Management’s Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Following is a table of summarized operating data for U.S. Cellular’s consolidated operations. (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 calcu- lated 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: (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 approxi- mately $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 trans- ferred to AT&T Wireless are included in consolidated operations for the first seven months of 2003. 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. 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 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 admin- istrative 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, equip- ment sales revenues related to retaining current customers were included in equipment sales revenue. 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 expenses and 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 expenses 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 reclassifi- cations 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 22 Y ear 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 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 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