

        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,		2003 (as restated)			2002 (as restated)			2001
		(Dollars and shares in thousands)
Basic Earnings per Share
Income (Loss) used in Basic Earnings per Share		$	57,006		$	(18,385	)	$	173,876
Cumulative effect of accounting change			(14,346	)		(8,560	)		—
		$	42,660		$	(26,945	)	$	173,876
Diluted Earnings per Share
Income (Loss) used in Basic Earnings per Share		$	57,006		$	(18,385	)	$	173,876
Interest expense eliminated as a result of the pro forma conversion of Convertible Debentures, net of tax			—			—			5,507
Income (Loss) used in Diluted Earnings per Share			57,006			(18,385	)		179,383
Cumulative effect of accounting change			(14,346	)		(8,560	)		—
		$	42,660		$	(26,945	)	$	179,383
Weighted Average Number of Common Shares used in Basic Earnings per Share			86,136			86,086			86,200
Effect of Dilutive Securities:
	Stock options and stock appreciation rights(1)		466			—			233
	Conversion of convertible debentures(2)		—			—			3,544
Weighted Average Number of Common Shares used in Diluted Earnings per Share			86,602			86,086			89,977
Basic Earnings per Share
	Income (Loss) before cumulative effect of accounting change	$	0.67		$	(0.22	)	$	2.02
	Cumulative effect of accounting change		(0.17	)		(0.09	)		—
		$	0.50		$	(0.31	)	$	2.02
Diluted Earnings per Share
	Income (Loss) before cumulative effect of accounting change	$	0.66		$	(0.22	)	$	1.99
	Cumulative effect of accounting change		(0.17	)		(0.09	)		—
		$	0.49		$	(0.31	)	$	1.99

(1)

Stock options and restricted stock convertible into 1,322,132 Common Shares in 2003, 1,753,950 Common Shares in 2002 and 185,580 Common Shares in 2001 were not included in computing Diluted Earnings per Share because their effects were anti-dilutive.

(2)

Convertible debentures convertible into 2,944,347 Common Shares in 2003, 2,945,256 Common Shares in 2002 and 185,580 Common Shares in 2001 were not included in computing Diluted Earnings per Share because their effects were anti-dilutive.

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NOTE 4 INVESTMENT IN LICENSES AND GOODWILL

        Changes in investment in licenses and goodwill are primarily the result of the acquisition or divestiture of wireless markets by U.S. Cellular. See Note 11—Acquisitions, Divestitures and Exchanges for the details of the changes in licenses and goodwill.

        A schedule of investment in licenses activity follows:

Year Ended December 31,		2003 (as restated)			2002 (as restated)
		(Dollars in thousands)
Balance, beginning of year		$	1,247,197		$	858,791
	Restatements under SFAS No. 142		—			229,562
	Acquisitions(1)		178,609			181,510
	Divestitures		(76,905	)		—
	Allocation to assets of operations held for sale		(63,569	)		—
	Impairment loss(2)		(53,095	)		(20,921	)
	Other		(874	)		(1,745	)
Balance, end of year(1)		$	1,231,363		$	1,247,197

(1)

Includes $42.0 million of License rights from the AT&T transaction in 2003.

(2)

Upon adoption of SFAS No. 142 on January 1, 2002, U.S. Cellular recorded a $20.9 million impairment loss on intangible assets related its investment in licenses. The loss was recorded as a cumulative effect of accounting change. In 2003, U.S. Cellular recorded an additional impairment loss of $49.6 million on its investment in licenses in two reporting units and a $3.5 million loss on impairment of its investment in a non-operating wireless license.

        A schedule of investment in goodwill activity follows:

Year Ended December 31,		2003 (as restated)			2002 (as restated)
		(Dollars in thousands)
Balance, beginning of year		$	504,744		$	473,975
	Restatements under SFAS No. 142		—			(138,885	)
	Additions		7,516			172,263
	Divestitures		(69,961	)		—
	Allocation to assets of operations held for sale		(7,565	)		—
	Other		(4,478	)		(2,609	)
Balance, end of year		$	430,256		$	504,744

        Pursuant to SFAS No. 142, U.S. Cellular ceased amortization of licenses and goodwill as of January 1, 2002. Net income (loss) and Basic and Diluted earnings per share adjusted to exclude license and goodwill amortization expense, net of tax, recorded in the year ended December 31, 2001, is summarized below, together with the actual amounts of such measures in 2003 and 2002, for comparison purposes.

Year Ended December 31,		2003 (as restated)		2002 (as restated)			2001
		(Dollars in thousands)
Net Income (Loss)		$	42,660	$	(26,945	)	$	173,876
Amortization, net of tax and minority interest effect of
	Licenses		—		—			16,104
	Goodwill		—		—			9,744
	Goodwill for equity method investments		—		—			513
Adjusted Net Income (Loss)		$	42,660	$	(26,945	)	$	200,237
Basic earnings per share:
	Net Income (Loss)	$	0.50	$	(0.31	)	$	2.02
	Amortization, net of tax and minority interest		—		—			0.31
Adjusted Earnings per Share		$	0.50	$	(0.31	)	$	2.33
Diluted earnings per share:
	Net Income (Loss)	$	0.49	$	(0.31	)	$	1.99
	Amortization, net of tax and minority interest		—		—			0.29
Adjusted Earnings per Share		$	0.49	$	(0.31	)	$	2.28

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 $15.6 million for the year ended December 31, 2003 and $6.6 million for the year ended December 31, 2002. Amortization expense for the years 2004 through 2008 is expected to be $9.5 million, $5.8 million, $3.5 million, $2.1 million and $1.3 million, respectively.

NOTE 6 MARKETABLE EQUITY SECURITIES

        Information regarding U.S. Cellular's marketable equity securities is summarized as follows:

December 31,	2003			2002
	(Dollars in thousands)
Vodafone Group Plc 10,245,370 American Depositary Receipts	$	256,544		$	185,646
Rural Cellular Corporation 370,882 Common Shares		2,949			315
Other		695			—
Aggregate Fair Value		260,188			185,961
Accounting Cost, as adjusted		160,161			160,362
Gross Unrealized Holding Gains (Losses)		100,027			25,599
Tax Effect		(39,518	)		(10,111	)
Net Unrealized Holding Gains (Losses)		60,509			15,488
Derivative Accounting, net of tax		(33,720	)		(5,181	)
Accumulated Other Comprehensive Income	$	26,789		$	10,307

        U.S. Cellular and subsidiaries hold a substantial amount of marketable equity securities that are publicly traded and can have volatile movements in share prices. U.S. Cellular and its subsidiaries do not make direct investments in publicly traded companies and all of these interests were acquired as a result of sales, trades or reorganizations of other assets. The investment in Vodafone resulted from certain sales or trades of non-strategic cellular investments to or settlements with AirTouch Communications in exchange for stock of AirTouch, which was then acquired by Vodafone for American Depositary Receipts representing Vodafone stock. The investment in Rural Cellular Corporation is the result of a consolidation of several cellular partnerships in which U.S. Cellular subsidiaries held interests in Rural Cellular, and the distribution of Rural Cellular stock in exchange for these interests.

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

32

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,		2003			2002
		(Dollars in thousands)
Equity method investments:
	Capital contributions, loans and advances	$	27,032		$	15,647
	Goodwill		16,389			23,397
	Cumulative share of income		360,728			313,827
	Cumulative share of distributions		(235,953	)		(195,626	)
			168,196			157,245
Cost method investments:
	Capital contributions, net of partnership distributions and impairments		1,888			2,603
	Goodwill		485			1,603
			2,373			4,206
Total investments in unconsolidated entities		$	170,569		$	161,451

        As of December 31, 2003, U.S. Cellular followed the equity method of accounting for minority interests in 26 markets where U.S. Cellular's ownership interest is 20% or greater for corporations or greater than 3% to 5% for partnerships and limited liability companies. 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 $52.1 million, $42.1 million and $41.9 million in 2003, 2002 and 2001, respectively. As of December 31, 2003, U.S. Cellular followed the cost method of accounting for its investments in 6 markets where U.S. Cellular's ownership interest is less than 20% for corporations or less than 3% for partnerships and limited liability companies, or where U.S. Cellular 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, 2003, $153.7 million represented the investment in underlying equity and $16.9 million represented goodwill. At December 31, 2002, $136.4 million represented the investment in underlying equity and $25.0 million represented goodwill. In 2001, goodwill related to investments for which U.S. Cellular follows the equity method of accounting were being amortized over 40 years. U.S. Cellular adopted SFAS No. 142 on January 1, 2002, and no longer amortizes its goodwill related to equity method investments. Amortization expense related to these investments amounted to $0.7 million in 2001.

        During 2003, U.S. Cellular reduced the carrying value of one of its cost method investments by $1.7 million, to its underlying equity value. This charge was included in Loss on marketable equity securities and other investments on the statements of operations.

        U.S. Cellular's most significant investments in unconsolidated entities consist of the following:

		Percentage Ownership
December 31,
		2003		2002
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 U.S. Cellular 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,		2003		2002
		(Dollars in thousands)
Assets
	Current	$	225,000	$	213,000
	Due from affiliates		522,000		249,000
	Property and other		1,625,000		1,506,000
		$	2,372,000	$	1,968,000
Liabilities and Equity
	Current liabilities	$	181,000	$	172,000
	Due to affiliates		—		3,000
	Deferred credits		82,000		85,000
	Long-term debt		17,000		21,000
	Partners' capital and shareholders' equity		2,092,000		1,687,000
		$	2,372,000	$	1,968,000

Year Ended December 31,		2003		2002		2001
		(Dollars in thousands)
Results of Operations
	Revenues	$	2,488,000	$	2,162,000	$	2,086,000
	Operating expenses		1,839,000		1,685,000		1,490,000
	Operating income		649,000		477,000		596,000
	Other income (expense), net		8,000		17,000		(7,000	)
	Net income	$	657,000	$	494,000	$	589,000

NOTE 8 PROPERTY, PLANT AND EQUIPMENT

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

December 31,	2003			2002
	(Dollars in thousands)
Cell site-related equipment	$	1,777,251		$	1,664,154
Land, buildings and leasehold improvements		621,070			552,087
Switching-related equipment		460,165			399,086
Office furniture and equipment		203,139			183,285
Other operating equipment		127,542			113,975
Work in process		252,010			172,996
Less accumulated depreciation		(1,267,293	)		(1,051,792	)
	$	2,173,884		$	2,033,791

33

        Useful lives range from four to twenty-five years for cell site-related equipment, ten to twenty years for buildings and leasehold improvements, three to eight years for switching-related equipment, three to five years for office furniture and equipment, and ten years for other operating equipment.

NOTE 9 OPERATIONS HELD FOR SALE

        On November 26, 2003, U.S. Cellular announced that it had entered into a definitive agreement to sell its southern Texas wireless markets to AT&T Wireless for $95 million in cash plus a working capital adjustment, subject to certain closing provisions. The U.S. Cellular markets to be sold to AT&T Wireless include 25 megahertz metropolitan statistical area and rural service area licenses representing 1.3 million population equivalents, approximately 150 cell sites and 76,000 customers. The transaction is subject to regulatory approvals. The closing of the sale is expected to occur in the first quarter of 2004. Total revenues from the markets to be sold totaled $60.6 million for the year ended December 31, 2003, while operating income totaled $17.1 million. Operating income does not include shared services costs that have been allocated to the markets from the U.S. Cellular corporate office.

        The sale is being accounted for in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." The balance sheet as of December 31, 2003 reflects assets and liabilities of the wireless properties to be sold as assets and liabilities of operations held for sale from the date of the sale agreement until the close of the transaction. The revenues and expenses of the markets continue to be included in operations until the completion of the sale.

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

December 31, 2003		(Dollars in thousands)
Current assets		$	5,363
Property, plant and equipment, net			45,710
Other assets			316
Licenses			63,569
Goodwill			7,565
Loss on assets held for sale			(22,000	)
	Total assets	$	100,523
Current liabilities		$	2,189
Non-current liabilities			238
	Total liabilities	$	2,427
Net assets to be transferred		$	98,096

        U.S. Cellular has recorded a loss of $22.0 million as a "Loss on assets held for sale" (included in operating expenses) representing the difference between the carrying value of the markets to be sold to AT&T Wireless and the cash to be received in the transaction.

NOTE 10 SUPPLEMENTAL CASH FLOW DISCLOSURES

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

Year Ended December 31,	2003			2002		2001
	(Dollars in thousands)
Interest paid	$	51,954		$	36,431	$	24,592
Income taxes paid (refunds received)		(29,621	)		33,446		129,430
Noncash interest expense		10,743			9,526		10,176
Net change to equity for conversion of debt		—			—		29,642
9% Series A Notes issued for Chicago acquisition	$	—		$	175,000	$	—

NOTE 11 ACQUISITIONS, DIVESTITURES AND EXCHANGES

        U.S. Cellular assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from its operating markets. U.S. Cellular also reviews attractive opportunities for the acquisition of additional wireless spectrum.

2003 Activity

        During 2003, U.S. Cellular completed an exchange with AT&T Wireless along with the acquisition of two minority interests.

        On August 1, 2003, U.S. Cellular completed the transfer of properties to AT&T Wireless and the assignments to it by AT&T Wireless of a portion of the wireless licenses covered by the agreement with AT&T Wireless. On the initial closing date, U.S. Cellular also received approximately $34.0 million in cash and minority interests in six wireless markets in which it currently owns a controlling interest. Also on the initial closing date, U.S. Cellular transferred wireless assets and customers in 10 markets in Florida and Georgia to AT&T Wireless. The assignment and development of certain licenses has been deferred by U.S. Cellular for a period of up to five years from the closing date, in accordance with the agreement. U.S. Cellular will take possession of the licenses in staggered closings over that five-year period to comply with the service requirements of the FCC. The acquisition of the licenses in the exchange was accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular to AT&T Wireless was accounted for as a sale. U.S. Cellular capitalized $2.8 million of costs associated with the AT&T Wireless transaction.

        The 15 licenses that have been transferred to U.S. Cellular as of December 31, 2003, with a fair value totaling $136.6 million, are included in Investment in licenses on the consolidated balance sheet. The 21 licenses that have not yet been assigned to U.S. Cellular, with a fair value totaling $42.0 million, are included in License rights on the balance sheet. All asset values related to the properties acquired or pending, including license values, were determined using an independent valuation. U.S. Cellular has included the results of operations in the Florida and Georgia markets in the statements of operations until the date of transfer, August 1, 2003.

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        Prior to the close of the AT&T Wireless exchange, U.S. Cellular allocated $70.0 million of goodwill related to the properties transferred to AT&T Wireless to Assets of operations held for sale in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets." A loss of $23.9 million was recorded as a Loss on assets held for sale (included in operating expenses), representing the difference between the book value of the markets transferred to AT&T Wireless and the fair value of the assets received or to be received in this transaction.

        In addition, in 2003, U.S. Cellular acquired the minority interest in two entities which held wireless licenses for $2.3 million.

2002 Activity

        On August 7, 2002, U.S. Cellular completed the acquisition of the asset and certain liabilities of Chicago 20MHz, LLC now known as United States Cellular Operating Company of Chicago, LLC ("USCOC of Chicago" or the "Chicago Market") from PrimeCo Wireless Communications LLC ("PrimeCo"). USCOC of Chicago operates a wireless system in the Chicago major trading area. USCOC of Chicago is the holder of certain FCC licenses, including a 20 megahertz personal communication service license in the Chicago major trading area (excluding Kenosha County, Wisconsin) covering 13.2 million population equivalents.

        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. U.S. Cellular has included USCOC of Chicago results of operations in the statements of operations, subsequent to the purchase date.

        The tangible fixed assets were recorded at fair value. The personal communication service licenses were valued at $163.5 million. The customer list was assigned a value of $43.4 million and 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. In January 2003, U.S. Cellular repurchased the $45.2 million 9% Series A Notes that remained outstanding at December 31, 2002, at 90% of face value. The $4.5 million gain on retirement of the 9% Series A Notes was credited to goodwill, reducing the aggregate goodwill attributed to the Chicago acquisition to $163.9 million. Such goodwill is deductible for tax purposes and will be amortized over 15 years for tax purposes.

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

2001 Activity

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

Assets Acquired and Liabilities Assumed

        In conjunction with these acquisitions and exchanges, the following assets were acquired and liabilities assumed/(transferred):

Year Ended December 31,	2003 (as restated)			2002			2001
	(Dollars in thousands)
Cash received	$	33,953		$	—		$	—
Current assets, excluding $6,984 cash acquired in 2002		(13,083	)		34,081			—
Property, plant and equipment, net		(88,313	)		235,953			13,443
Other assets		(797	)		815			—
Customer list		—			43,400			—
Licenses		101,703			181,510			112,068
Goodwill		(64,563	)		172,263			53,610
Increase (Decrease) in investment in unconsolidated entities		—			—			1,701
Current liabilities		9,203			(38,018	)		—
Long-term debt		—			(175,000	)		—
Other assets and liabilities, excluding cash acquired		3,114			(2,068	)		5,447
Loss recorded on exchange		23,908			—			—
Decrease in cash due to acquisitions	$	5,125		$	452,936		$	186,269

Pro Forma Operations

        Assuming the exchanges and acquisitions accounted for as purchases during the period January 1, 2002 to December 31, 2003, had taken place on January 1, 2002; and the acquisitions during the period January 1, 2001 to December 31, 2001 had taken place on January 1, 2001, unaudited pro forma results of operations would have been as follows:

Year Ended December 31,	2003 (as restated)		2002 (as restated)			2001
	(Unaudited, dollars in thousands, except per share amounts)
Service revenues	$	2,356,476	$	2,103,287		$	1,830,443
Equipment sales revenues		130,018		89,103			69,345
Interest expense (including cost to finance acquisitions)		64,607		62,431			35,164
Income (Loss) before cumulative effect of accounting change	$	52,244	$	(69,014	)	$	163,871
Net Income (Loss)		37,898		(77,574	)		163,871
Earnings per share—basic	$	0.44	$	(0.90	)	$	1.90
Earnings per share—diluted	$	0.44	$	(0.90	)	$	1.88

NOTE 12 LOSS ON MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS

        In 2003, U.S. Cellular recorded a license cost impairment loss of $3.5 million related to the investment in a non-operating market in Florida that remained with U.S. Cellular upon completion of the exchange with AT&T Wireless. See Note 11—Acquisitions, Divestitures and Exchanges for further information regarding the exchange transaction with AT&T Wireless.

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        In 2003, U.S. Cellular reduced the carrying value of one of its cost method investments by $1.7 million to its underlying equity value based on a cash flow analysis. Both charges were included in Loss on marketable equity securities and other investments on the statements 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 statements of operations and reduced the accounting cost basis of such marketable equity securities by a corresponding amount.

        U.S. Cellular had certain notes receivable from Kington Management Corporation ("Kington"). 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 carrying 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 totaling $7.8 million. An additional loss of $3.9 million was recorded to reduce the carrying value of the receivable to the estimated partner capital amount.

        U.S. Cellular recorded additional losses in 2002 of $8.4 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.

NOTE 13 NOTES PAYABLE

        On December 19, 2003, U.S. Cellular amended its $325 million revolving credit facility with a group of banks to increase the size of the facility to $700 million. At December 31, 2003, $0.2 million of letters of credit were outstanding against this facility leaving $699.8 million available for use. The terms of the credit facility provide for borrowings with interest at the London InterBank Offered Rate ("LIBOR") rate plus a margin percentage based on U.S. Cellular's credit rating. At December 31, 2003, the margin percentage was 55 basis points (for a rate of 1.67% based on the one month LIBOR rate at December 31, 2003). 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 0.21% of the total facility. These payments totaled $0.7 million in 2003 and $0.5 million in 2002. The credit facility expires in June 2007.

        At December 31, 2002, and up until December 23, 2003, U.S. Cellular had a $500 million revolving credit facility with a group of banks. This credit facility was terminated on December 23, 2003 in connection with the amendment of U.S. Cellular's $325 million credit facility to $700 million. The terms of the revolving credit facility provided for borrowings with interest at the LIBOR plus a margin percentage based on U.S. Cellular's credit rating. Interest and principal were 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 paid facility and administration fees at an aggregated annual rate of 0.10% of the total $500 million facility. These payments totaled $0.5 million, $0.5 million and $0.7 million for the years ended December 31, 2003, 2002 and 2001, respectively.

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

Year Ended December 31,	2003			2002
	(Dollars in thousands)
Balance at end of year	$	—		$	460,000
Weighted average interest rate at end of year		—	%		1.6	%
Maximum amount outstanding during the year	$	627,000		$	460,000
Average amount outstanding during the year(1)	$	490,667		$	262,167
Weighted average interest rate during the year(1)		1.5	%		2.0	%

(1)

The average was computed based on month-end balances.

        The financial covenants associated with U.S. Cellular's revolving credit facilities require that U.S. Cellular and subsidiaries maintain certain debt to capital and interest coverage ratios. The covenants may prescribe certain terms associated with intercompany loans from TDS to certain subsidiaries.

        The restatements discussed in Note 1—Summary of Significant Accounting Policies resulted in defaults under the revolving credit agreement between U.S. Cellular and certain lenders. U.S. Cellular has not failed to make nor expects to fail to make any scheduled payment of principal or interest under such revolving credit agreement. U.S. Cellular has received waivers from the lenders under which the lenders agreed to waive any defaults that may have occurred as a result of the restatements.

NOTE 14 LONG-TERM DEBT

Zero Coupon Convertible Debentures

        U.S. Cellular unsecured 6% yield to maturity zero coupon convertible redeemable notes are due in 2015. This 20-year fixed rate debt, in the form of Liquid Yield Option Notes, is legally or effectively subordinated to all other liabilities of U.S. Cellular. Each Liquid Yield Option Note 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 Liquid Yield Option Notes. Upon notice of 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 Liquid Yield Option Notes 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 Liquid Yield Option Notes retired in 2003 and 2002. In 2001, retirements of such notes totaled $126.2 million face value ($55.1 million carrying value). U.S. Cellular paid $32.0 million in cash and issued 644,000 Common Shares to satisfy these conversions. The Liquid Yield Option Notes converted for cash resulted in a loss of $7.0 million in 2001, reported as (Loss) on extinguishment of debt in the statements of operations.

Unsecured Notes

        The $105 million 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 was subordinated to the $325 million Revolving Credit Facility until December 19, 2003. On January 9, 2004, U.S. Cellular notified TDS of its intent to repay this note on February 9, 2004. Consequently, U.S. Cellular has classified this note as a current liability as of December 31, 2003. The proceeds were used in connection with the acquisition of USCOC of Chicago.

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        In December 2003, U.S. Cellular sold $444 million of 6.7% Senior Notes due December 15, 2033, priced to yield 6.83% to maturity. Interest is paid semi-annually. U.S. Cellular may redeem the notes, in whole or in part, at any time prior to maturity at a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus accrued but unpaid interest, or (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus .30%. The proceeds were used to repay a portion of short-term debt.

        During 1997, U.S. Cellular sold $250.0 million of 7.25% Senior Notes due on August 15, 2007 priced to yield 7.33% to maturity. Interest 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 U.S. Cellular at any time on or after August 15, 2004, at a redemption price equal to 100% of the principal amount of such 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% Senior Notes due November 7, 2032. Interest is paid quarterly. U.S. Cellular may redeem the notes beginning in 2007 at the 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 the Chicago market 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.

        The covenants of long-term debt obligations of U.S. Cellular, among other things, restrict its subsidiaries' ability, subject to certain exclusions, to incur additional liens; enter into sale and leaseback transactions; and sell, consolidate, or merge assets. As of December 31, 2003, U.S. Cellular was in compliance with all of the covenants of its debt obligations.

        The annual requirements for principal payments on long-term debt, excluding the $105 million long-term debt-affiliated and the forward contracts, are approximately $3.0 million in 2004 and $250.0 million in 2007.

Forward Contracts

        During 2002, U.S. Cellular entered into variable prepaid forward contracts ("forward contracts") in connection with its 10,245,370 Vodafone Group Plc American Depositary Receipts. 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 50 basis points (for a rate of 1.65% based on the three month LIBOR rate at December 31, 2003).

        The restatements discussed in Note 1—Summary of Significant Accounting Policies resulted in defaults under certain forward contracts between a subsidiary of U.S. Cellular and a counterparty. U.S. Cellular has not failed to make nor expects to fail to make any scheduled payment of principal or interest under such forward contracts. U.S. Cellular and its subsidiaries have received a waiver from the counterparty under which the counterparty agreed to waive any defaults that may have occurred as a result of the restatements.

        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 limit 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 risk of an other than temporary loss being recorded on these contracted securities. The upside potential is a range of $21.56 to $23.20 per share.

        Under the terms of the forward contracts, U.S. Cellular continues to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature May 2007 and, at U.S. Cellular'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 reduce U.S. Cellular's downside limit and upside potential on the contracted shares. The collars are typically adjusted for any changes in dividends on the contracted shares. If U.S. Cellular elects to settle in shares, it will be required to 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, U.S. Cellular would incur 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. If U.S. Cellular 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. U.S. Cellular has provided guarantees to the lenders which provide assurance to the lenders that all principal and interest amounts will be paid by its consolidated subsidiaries upon settlement of the contracts.

NOTE 15 FINANCIAL INSTRUMENTS AND DERIVATIVES

        Financial instruments are as follows:

		2003				2002
December 31,
		Book Value		Fair Value		Book Value		Fair Value
		(Dollars in thousands)
Cash and Cash Equivalents		$	9,848	$	9,848	$	14,864	$	14,864
Current portion of long-term debt			3,000		3,000		45,200		45,200
Current portion of long-term debt-affiliated			105,000		105,000		—		—
Notes Payable			—		—		460,000		460,000
Long-term Debt
	6.7% notes		436,829		456,654		—		—
	6% zero coupon debentures		157,659		150,434		148,604		113,229
	7.25% notes		250,000		277,003		250,000		260,226
	8.75% notes		130,000		148,304		130,000		135,408
	Variable prepaid forward contracts		159,856		156,804		159,856		156,827
	Long-term debt-affiliated		—		—		105,000		113,344
	Other	$	10,000	$	12,086	$	13,000	$	14,132

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        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 U.S. Cellular'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, U.S. Cellular entered into forward contracts in connection with its 10,245,370 Vodafone American Depositary Receipts. 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 reduce the downside limit to a range of $15.07 to $16.07 per share and upside potential to a range of $21.56 to $23.20 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. 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 years ended December 31, 2003 and 2002.

        Management has evaluated the expected timing of the hedged forecasted transactions to deliver the underlying shares to settle the forward contracts, and believes that these forecasted transactions are probable of occurring in the periods specified in the related hedge documentation or within an additional two-month period of time thereafter.

        U.S. Cellular reported a derivative liability of $55.7 million and $8.7 million at December 31, 2003 and 2002, respectively. These amounts are included in the balance sheet caption Deferred Liabilities and Credits.

NOTE 16 MINORITY INTEREST IN SUBSIDIARIES

        Under SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," certain minority interests in consolidated entities with finite lives may meet the standard's definition of a mandatorily redeemable financial instrument and thus require reclassification as liabilities and remeasurement at the estimated amount of cash that would be due and payable to settle such minority interests under the applicable entity's organization agreement, assuming an orderly liquidation of the finite-lived entity, net of estimated liquidation costs (the "settlement value"). U.S. Cellular's consolidated financial statements include such minority interests that meet the standard's definition of mandatorily redeemable financial instruments. These mandatorily redeemable minority interests represent interests held by third parties in consolidated partnerships and limited liability companies ("LLCs"), where the terms of the underlying partnership or LLC agreement provide for a defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be extinguished and the remaining net proceeds are to be distributed to the minority interest holders and U.S. Cellular in accordance with the respective partnership and LLC agreements. The termination dates of U.S. Cellular's mandatorily redeemable minority interests range from 2042 to 2100.

        On November 7, 2003, the FASB issued FASB Staff Position ("FSP") No. FAS 150-3, "Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests" under FASB Statement No. 150 "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The FSP indefinitely deferred the classification and measurement provisions of SFAS No. 150 related to the mandatorily redeemable minority interests associated with finite-lived subsidiaries, but retained the related disclosure provisions. The settlement value of U.S. Cellular's mandatorily redeemable minority interests is estimated to be $104.7 million at December 31, 2003. This represents the estimated amount of cash that would be due and payable to settle minority interests assuming an orderly liquidation of the finite-lived consolidated partnerships and LLCs on December 31, 2003, net of estimated liquidation costs. This amount is being disclosed pursuant to the requirements of FSP FAS 150-3; U.S. Cellular has no current plans or intentions to liquidate any of the related partnerships or LLCs prior to their scheduled termination dates. The corresponding carrying value of the minority interests in finite-lived consolidated partnerships and LLCs at December 31, 2003 is $35.2 million, and is included in the balance sheet caption Minority Interest. The excess of the aggregate settlement value over the aggregate carrying value of the mandatorily redeemable minority interests of $69.5 million is primarily due to the unrecognized appreciation of the minority interest holders' share of the underlying net assets in the consolidated partnerships and LLCs. Neither the minority interest holders' share, nor U.S. Cellular's share, of the appreciation of the underlying net assets of these subsidiaries is reflected in the consolidated financial statements under GAAP. The estimate of settlement value was based on certain factors and assumptions. A change in those factors and assumptions could result in a materially larger or smaller settlement amount.

        The FASB plans to reconsider certain implementation issues and perhaps the classification or measurement guidance for mandatorily redeemable minority interests during the deferral period. The outcome of their deliberations cannot be determined at this point. Accordingly, it is possible that the FASB could require the recognition and measurement of mandatorily redeemable minority interests at their settlement value at a later date.

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NOTE 17 COMMON SHAREHOLDERS' EQUITY

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,	2003	2002
Employee stock options and awards	13,917	42,207
Employee Stock Purchase Plan	11,437	26,222
	25,354	68,429

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 a U.S. Cellular Common Share fund, a TDS Common Share fund, or seven nonaffiliated funds.

Stock-based Compensation Plans

        U.S. Cellular accounts for stock options, restricted stock awards 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 restricted stock awards as expenses in the statements of operations.

        A summary of the status of U.S. Cellular's stock option plans at December 31, 2003, 2002 and 2001 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, 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
		Granted	1,435,100		$23.85	$10.99
		Exercised	(1,750	)	$24.37
		Canceled	(448,082	)	$40.18
Outstanding
	December 31, 2003 (496,463 exercisable)		2,528,702		$33.87

        U.S. Cellular has established Stock Option plans that provide for the grant of stock options to officers and employees and has reserved 6,510,650 Common Shares at December 31, 2003, for options granted and to be granted to key employees. The options under the plan are exercisable from the date of vesting through 2004 to 2013, or 30 days following the date of the employee's termination of employment, if earlier. Under the plan, 496,463 stock options were exercisable at December 31, 2003, have exercise prices between $23.91 and $73.31 and a weighted average exercise price of $46.22 per share.

        The following table provides certain details concerning U.S. Cellular stock options outstanding at December 31, 2003:

Range of Exercise Price	Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
$23.20 - 36.99	1,478,267	$	24.34	9.0
$37.00 - 49.99	810,289	$	41.83	8.0
$50.00 - 73.31	240,146	$	65.73	5.8

        The following table provides certain details concerning U.S. Cellular stock options exercisable at December 31, 2003:

Range of Exercise Price	Stock Options Exercisable	Weighted Average Exercise Price
$23.91 - 36.99	76,290	$	29.80
$37.00 - 49.99	303,725	$	42.59
$50.00 - 73.31	116,448	$	66.45

        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 2003, 2002 and 2001, respectively: risk-free interest rates of 3.7%, 4.6% and 5.0%; expected dividend yields of zero for all years; expected lives of 9.3 years, 9.4 years and 8.2 years; and expected volatility of 29.4%, 39.4% and 31.7%.

        U.S. Cellular has granted key employees restricted shares of stock that fully vest after three years. The number of shares granted were 141,648, 86,826 and 65,671 in the years 2003, 2002 and 2001, respectively. The weighted-average values of the shares granted were $23.70, $39.71 and $60.92 in 2003, 2002 and 2001, respectively. The expenses included in operating income due to grants of restricted shares were $2.8 million, $1.6 million and $3.6 million in 2003, 2002 and 2001, respectively.

Employee Stock Purchase Plan

        U.S. Cellular had 148,563 Common Shares reserved under the 2003 Employee Stock Purchase Plan, which will terminate on December 31, 2008. The plan became effective April 1, 2003, and provides for eligible employees of U.S. Cellular 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

39

entitled to elect 75% of the directors (rounded down), and the Common Shares elect 25% of the directors (rounded up). As of December 31, 2003, a majority of U.S. Cellular's Common Shares and 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, U.S. Cellular authorized the repurchase of up to 4.2 million Common Shares through three separate 1.4 million share programs. U.S. Cellular may use repurchased shares to fund acquisitions and for other corporate purposes. The final 1.4 million share authorization expired in December 2003.

        In 2003, no U.S. Cellular Common Shares were repurchased and 32,068 treasury shares were issued pursuant to certain employee and non-employee benefit plans.

        In 2002, no U.S. Cellular Common Shares were repurchased and 69,000 treasury shares were issued pursuant to certain employee and non-employee benefit plans.

        In 2001, U.S. Cellular paid $29.9 million to repurchase 643,100 of its Common Shares and an additional $11.0 million in January 2001 related to December 2000 repurchases. U.S. Cellular issued 818,000 treasury shares to satisfy retirements of convertible debt securities and pursuant to certain employee benefit plans. The Board of Directors of U.S. Cellular has also authorized the repurchase of a limited amount of common shares on a quarterly basis, primarily for use in the employee benefit plans.

Accumulated Other Comprehensive Income

        The cumulative balance of unrealized gains and (losses) on securities and derivative instruments and related income tax effects included in Accumulated other comprehensive income are as follows:

Year Ended December 31,		2003			2002
		(Dollars in thousands)
Balance, beginning of year		$	10,307		$	(78,997	)
Add (Deduct):
	Unrealized gains (losses) on marketable equity securities		74,227			(86,428	)
	Income (tax) benefit		(29,327	)		35,326
Net unrealized gains (losses)			44,900			(51,102	)
Deduct (Add):
	Recognized (losses) on marketable equity securities		(200	)		(244,699	)
	Income tax benefit		79			99,112
Net recognized gains (losses) from
	Marketable Equity Securities included in Net Income		(121	)		(145,587	)
			45,021			94,485
Unrealized loss on derivative instruments			(28,539	)		(5,181	)
Net change in unrealized gains (losses) included in Comprehensive Income			16,482			89,304
Balance, end of year		$	26,789		$	10,307
Accumulated Unrealized Loss on Derivative Instruments
Balance, beginning of year		$	(5,181	)	$	—
Add (Deduct):
	Unrealized (loss) on derivative instruments		(28,539	)		(5,181	)
Balance, end of year		$	(33,720	)	$	(5,181	)

NOTE 18 RELATED PARTIES

        U.S. Cellular is billed for all services it receives from TDS, pursuant to the terms of various agreements between U.S. Cellular and TDS. The majority of these billings are included in U.S. Cellular's selling, general and administrative expenses. Some of these agreements were established at a time prior to U.S. Cellular's initial public offering when TDS owned more than 90% of U.S. Cellular's outstanding capital stock and may not reflect terms that would be obtainable from an unrelated third party through arms-length negotiations. 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 $65.8 million, $56.8 million and $55.7 million in 2003, 2002 and 2001, respectively.

        In August 2002, U.S. Cellular entered into a loan agreement with TDS under which it borrowed $105 million, which was used to purchase USCOC of Chicago. The loan bears interest at an annual rate of 8.1%, payable quarterly, and becomes due in August 2008, with prepayments optional. The loan was subordinated to the 2002 Revolving Credit Facility until December 19, 2003. The terms of the loan do not contain restrictive covenants that are greater than those included in U.S. Cellular's senior debt, except that the loan agreement provides that U.S. Cellular may not incur senior debt in an aggregate principal amount in excess of $325 million unless it obtains the consent of TDS as a lender. U.S. Cellular's Board of Directors, including independent directors, approved the terms of this loan and determined that such terms were fair to U.S. Cellular and all of its shareholders. On January 9, 2004, U.S. Cellular notified TDS of its intent to repay this note on February 9, 2004.

        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 $94,000, $209,000 and $1.5 million in 2003, 2002 and 2001, respectively.

NOTE 19 COMMITMENTS AND CONTINGENCIES

Construction and Expansion

        U.S. Cellular's anticipated capital expenditures requirements for 2004 primarily reflect plans for construction, system expansion, the buildout of certain of its personal communication service licensed areas and additional expenditures related to its plans to migrate to a single digital

40

equipment platform. U.S. Cellular's estimated capital spending for 2004 is $610 million to $630 million. These expenditures primarily address the following needs:

•

Expand and enhance U.S. Cellular's coverage in its service areas.



•

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



•

Build out certain licensed areas acquired in 2001, 2002 and 2003.



•

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



•

Enhance U.S. Cellular's retail store network and office systems.

        U.S. Cellular's overlay of existing technologies with CDMA is largely completed, and when the project is fully completed in 2004 it anticipates total expenditures related to the project to be no more than $300 million. U.S. Cellular will utilize CDMA technology in building out the licenses it has acquired and expects to acquire in the future from AT&T Wireless.

        The cost estimates for the CDMA migration project have been revised from the original estimate of $400 million to $450 million to reflect divestitures of markets, more favorable pricing than expected and additional efficiencies in the conversion process. U.S. Cellular has contracted with multiple infrastructure vendors to provide a substantial portion of the equipment related to the conversion.

        U.S. Cellular expects capital expenditures related to the buildout of the licensed areas it acquired in 2001 through 2003, including those in the AT&T Wireless exchange transaction, to be substantial. U.S. Cellular plans to build networks to serve these licensed areas and launch commercial service in these areas over the next several years. Approximately $100 million of the estimated capital spending for 2004 is allocated to the buildout of certain of these licenses, and U.S. Cellular expects a significant portion of its capital spending over the next few years to be related to the buildout of its wireless licensed areas.

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, 2003 are as follows:

	Minimum Future Rentals
	(Dollars in thousands)
2004	$	62,227
2005		54,735
2006		45,939
2007		34,346
2008		22,354
Thereafter	$	65,856

        Rent expense totaled $52.2 million, $57.2 million and $35.4 million in 2003, 2002 and 2001, respectively.

Guarantees

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." This interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including certain indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee if that amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. The initial adoption of this statement on January 1, 2003, did not have a material impact on results of operations, financial position or cash flows. Guarantees issued or modified after January 1, 2003, are recognized at their fair value in the financial statements.

Indemnifications

        U.S. Cellular enters into agreements in the normal course of business that provide for indemnification of counterparties. These include certain asset sales and financings with other parties. The terms of the indemnification vary by agreement. The events or circumstances that would require U.S. Cellular to perform under these indemnities are transaction specific; however, these agreements may require U.S. Cellular to indemnify the counterparty for costs and losses incurred from litigation or claims arising from the underlying transaction. U.S. Cellular is unable to estimate the maximum potential liability for these types of indemnifications as the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, U.S. Cellular has not made any significant indemnification payments under such agreements.

Legal Proceedings

        U.S. Cellular 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 will have a materially adverse impact on the financial position, results of operations or cash flows of U.S. Cellular.

NOTE 20 SUBSEQUENT EVENTS

        U.S. Cellular completed the sale of its southern Texas wireless markets to AT&T Wireless and received $97.6 million including a preliminary working capital adjustment on February 18, 2004.

        On February 9, 2004, U.S. Cellular paid in full, the $105 million 8.1% intercompany note due in 2008 to Telephone and Data Systems, Inc. The payment was funded using U.S. Cellular's $700 million revolving credit facility.

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REPORT OF MANAGEMENT

        Management of United States Cellular Corporation has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America, and in management's opinion are fairly presented. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements.

        Management of United States Cellular has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting.

        The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management monitors the system of internal control for compliance, considers recommendations for improvements and updates such policies and procedures as necessary. Monitoring includes an internal auditing program to independently assess the effectiveness of the internal controls and recommend possible improvements thereto. Management believes that United States Cellular's system of internal control is adequate to accomplish the objectives discussed herein. The concept of reasonable assurance recognizes that the costs of a system of internal accounting control should not exceed, in management's judgment, the benefits to be derived.

        The consolidated financial statements of United States Cellular have been audited by PricewaterhouseCoopers LLP.

/s/  JOHN E. ROONEY    
John E. Rooney
President
(Chief Executive Officer) /s/  KENNETH R. MEYERS    
Kenneth R. Meyers
Executive Vice President-Finance and Treasurer
(Chief Financial Officer) /s/  THOMAS S. WEBER    
Thomas S. Weber
Vice President and Controller
(Principal Accounting Officer)

42

Report of Independent Auditors

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

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, common shareholders' equity and cash flows present fairly, in all material respects, the financial position of United States Cellular Corporation, an 82.1% owned subsidiary of Telephone and Data Systems, Inc., and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003, 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. The consolidated statements of operations, common shareholders' equity and cash flows of the Company for the year 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 the consolidated statements of operations, common shareholders' equity and cash flows in their report dated January 25, 2002.

        As disclosed in Note 1, the Company has restated its financial statements as of December 31, 2003 and 2002 and for each of the two years in the period ended December 31, 2003, to reflect the effects of retroactively changing the classification of certain goodwill to investment in licenses effective upon the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002.

        As disclosed in Note 1, in 2003 and 2002 the Company changed the manner in which it accounts for certain items. On January 1, 2003 the Company changed the manner in which it accounts for asset retirement costs as a result of the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations." Also, as disclosed in Note 1, in 2003 the Company changed the manner in which it classifies certain revenues and expenses related to customer retention. On January 1, 2002, the Company changed the manner in which it accounts for goodwill and other intangible assets as a result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." Also on January 1, 2002, the Company changed the method in which it accounts for the direct incremental deferred costs related to wireless customer activations. Finally, during 2002 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."

        As discussed above, the consolidated statements of operations, common shareholders' equity and cash flows of the Company for the year ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Note 1, these financial statements include the transitional disclosures required by SFAS No. 143, "Accounting for Asset Retirement Obligations" and have been revised to reclassify 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." Also, as described in Notes 1 and 4, these financial statements have been revised to separately reflect the amounts that represent goodwill, and to include the transitional disclosures required by SFAS No. 142, "Goodwill and Other Intangible Assets." Finally, as described in Note 1, the 2001 statement of operations has been revised to reclassify certain costs related to customer retention as cost of equipment sold. We audited the adjustments and transitional disclosures described in Notes 1 and 4 that were applied to revise the 2001 financial statements. In our opinion, the revisions and transitional disclosures for 2001 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 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 financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 2, 2004, except as to Note 20, as to which the date is February 18, 2004, except as to the Reclassifications section of Note 1, as to which the date is March 9, 2004, and except as to the Restatement section of Note 1, as to which the date is May 7, 2004

43

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 NOTE 1, THE CONSOLIDATED STATEMENT OF OPERATIONS, COMMON SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001 INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 143 "ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS." ALSO, AS DESCRIBED IN NOTE 1, THESE FINANCIAL STATEMENTS HAVE BEEN RECLASSIFIED TO CONFORM THE PRESENTATION OF CERTAIN COSTS RELATED TO CUSTOMER RETENTION AS COST OF EQUIPMENT SOLD. ALSO, AS DESCRIBED IN NOTES 1 AND 4, THESE FINANCIAL STATEMENTS HAVE BEEN REVISED TO SEPARATELY REFLECT AMOUNTS THAT REPRESENT GOODWILL AND TO INCLUDE TRANSITIONAL DISCLOSURES REQUIRED BY SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS," WHICH WAS ADOPTED BY U.S. CELLULAR AS OF JANUARY 1, 2002. 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) 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 U.S. CELLULAR DURING 2002. THE ARTHUR ANDERSEN REPORT DOES NOT EXTEND TO THESE CHANGES TO THE CONSOLIDATED STATEMENT OF OPERATIONS, COMMON SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001. THE ADJUSTMENTS TO THESE 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 U.S. Cellular'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, U.S. Cellular 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."

Arthur Andersen LLP
Chicago, Illinois
January 25, 2002

The consolidated balance sheets at December 31, 2001 and 2000 and the consolidated statements of operations, common shareholders' equity and cash flows for the years ended December 31, 2000 and 1999 are not required to be presented in the 2003 Annual Report.

44

Consolidated Quarterly Income Information As Restated (Unaudited)
(Dollars in thousands, except per share amounts)

		Quarter Ended March 31, 2003
Statement of Operations		As Previously Reported(1)			Investment in Licenses and Goodwill Restatements			Retention Reclassifications			As Restated
Effects of 2003 Accounting Changes
Operating Revenues
	Service	$	564,601		$	—		$	—		$	564,601
	Equipment sales (2)		31,313			—			7,860			39,173
Total Operating Revenues			595,914			—			7,860			603,774
Operating Expenses
	System operations		137,965			—			—			137,965
	Cost of equipment sold (2)		64,765			—			23,878			88,643
	Selling, general and administrative (2)		266,370			—			(16,018	)		250,352
	Depreciation		94,900			—			—			94,900
	Amortization and accretion		14,677			—			—			14,677
	Loss on impairment of intangible assets (3)		—			—			—			—
	Loss on assets held for sale (3)		23,500			(1,939	)		—			21,561
Total Operating Expenses			602,177			(1,939	)		7,860			608,098
Operating Income			(6,263	)		1,939			—			(4,324	)
Loss on marketable equity securities and other investments			(3,500	)		—			—			(3,500	)
Income tax expense (benefit)			(1,149	)		761			—			(388	)
Income (loss) before cumulative effect of accounting change			(14,658	)		1,178			—			(13,480	)
Cumulative effect of accounting change			(14,346	)		—			—			(14,346	)
Net income (loss)		$	(29,004	)	$	1,178		$	—		$	(27,826	)
Weighted Average Shares Outstanding (000s)			86,121			—			—			86,121
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	(0.17	)	$	0.02		$	—		$	(0.15	)
	Cumulative effect of accounting change		(0.17	)		—			—			(0.17	)
	Net income (loss)	$	(0.34	)	$	0.02		$	—		$	(0.32	)
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	(0.17	)	$	0.02		$	—		$	(0.15	)
	Cumulative effect of accounting change		(0.17	)		—			—			(0.17	)
	Net income (loss)	$	(0.34	)	$	0.02		$	—		$	(0.32	)

45

		March 31, 2003
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2003 Accounting Changes
	Licenses	$	979,760	$	186,882		$	—	$	1,166,642
	Goodwill		546,702		(115,187	)		—		431,515
	Total Assets	$	4,726,529	$	71,695		$	—	$	4,798,224
	Net deferred income tax liability	$	415,115	$	83,174		$	—	$	498,289
	Retained earnings		1,097,750		(11,479	)		—		1,086,271
	Total Liabilities and Shareholders' Equity	$	4,726,529	$	71,695		$	—	$	4,798,224

46

		Quarter Ended June 30, 2003
Statement of Operations		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications			As Restated
Effects of 2003 Accounting Changes
Operating Revenues
	Service	$	610,109	$	—		$	—		$	610,109
	Equipment sales (2)		29,701		—			6,127			35,828
Total Operating Revenues			639,810		—			6,127			645,937
Operating Expenses
	System operations		147,032		—			—			147,032
	Cost of equipment sold (2)		57,362		—			22,218			79,580
	Selling, general and administrative (2)		274,186		—			(16,091	)		258,095
	Depreciation		87,463		—			—			87,463
	Amortization and accretion		17,231		—			—			17,231
	Loss on impairment of intangible assets (3)		—		49,595			—			49,595
	Loss on assets held for sale (3)		3,500		—			—			3,500
Total Operating Expenses			586,774		49,595			6,127			642,496
Operating Income			53,036		(49,595	)		—			3,441
Loss on marketable equity securities and other investments			—		—			—			—
Income tax expense (benefit)			21,656		(19,590	)		—			2,066
Income (loss) before cumulative effect of accounting change			28,311		(30,005	)		—			(1,694	)
Cumulative effect of accounting change			—		—			—			—
Net income (loss)		$	28,311	$	(30,005	)	$	—		$	(1,694	)
Weighted Average Shares Outstanding (000s)			86,134		—			—			86,134
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.33	$	(0.35	)	$	—		$	(0.02	)
	Cumulative effect of accounting change		—		—			—			—
	Net income (loss)	$	0.33	$	(0.35	)	$	—		$	(0.02	)
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.33	$	(0.35	)	$	—		$	(0.02	)
	Cumulative effect of accounting change		—		—			—			—
	Net income (loss)	$	0.33	$	(0.35	)	$	—		$	(0.02	)

		June 30, 2003
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2003 Accounting Changes
	Licenses	$	979,759	$	137,287		$	—	$	1,117,046
	Goodwill		547,663		(115,187	)		—		432,476
	Total Assets	$	4,819,764	$	22,100		$	—	$	4,841,864
	Net deferred income tax liability	$	436,956	$	63,584		$	—	$	500,540
	Retained earnings		1,126,061		(41,484	)		—		1,084,577
	Total Liabilities and Shareholders' Equity	$	4,819,764	$	22,100		$	—	$	4,841,864

47

		Quarter Ended September 30, 2003
Statement of Operations		As Previously Reported(1)			Investment in Licenses and Goodwill Restatements			Retention Reclassifications			As Restated
Effects of 2003 Accounting Changes
Operating Revenues
	Service	$	628,440		$	—		$	—		$	628,440
	Equipment sales (2)		28,903			—			7,633			36,536
Total Operating Revenues			657,343			—			7,633			664,976
Operating Expenses
	System operations		153,724			—			—			153,724
	Cost of equipment sold (2)		53,383			—			23,543			76,926
	Selling, general and administrative (2)		252,483			—			(15,910	)		236,573
	Depreciation		90,171			—			—			90,171
	Amortization and accretion		13,463			—			—			13,463
	Loss on impairment of intangible assets (3)		—			—			—			—
	Loss on assets held for sale		(1,442	)		—			—			(1,442	)
Total Operating Expenses			561,782			—			7,633			569,415
Operating Income			95,561			—			—			95,561
Loss on marketable equity securities and other investments			—			—			—			—
Income tax expense (benefit)			46,760			(10,713	)		—			36,047
Income (loss) before cumulative effect of accounting change			40,901			10,713			—			51,614
Cumulative effect of accounting change			—			—			—			—
Net income (loss)		$	40,901		$	10,713		$	—		$	51,614
Weighted Average Shares Outstanding (000s)			86,142			—			—			86,142
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.47		$	0.13		$	—		$	0.60
	Cumulative effect of accounting change		—			—			—			—
	Net income (loss)	$	0.47		$	0.13		$	—		$	0.60
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.47		$	0.12		$	—		$	0.59
	Cumulative effect of accounting change		—			—			—			—
	Net income (loss)	$	0.47		$	0.12		$	—		$	0.59

		September 30, 2003
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2003 Accounting Changes
	Licenses	$	1,111,780	$	137,287		$	—	$	1,249,067
	Goodwill		549,780		(115,187	)		—		434,593
	Total Assets	$	4,772,072	$	22,100		$	—	$	4,794,172
	Net deferred income tax liability	$	476,820	$	52,871		$	—	$	529,691
	Retained earnings		1,166,962		(30,771	)		—		1,136,191
	Total Liabilities and Shareholders' Equity	$	4,772,072	$	22,100		$	—	$	4,794,172

48

		Quarter Ended December 31, 2003
Statement of Operations		As Previously Reported(1)			Investment in Licenses and Goodwill Restatements		Retention Reclassifications			As Restated
Effects of 2003 Accounting Changes
Operating Revenues
	Service	$	620,639		$	—	$	—		$	620,639
	Equipment sales (2)		41,749			—		5,708			47,457
Total Operating Revenues			662,388			—		5,708			668,096
Operating Expenses
	System operations		137,438			—		—			137,438
	Cost of equipment sold (2)		73,029			—		36,972			110,001
	Selling, general and administrative (2)		290,899			—		(31,264	)		259,635
	Depreciation		102,235			—		—			102,235
	Amortization and accretion		12,193			—		—			12,193
	Loss on impairment of intangible assets (3)		—			—		—			—
	Loss on assets held for sale		22,289			—		—			22,289
Total Operating Expenses			638,083			—		5,708			643,791
Operating Income			24,305			—		—			24,305
Loss on marketable equity securities and other investments			(1,700	)		—		—			(1,700	)
Income tax expense (benefit)			(493	)		—		—			(493	)
Income (loss) before cumulative effect of accounting change			20,566			—		—			20,566
Cumulative effect of accounting change			—			—		—			—
Net income (loss)		$	20,566		$	—	$	—		$	20,566
Weighted Average Shares Outstanding (000s)			86,148			—		—			86,148
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.24		$	—	$	—		$	0.24
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.24		$	—	$	—		$	0.24
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.24		$	—	$	—		$	0.24
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.24		$	—	$	—		$	0.24

		December 31, 2003
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2003 Accounting Changes
	Licenses	$	1,052,039	$	137,287		$	—	$	1,189,326
	Goodwill		545,443		(115,187	)		—		430,256
	Total Assets	$	4,923,647	$	22,100		$	—	$	4,945,747
	Net deferred income tax liability	$	443,033	$	52,871		$	—	$	495,904
	Retained earnings		1,187,526		(30,771	)		—		1,156,755
	Total Liabilities and Shareholders' Equity	$	4,923,647	$	22,100		$	—	$	4,945,747

49

		Quarter Ended March 31, 2002
Statement of Operations		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications			As Restated
Effects of 2002 Accounting Changes
Operating Revenues
	Service	$	461,113	$	—		$	—		$	461,113
	Equipment sales (2)		17,307		—			—			17,307
Total Operating Revenues			478,420		—			—			478,420
Operating Expenses
	System operations		107,921		—			—			107,921
	Cost of equipment sold (2)		30,367		—			8,416			38,783
	Selling, general and administrative (2)		187,704		—			(8,416	)		179,288
	Depreciation		65,977		—			—			65,977
	Amortization and accretion		6,775		—			—			6,775
Total Operating Expenses			398,744		—			—			398,744
Operating Income			79,676		—			—			79,676
Loss on marketable equity securities and other investments			—		—			—			—
Income (loss) before cumulative effect of accounting change			44,393		—			—			44,393
Cumulative effect of accounting changes (3)			4,097		(12,657	)		—			(8,560	)
Net income (loss)		$	48,490	$	(12,657	)	$	—		$	35,833
Weighted Average Shares Outstanding (000s)			86,053		—			—			86,503
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.52	$	—		$	—		$	0.52
	Cumulative effect of accounting change		0.04		(0.13	)		—			(0.09	)
	Net income (loss)	$	0.56	$	(0.13	)	$	—		$	0.43
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.51	$	—		$	—		$	0.51
	Cumulative effect of accounting change		0.05		(0.14	)		—			(0.09	)
	Net income (loss)	$	0.56	$	(0.14	)	$	—		$	0.42

		March 31, 2002
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2002 Accounting Changes
	Licenses	$	874,764	$	208,641		$	—	$	1,083,405
	Goodwill		473,975		(138,885	)		—		335,090
	Total Assets	$	3,715,331	$	69,756		$	—	$	3,785,087
	Net deferred income tax liability	$	368,253	$	82,413		$	—	$	450,666
	Retained earnings		1,189,531		(12,657	)		—		1,176,874
	Total Liabilities and Shareholders' Equity	$	3,715,331	$	69,756		$	—	$	3,785,087

50

		Quarter Ended June 30, 2002
Statement of Operations		As Previously Reported(1)			Investment in Licenses and Goodwill Restatements		Retention Reclassifications			As Restated
Effects of 2002 Accounting Changes
Operating Revenues
	Service	$	501,153		$	—	$	—		$	501,153
	Equipment sales (2)		23,186			—		—			23,186
Total Operating Revenues			524,339			—		—			524,339
Operating Expenses
	System operations		118,138			—		—			118,138
	Cost of equipment sold (2)		36,588			—		9,464			46,052
	Selling, general and administrative (2)		191,932			—		(9,464	)		182,468
	Depreciation		68,957			—		—			68,957
	Amortization and accretion		7,452			—		—			7,452
Total Operating Expenses			423,067			—		—			423,067
Operating Income			101,272			—		—			101,272
Loss on Marketable Equity Securities and Other Investments			(244,699	)		—		—			(244,699	)
Income (loss) before cumulative effect of accounting change			(88,382	)		—		—			(88,382	)
Cumulative effect of accounting changes (3)			—			—		—			—
Net income (loss)		$	(88,382	)	$	—	$	—		$	(88,382	)
Weighted Average Shares Outstanding (000s)			86,083			—		—			86,083
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	(1.03	)	$	—	$	—		$	(1.03	)
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	(1.03	)	$	—	$	—		$	(1.03	)
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	(1.03	)	$	—	$	—		$	(1.03	)
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	(1.03	)	$	—	$	—		$	(1.03	)

		June 30, 2002
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2002 Accounting Changes
	Licenses	$	877,195	$	208,641		$	—	$	1,085,836
	Goodwill		473,975		(138,885	)		—		335,090
	Total Assets	$	3,734,886	$	69,756		$	—	$	3,804,642
	Net deferred income tax liability	$	387,896	$	82,413		$	—	$	470,309
	Retained earnings		1,101,150		(12,657	)		—		1,088,493
	Total Liabilities and Shareholders' Equity	$	3,734,886	$	69,756		$	—	$	3,804,642

51

		Quarter Ended September 30, 2002
Statement of Operations		As Previously Reported(1)			Investment in Licenses and Goodwill Restated		Retention Reclassifications			As Restated
Effects of 2002 Accounting Changes
Operating Revenues
	Service	$	561,240		$	—	$	—		$	561,240
	Equipment sales (2)		18,546			—		6,485			25,031
Total Operating Revenues			579,786			—		6,485			586,271
Operating Expenses
	System operations		136,367			—		—			136,367
	Cost of equipment sold (2)		51,595			—		19,775			71,370
	Selling, general and administrative (2)		226,251			—		(13,290	)		212,961
	Depreciation		93,355			—		—			93,355
	Amortization and accretion		9,521			—		—			9,521
Total Operating Expenses			517,089			—		6,485			523,574
Operating Income			62,697			—		—			62,697
Loss on marketable equity securities and other investments			(34,210	)		—		—			(34,210	)
Income (loss) before cumulative effect of accounting change			10,975			—		—			10,975
Cumulative effect of accounting change			—			—		—			—
Net income (loss)		$	10,975		$	—	$	—		$	10,975
Weighted Average Shares Outstanding (000s)			86,095			—		—			86,095
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.13		$	—	$	—		$	0.13
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.13		$	—	$	—		$	0.13
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.13		$	—	$	—		$	0.13
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.13		$	—	$	—		$	0.13

		September 30, 2002
Balance Sheet		As Previously Reported(1)		Investment in Licenses and Goodwill Restated			Retention Reclassifications		As Restated
Effects of 2002 Accounting Changes
	Licenses	$	1,040,840	$	208,641		$	—	$	1,249,481
	Goodwill		629,541		(138,885	)		—		490,656
	Total Assets	$	4,454,754	$	69,756		$	—	$	4,524,510
	Net deferred income tax liability	$	396,986	$	82,413		$	—	$	479,399
	Retained Earnings		1,112,125		(12,657	)		—		1,099,468
	Total Liabilities and Shareholders' Equity	$	4,454,754	$	69,756		$	—	$	4,524,510

52

		Quarter Ended December 31, 2002
Statement of Operations		As Previously Reported			Investment in Licenses and Goodwill Restatements		Retention Reclassifications			As Restated
Effects of 2002 Accounting Changes
Operating Revenues
	Service	$	575,387		$	—	$	—		$	575,387
	Equipment sales(2)		26,546			—		6,623			33,169
Total Operating Revenues			601,933			—		6,623			608,556
Operating Expenses
	System operations		130,324			—		—			130,324
	Cost of equipment sold(2)		66,733			—		19,585			86,318
	Selling, general and administrative(2)		268,238			—		(12,962	)		255,276
	Depreciation		83,704			—		—			83,704
	Amortization and accretion		15,413			—		—			15,413
Total Operating Expenses			564,412			—		6,623			571,035
Operating Income			37,521			—		—			37,521
Loss on marketable equity securities and other investments			(16,545	)		—		—			(16,545	)
Income (loss) before cumulative effect of accounting change			14,629			—		—			14,629
Cumulative effect of accounting change			—			—		—			—
Net income (loss)		$	14,629		$	—	$	—		$	14,629
Weighted Average Shares Outstanding (000s)			86,113			—		—			86,113
Basic Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.17		$	—	$	—		$	0.17
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.17		$	—	$	—		$	0.17
Diluted Earnings Per Share:
	Income (loss) before cumulative effect of accounting change	$	0.17		$	—	$	—		$	0.17
	Cumulative effect of accounting change		—			—		—			—
	Net income (loss)	$	0.17		$	—	$	—		$	0.17

		December 31, 2002
Balance Sheet		As Previously Reported		Investment in Licenses and Goodwill Restatements			Retention Reclassifications		As Restated
Effects of 2002 Accounting Changes
	Licenses	$	1,038,556	$	208,641		$	—	$	1,247,197
	Goodwill		643,629		(138,885	)		—		504,744
	Total Assets	$	4,699,841	$	69,756		$	—	$	4,769,597
	Net deferred income tax liability	$	359,401	$	82,413		$	—	$	441,814
	Retained earnings		1,126,752		(12,657	)		—		1,114,095
	Total Liabilities and Shareholders' Equity	$	4,699,841	$	69,756		$	—	$	4,769,597

(1)

The amounts as previously reported for the March 31, June 30, and September 30, 2003 and 2002 statements of operations and the 2003 balance sheets are based on amendment No. 2 to the March 31, 2003, June 30, 2003 and September 30, 2003 Quarterly Reports on Form 10-Q filed on March 10, 2004. The March 31, 2002, June 30, 2002 and September 30, 2002 balance sheet amounts have been adjusted to reflect a change in method of accounting for commission expense related to customer activations as described in the Cumulative Effect of Accounting Changes section of Note 1 "Summary of Significant Accounting Policies."

53

(2)

Prior to the fourth quarter of 2003, costs for equipment sold to retain current customers were included in selling, general and administrative expense. Prior to the fourth quarter of 2003 and in part of 2002, these costs were partially offset by equipment sales revenues received from these customers. In part of 2002 and all of 2001, equipment sales revenues related to retaining current customers were included in equipment sales revenues. In the fourth quarter of 2003, U.S. Cellular changed its policy for classifying retention costs and has reclassified the equipment sales revenue and cost of equipment sold related to the retention of current customers out of selling, general and administrative expense into equipment sales revenues and cost of equipment sold, respectively, for each of the periods presented.

(3)

Prior to January 1, 2002, U.S. Cellular allocated the excess of purchase price over tangible assets and liabilities acquired to investment in licenses and goodwill. At that time, the accounting treatment for U.S. Cellular's investment in licenses and goodwill was the same for book purposes, with both asset classes amortized over an expected life of 40 years. However, no deferred taxes were provided on the amounts allocated to goodwill.

Based upon a subsequent review of goodwill, U.S. Cellular has restated the allocation of $138.9 million of purchase price recorded as goodwill to investment in licenses as of January 1, 2002, the date of the adoption of SFAS No. 142. In connection with this restatement, an additional deferred tax liability of $90.7 million was recorded as of January 1, 2002. The additional deferred tax liability recorded in conjunction with this restatement increased the carrying value of U.S. Cellular's investment in licenses by a corresponding $90.7 million. Following these adjustments, U.S. Cellular reperformed the impairment tests for its investment in licenses as of January 1, 2002, and recorded an impairment loss upon $12.7 million, ($20.9 million before income taxes of $8.2 million). This impairment has been recorded as a cumulative effect of an accounting change at January 1, 2002, the date of the adoption of SFAS 142.

In the first quarter of 2003, U.S. Cellular had recorded a loss on assets held for sale related to the pending disposition of certain wireless properties. The investment in licenses upon which the impairment was recorded in the first quarter of 2002 included the investment in licenses of these properties. As a result, a portion of the originally recognized loss on assets held for sale in the first quarter of 2003 was recognized in the first quarter of 2002. Consequently, loss on assets held for sale in 2003 has been reduced by $1.9 million, before income taxes of $0.8 million. In the third quarter of 2003, U.S. Cellular had originally recorded an income tax expense upon the closing of the disposition of such wireless properties. This tax expense has been reduced due to the reversal of additional deferred tax liabilities that were recorded with respect to the wireless properties exchanged in conjunction with the restatement from goodwill to investment in licenses. Consequently, income tax expense in 2003 has been reduced by $10.7 million.

In addition, as a result of the restatement discussed above, U.S. Cellular also reperformed the annual impairment test for its investment in licenses for 2003, which was originally performed during the second quarter of 2003. This resulted in the recognition of an additional impairment loss of $49.6 million, before income taxes of $19.6 million. This additional loss has been recorded in the second quarter of 2003.

54

Shareholder Information

Stock and Dividend Information

        U.S. Cellular's Common Shares are listed on the American Stock Exchange under the symbol "USM" and in the newspapers as "US Cellu." As of April 30, 2004, the Company's Common Shares were held by 457 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:

	2003 Common Shares				2002 Common Shares
Calendar Period
	High		Low		High		Low
First Quarter	$	26.96	$	21.40	$	45.50	$	34.49
Second Quarter		27.21		22.37		42.15		24.90
Third Quarter		31.10		25.55		33.25		22.97
Fourth Quarter	$	35.66	$	28.90	$	31.03	$	23.80

        U.S. Cellular has not paid any cash dividends and currently intends to retain all earnings for use in U.S. Cellular's business.

55

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INCORPORATED PORTIONS OF THE UNITED STATES CELLULAR CORPORATION'S 2003 ANNUAL REPORT TO SECURITY HOLDERS
Notes to Consolidated Financial Statements
Report of Independent Auditors

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-19403, 333-42366, 333-57063, 333-103543 and 333-105675), in the Registration Statements on Form S-3 (File Nos. 33-58911 and 333-32521), and in the Registration Statement on Form S-4 (File No. 33-41826) of United States Cellular Corporation of our report dated February 2, 2004, except as to Note 20, as to which the date is February 18, 2004, except as to the Reclassifications section of Note 1, as to which the date is March 9, 2004, and except as to the Restatement section of Note 1, as to which the date is May 7, 2004, relating to the consolidated financial statements, which appears in the 2003 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K/A. We also consent to the incorporation by reference of our report dated February 2, 2004, except as to Note 20, as to which the date is February 18, 2004, except as to the Reclassifications section of Note 1, as to which the date is March 9, 2004, and except as to the Restatement section of Note 1, as to which the date is May 7, 2004, relating to the financial statement schedule, which appears in this Form 10-K/A.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
May 14, 2004

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CONSENT OF INDEPENDENT ACCOUNTANTS

EX-23.2

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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 U.S. Cellular's filings on Form S-3 (File Nos. 33-58911 and 333-32521), Form S-4 (File No. 33-41826) and Form S-8(File Nos. 333-19403, 333-42366, 333-57063, 333-103543, and 333-105675) (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 for the year 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.

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NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP

EX-31.1

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Exhibit 31.1

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 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

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

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2004

/s/  JOHN E. ROONEY John E. Rooney
President and Chief Executive Officer

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Certification of Chief Executive Officer

EX-31.2

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Exhibit 31.2

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.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

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

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2004

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

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Certification of Chief Financial Officer

EX-32.1

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Exhibit 32.1

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, 2003 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
May 14, 2004

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to United States Cellular Corporation and will be retained by United States Cellular Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

EX-32.2

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Exhibit 32.2

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, 2003 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. Meyers
May 14, 2004

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to United States Cellular Corporation and will be retained by United States Cellular Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code