Management’s Discussion and Analysis of Results of Operations and Financial Condition 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 accel- erate the maturity dates of its debt. However, a downgrade in U.S. Cellular’s credit rating could adversely affect its ability to issue addi- tional debt in the future. 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 expendi- tures 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  estimated capital spending for 2004 is $610 million to $630 million. These expenditures primarily address the following needs: Capital Expenditures Off-Balance Sheet Arrangements Repurchase of Securities Contractual Obligations U.S. Cellular’s overlay of existing technologies with CDMA is largely completed, and when the project is fully completed in 2004 it antici- pates 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 effi- ciencies 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 com- mercial 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. 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 For further information regarding U.S. Cellular’s contractual  obligations see Note 19 – Commitments and Contingencies. 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 reason- ably 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 unconsoli- dated entities where U.S. Cellular holds a minority interest. The investments in unconsolidated entities total $170.6 million as of Common Shares on a quarterly basis, primarily for use in employee benefit plans. U.S. Cellular’s Board of Directors has authorized management to oppor- tunistically 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 convert- ible, 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. As of December 31, 2003, the resources required for contractual  obligations were as follows: • 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. Payments Due by Period Less More Contractual than 1 2 – 3 4 – 5 than 5 Obligations Total Year Years Years Years (Dollars in millions) Long-term Debt  Obligations (1) $1,092.5 $108.0 $ — $250.0 $734.5 F orw ard 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 34 (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.