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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the fiscal year ended December 31, 2004.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the transition period from  TO .
 Commission File Number 0-27416 (RCC LOGO) RURAL CELLULAR CORPORATION
 (Exact name of registrant as specified in its charter)
 Minnesota
    
    41-1693295(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3905 Dakota Street SW
Alexandria, Minnesota 56308
(320) 762-2000 (Address, including zip code, and telephone number, including area code, of registrants principal
executive offices) Securities registered pursuant to Section 12(b) of the Act:
NONE Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Series A Preferred Share Purchase Rights(Title of class) 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.
þ YES  
o  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. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). þ YES   NO o Aggregate value of shares of common stock held by nonaffiliates of the Registrant based upon
the closing price on June 30, 2004 (only shares held by directors, officers and their affiliates
are excluded): $105,308,507 Number of shares of common stock outstanding as of the close of business on February 25, 2005: Class A 11,935,142
Class B     539,291 Documents incorporated by reference: Portions of the definitive Proxy Statement relating to the 2005 Annual Meeting of
Shareholders, which will be held on May 24, 2005 (Proxy Statement), are incorporated by reference
into Part III of this report.




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TABLE OF CONTENTS  
 PagePART IITEM 1. BUSINESS
    
    
    3ITEM 2. PROPERTIES
    
    
    33ITEM 3. LEGAL PROCEEDINGS
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    36ITEM 6. SELECTED FINANCIAL DATA
    
    
    36ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    39ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    56ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    56ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    56ITEM 9A. CONTROLS AND PROCEDURES
    
    
    57ITEM 9B. OTHER INFORMATION
    
    
    57PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    58ITEM 11. EXECUTIVE COMPENSATION
    
    
    58ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    58ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    58ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    58PART IVITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    59SIGNATURES
    
    
    604th Amendment to Employment Agreement with Richard P. EkstrandIntercarrier Multi-Standard Roaming and Colocation AgreementAmendment No. 1 to Roaming AgreementSubsidiaries of RegistrantConsent of Deloitte & Touche LLPConsent of Deloitte & Touche LLPSection 302 CertificationSection 302 CertificationCertification of Principal Executive Officer and Principal Financial Officer
  
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PART I 
 ITEM 1. BUSINESS References in this Form 10-K to Rural Cellular, RCC, we, our, and us refer to Rural
Cellular Corporation and its subsidiaries as a combined entity, except where it is clear that those
terms mean only the parent company. We file with, or furnish to, the Securities and Exchange Commission (the ''SEC) annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as various other
information. RCC makes these reports and other information available free of charge on the Investor
Relations page of our website as soon as reasonably practicable after providing such reports to the
SEC. In addition, in the Corporate Governance section of the Investor Relations page of our
website, we make available the Financial Code of Ethics and the charters for the Audit,
Compensation, and Nominating Committees. The internet address for our
website is at www.unicel.com. Forward-Looking Information This Form 10-K includes forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. All statements regarding us and our
expected financial position, business, and financing plans are forward-looking statements.
Forward-looking statements can be identified by, among other things, the use of forward-looking
terminology such as believes, expects, may, will, should, seeks, anticipates,
intends, or the negative or other variations of any such term or comparable terminology, or by
discussions of strategy or intentions. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, our expectations may prove not to be correct. A number
of factors could cause our actual results, performance, and achievements or industry results to be
materially different from any future results, performance, or achievements expressed or implied by
such forward-looking statements. These factors include, but are not limited to:  
    the competitive environment in the wireless and telecommunications industries
and in the markets we serve, including the quality and pricing of comparable wireless
communications services offered by our competitors;
    economic conditions in our geographic markets and in general, including those
resulting from geopolitical concerns;
    demographic changes;
    our ability to attract and retain qualified personnel;
    our ability to meet the obligations of our indebtedness;
    our ability to meet our schedule for build-out of our wireless network;
    our business plan and our strategy for implementing our plan;
    the market acceptance of the technology we use;
    our capital expenditures and funding requirements, including our ability to
access sufficient capital to meet operating and financing needs;
    the availability of adequate quantities of system infrastructure and customer
equipment and components to meet our service deployment and marketing plans and customer
demand;
    our ability to achieve and maintain market penetration and average customer
revenue levels sufficient for financial viability;
    our ability to integrate the operations of any businesses we acquire;
    our ability to scale our billing, collection, customer care, and similar
back-office operations to keep pace with customer growth and increased system usage;
    future legislation or regulatory actions relating to specialized mobile radio
services, other wireless communications services, or telecommunications services
generally;
    other risks and uncertainties described from time to time in our reports filed
with the Securities and Exchange Commission; and
    other factors described in this report including, without limitation, under
Factors that may affect our business, future operating results, and financial condition. 3




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In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates,
and data that may be incorrect or imprecise and involve known and unknown risks, uncertainties, and
other factors. Accordingly, forward-looking statements included in this report do not purport to be
predictions of future events or circumstances and may not be realized. All subsequent written and
oral forward-looking statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by the foregoing cautionary statements. Given these uncertainties, you
are cautioned not to place undue reliance on such forward-looking statements. We disclaim any
obligation to update any such factors or to announce publicly the results of any revisions to any
of the forward-looking statements contained in this report to reflect future events or
developments. Factors that may affect our business, future operating results, and financial condition Our future operating results could fluctuate significantly. We believe that our future operating results and cash flows may fluctuate due to many factors, some
of which are outside our control. These factors include the following:  
    increased costs we may incur in connection with the build-out of our networks
and the further development, expansion, and upgrading of our wireless systems;
    fluctuations in the demand for our services and equipment and wireless services in general;
    increased competition, including price competition;
    changes in our roaming revenue and expenses due to renegotiation of our
roaming agreements and the development of neighboring or competing networks;
    changes in the regulatory environment;
    changes in the level of support provided by the Universal Service Fund (USF);
    the cost and availability of equipment components;
    seasonality of roaming revenue;
    changes in travel trends;
    acts of terrorism, political tensions, unforeseen health risks, unusual
weather patterns, and other catastrophic occurrences that could affect travel and demand
for our services; and
    changes in general economic conditions that may affect, among other things,
demand for our services and the creditworthiness of our customers. We incurred net losses applicable to common shares of approximately $71.9 million, $50.1 million,
and $456.5 million, in the years ended December 31, 2004, 2003, and 2002, respectively. We may
continue to incur significant net losses as we seek to increase our customer base in existing
markets. We may not generate profits in the short term or at all. If we fail to achieve
profitability, that failure could have a negative effect on the market value of our common stock. Our transition from TDMA to GSM/GPRS and CDMA/2000/1XRTT (2.5G) technologies will increase our
operating costs. Our current technology strategy involves overlaying 2.5G networks on our existing TDMA networks.
This upgrade will result in additional operating costs, including:  
    increased cost of equipment as our current customers migrate from TDMA
handsets to more expensive 2.5G technology handsets,
    increased network costs to maintain simultaneous operation of both TDMA and
2.5G technology networks,
    increased billing and technical support costs as a result of maintaining both
TDMA and 2.5G networks in our service areas, and
    increased sales and marketing costs to alleviate customer dissatisfaction and
fund retention initiatives if we fail to timely and efficiently meet the demands of our
2.5G customers. 4




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Our implementation of 2.5G network technology has resulted in network capacity constraints,
heightened customer churn, and increased costs. We recently deployed 2.5G technology in our Midwest, Northeast, and Northwest regions. However, we
have experienced and may continue to experience technical difficulties and network coverage issues
as we implement this overlay . In addition, we have experienced network capacity constraints
relating to the initial migration of our Midwest, Northeast, and Northwest TDMA customers to 2.5G.
We have incurred, and may continue to incur, costs to address these issues, including costs for
engineering, additional equipment, and additional spectrum in certain markets. These costs may be
significant. As our Midwest, Northeast, and Northwest customers migrate from TDMA to 2.5G
service, they may be dissatisfied with our service and switch to a competitor, thereby increasing
our churn rate and reducing our revenues and profitability. Continuing problems could damage our
reputation and affect our ability to attract new customers. In addition, network quality issues
could affect our roaming arrangements. To the extent we are required to spend significant amounts
on correcting problems with our network, we will have fewer resources available for marketing and
customer acquisition activities, which would affect our customer growth. As we dedicate more resources to 2.5G voice technology, our TDMA offerings could become less
attractive, resulting in a loss of customers and reduced profitability. We expect to continue operating our TDMA network for the foreseeable future while current customers
migrate to 2.5G technology. However, we may choose not to upgrade our TDMA network with the same
features as are available on our 2.5G networks. In addition, as we introduce and market 2.5G
services, we may price related products and services at more attractive levels than TDMA products
and services to encourage our customers to migrate to 2.5G service, and manufacturers are not
expected to produce innovative TDMA handsets with the same functionality as handsets using newer
technologies. Further, as we dedicate more spectrum to 2.5G networks, our remaining TDMA customers
may experience difficulties in using our services. All of these potential developments could drive
our TDMA customers to our competitors rather than to our 2.5G product offerings and thereby reduce
our market share and revenue. We have required and will continue to require substantial amounts of capital to meet various
obligations and to maintain our wireless network and complete our upgrade to 2.5G technologies.
Our ability to generate the required capital depends on many factors, including some that are
beyond our control. We have required, and will continue to require, substantial capital to maintain our wireless
network and complete our upgrade to 2.5G technologies, to satisfy obligations on our debt and
exchangeable preferred stock, and for other operating needs. Including the cost of our 2.5G
technology overlays, our total capital expenditures for 2004 were $94.4 million. We expect capital
expenditures in 2005 to be approximately $100 million. We believe that we have sufficient funds to
finance our planned capital expenditures for network construction, but we may require additional
capital in the event of significant departures from our current business plan, unforeseen delays,
cost overruns, unanticipated expenses, regulatory changes, engineering design changes, and other
technological issues or if we acquire additional licenses. We will likely need additional financing to repay or refinance our debt at its final maturities and
to meet mandatory redemption provisions on our preferred stock. To the extent that we do not
generate sufficient cash from operations to satisfy these needs, we will need to explore other
sources of capital, which may include public and private equity and debt financings, including
vendor financing. The availability of additional financing is dependent on conditions in the
capital markets. We may not be able to obtain additional financing on terms acceptable to us and
within the limitations contained in the instruments governing our debt and our preferred stock or
any future financing arrangements. If we fail to obtain appropriate financing, should we need it, we may need to delay or abandon our
development and expansion plans and we may fail to meet regulatory requirements. Any failure to
upgrade could also have a negative effect on our roaming revenues, since most of our roaming
partners customers will likely use 2.5G handsets as our roaming partners upgrade their networks.
Our ability to meet our debt 5




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service requirements and our customers needs may also be impaired, which would have a material
adverse effect on our business. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources. We have committed a substantial amount of capital to upgrade our wireless voice networks to offer
advanced data services. If the demand for wireless data services does not grow, or if we fail to
capitalize on such demand, it could have an adverse effect on our growth potential. We have committed significant resources to wireless data services and our business plan assumes
increasing demand for such services. Although demand for wireless data services is growing, it is
currently a small portion of our revenues. Continued growth in demand for wireless data services
is dependent on development and availability of popular applications and availability of handsets
and other wireless devices with features, functionality, and pricing desired by customers. If
applications and devices are not developed or do not become commercially acceptable, our revenues
could be adversely affected. Even if such demand does develop, our ability to deploy and deliver
wireless data services relies, in many instances, on new and unproven technology. Existing
technology may not perform as expected, and we may not be able to obtain new technology to
effectively and economically deliver these services. We cannot give assurance that there will be
widespread demand for advanced wireless data services, that revenues from data services will
constitute a significant portion of our total revenues in the near future, or that we can provide
such services on a profitable basis. Our business could be materially and adversely affected by our failure to anticipate and react to
frequent and significant technological changes. The telecommunications industry is subject to rapid and significant changes in technology that are
evidenced by:  
    the increasing pace of 2.5G digital upgrades;

    evolving industry standards;
    the availability of new radio frequency spectrum allocations for wireless services;
    ongoing improvements in the capacity and quality of digital technology;
    shorter development cycles for new products and enhancements;
    developments in emerging wireless transmission technologies; and
    changes in end-user requirements and preferences. It is possible that we may select a technology that does not achieve widespread commercial success
or that is not compatible with the technology selected by one or more of our roaming partners, and
as a result, our business, results of operations and financial condition could be materially and
adversely affected. Moreover, one or more of the technologies that we currently utilize may become
inferior or obsolete at some time in the future. A significant portion of our revenue is from roaming charges. Based on industry trends, outcollect
roaming yields have been declining over the last few years and are expected to continue to decline
in the future. As a result, our future operating results could be adversely affected if increases
in roaming minutes do not offset anticipated decreases in roaming yield. In 2004, 2003, and 2002, approximately 21%, 26%, and 27%, respectively, of our revenue was derived
from roaming charges incurred by other wireless providers for use of our network by their customers
who traveled within our coverage areas. A substantial portion of our roaming revenue is derived
from Cingular, Verizon Wireless, and T-Mobile. Changes in their operations or a significant
decline in the number of their customers could adversely affect our business. For the years ended
December 31, 2004, 2003, and 2002, Cingular (on a pro forma basis giving effect to its merger with
AT&T Wireless (AWE)), Verizon Wireless, and T-Mobile accounted for approximately 86%, 89%, and
86%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2004,
2003, and 2002, Cingular (on a pro forma basis giving effect to its merger with AWE) accounted for
approximately 9.9%, 14.5%, and 14.4% of 6




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our total revenue. Changes in the network footprints of these providers could have a material
adverse effect on our outcollect revenue and incollect expenses. For example, if a roaming partner
from which we derive a significant amount of revenue in one of our service areas were to build its
own network in that service area, our outcollect revenue derived from our roaming relationship with
that partner in that service area might decrease or even cease altogether, and our ability to
negotiate favorable incollect rates in that partners other service areas could suffer as well. Our most significant roaming partners are performing overlays of their existing networks with 2.5G
technology at an accelerated pace. We believe that during 2004 these partners converted their
customer base to this new technology before we had completed our network overlays. Reflecting the
transition of our networks and our roaming partners 2.5G technology customer base, we believe we
did not capture a portion of available roaming revenue. With our 2.5G networks substantially
completed in our Northeast and Northwest regions as of January 2005, three of our four regions are
now overlaid with 2.5G network technology. Our South region may continue to lose roaming minutes
until its upgrade is completed in the summer of 2005. Further, if we encounter delays in completing our overlays, we could miss upgrade milestones in our
roaming agreements or our roaming partners may decide to expand their networks into our service
areas in order to provide coverage for their customers. Failure to meet upgrade milestones may
result in reduced outcollect rates or loss of preferred roaming status under our roaming
agreements. Any overbuild of our service areas by our roaming partners would also result in
increased competition, which could have a negative impact on our outcollect roaming revenues,
business, operating results, and retention. Our roaming agreements have varying terms, from month-to-month to up to five years, and some are
terminable with 30 days written notice. When these agreements expire or are terminated, we may be
unable to renegotiate these roaming agreements or to obtain roaming agreements with other wireless
providers upon acceptable terms. Failure to obtain acceptable roaming agreements could lead to a
substantial decline in our revenue and operating income. Our roaming revenue is subject to some effects of seasonality, and as a result, our overall revenue
and operating income are also subject to seasonal fluctuations. In 2004, 2003, and 2002, a substantial amount of our revenue was derived from roaming charges
incurred by other wireless providers for use of our network by their customers who traveled within
our service areas. Our service areas include a number of resort destinations. As a result, our
roaming revenue increases during vacation periods, introducing a measure of seasonality to our
revenue and operating income. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Other Matters  Seasonality. We operate in a very competitive business environment, which can adversely affect our business and
operations. Competitors who offer more services than we do may attract our targeted customers. We operate in highly competitive markets, and there is substantial and increasing competition in
all aspects of the wireless communications business. Some competitors may market services we do
not offer, such as cable television, internet access, landline local exchange, or long distance
services, which may make their services more attractive to customers. Competition for customers is
based primarily upon services and features offered, system coverage, technical quality of wireless
systems, price, customer service, capacity, and strength of distribution channels. 7




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In each of our markets we compete with several other wireless licensees. To a lesser extent, we
also compete with wireless internet, paging, dispatch services, resellers, and landline telephone
service providers in some of our service areas. Increasingly, cellular services have become a
viable alternative to landline voice services for certain customers, putting cellular licensees in
direct competition with traditional landline telephone service providers. Cable companies are providing telecommunications services to the home, and of these, some carriers
are providing local and long distance voice services using Voice over Internet Protocol, or VoIP.
In particular circumstances, these carriers may be able to avoid payment of access charges to local
exchange carriers for the use of their networks on long distance calls. Cost savings for these
carriers could result in lower rates for customers and increased competition for wireless services. Continuing industry consolidation has resulted in an increased presence of regional and national
wireless operators within some of our service areas. Many of these national market competitors
provide services comparable to ours and, because they operate in a wider geographic area, are able
to offer no or low cost roaming and toll calls over a wider area. In addition, some national
wireless operators have recently begun to build networks in certain of the more densely populated
or well-traveled portions of our service areas. National advertising and promotional programs by
national wireless operators run in our markets are also a source of additional competitive and
pricing pressures, even though these operators may not provide service in those markets. If the
wireless communications industry continues to consolidate and we do not participate in that
consolidation, even stronger competitors may be created. In 2003, the FCC eliminated the spectrum
cap in all markets and the cellular cross-interest restriction in the larger urban cellular
markets. Effective July 2004, the FCC also eliminated the cellular cross-interest restriction in
rural service areas. These regulatory actions may facilitate the creation of larger and more
formidable competitors. Several of our competitors also operate in multiple segments of the industry. In the future, we
expect to face increased competition from entities providing similar services using other
communications technologies. Given the rapid advances in the wireless communications industry,
there can be no assurance that new technologies will not evolve that will compete with our products
and services. In addition, a number of our competitors have substantially greater financial,
technical, marketing, sales, and distribution resources. With so many companies targeting many of
the same customers, we may not be able to successfully attract and retain customers and grow our
customer base and revenues, which could have a materially adverse effect on our future business,
strategy, operations, and financial condition. Market prices for wireless service may decline in the future. We expect significant price competition among wireless providers that may lead to increasing
movement of customers between competitors resulting in reductions in average monthly service
revenue per customer. While we try to maintain or grow our customer base and average monthly
service revenue per customer, we cannot assure you that we will be able to do so. If market prices
decline it could adversely affect our our financial condition and results of operations. Wireless number portability may continue to have a negative impact on our customer retention and
increase our marketing costs. Wireless number portability allows customers to keep their wireless phone number when switching to
a different service provider. Our service areas are in compliance with the Federal Communications
Commission (FCC) mandate that requires wireless carriers to provide wireless number portability.
Wireless number portability has increased and may continue to increase competition and reduce
retention. Since implementation of wireless number portability in our markets, we have experienced
increased churn. A high rate of churn would adversely affect our results of operations by reducing
revenue and increasing the cost of adding a new customer. Such costs generally include commission
expense and/or significant handset discounts, which are significant factors in income and
profitability for participants in the wireless industry. We may be required to grant promotional
credits, subsidize product upgrades, and/or reduce pricing to match competitors initiatives and to
retain customers, which could adversely impact our operating results. 8




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If we encounter significant problems, such as delays, inaccuracies, or loss of customer information
from our database, in the process of upgrading our billing function, we could experience customer
dissatisfaction and increased churn, which could have a material adverse impact on our financial
performance. We have begun the implementation of a new data processing and billing system and expect this
transition to continue over the next several months. This process could cause disruption in our
billing cycles, including delays in mailing of and errors in statements sent to customers, and
customers may be dropped from our database. If such problems are significant or prolonged, our
customers may become dissatisfied and decide to switch to a rival carrier. Also, following
implementation, we will be dependent on future performance of an outside contractor. Any
significant or prolonged problems with our billing function could have a material adverse impact on
our business, financial condition, and results of operations. There will also likely be a period during which our existing billing function and our upgraded
billing function will run in tandem as we transition from one system to the other. To the extent
that agreements relating to current systems and services are still in effect, we will encounter
duplication of some expenses. Regulation or potential litigation relating to the use of wireless phones while driving could
adversely affect our results of operations. Further, if wireless handsets are perceived to pose
health and safety risks, we may be subject to new regulations, and demand for our services may
decrease. Some studies have indicated that using wireless phones while driving may distract drivers
attention, making accidents more likely. These concerns could lead to litigation relating to
accidents, deaths, or serious bodily injuries, or to new restrictions or regulations on wireless
phone use, any of which also could have material adverse effects on our results of operations. A
number of U.S. states and local governments are considering or have recently enacted legislation
that would restrict or prohibit the use of a wireless handset while driving or, alternatively,
require the use of a hands-free telephone. Legislation of this sort, if enacted, would require
wireless service providers to provide hands-free enhanced services, such as voice activated dialing
and hands-free speaker phones and headsets. If we are unable to provide hands-free services and
products to customers in a timely and adequate fashion, our ability to generate revenues could
suffer. It has been suggested that certain radio frequency emissions from wireless handsets may be linked
to various health concerns, including cancer, and may interfere with various electronic medical
devices, including hearing aids and pacemakers. Concerns over the effect of radio frequency
emissions may discourage the use of wireless handsets, which would decrease demand for our
services. Our business is subject to extensive government regulation, which could adversely affect our
business by increasing our expenses. We also may be unable to obtain or retain regulatory
approvals necessary to operate our business, which could negatively affect our results of
operations. The FCC regulates many aspects of our business, including the licensing, construction,
interconnection, operation, acquisition, and sale of our wireless systems, as well as the number of
wireless licenses issued for each of our markets. State and local regulatory authorities, to a
lesser extent, also regulate aspects of our business and services. In addition, the Federal
Aviation Administration regulates aspects of construction, marking, and lighting of communications
towers on which we place our wireless transmitters. Changes in legislation and regulations
governing wireless activities, wireless carriers, and availability of USF support, our failure to
comply with applicable regulations, or our loss of or failure to obtain any license or licensed
area could have a material adverse effect on our operations. The FCC and state authorities are increasingly looking to the wireless industry to fund various
initiatives, including federal and state universal service programs, telephone number
administration, services to the hearing-impaired, and emergency 911 services. In addition, many
states have imposed significant taxes on providers in the wireless industry and have adopted or are
considering adoption of regulatory requirements regarding customer billing and other matters.
These initiatives have imposed and will continue to impose 9




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increased costs on us and other wireless carriers and may otherwise adversely affect our business.
Under Phase II of its emergency 911 service rules, for example, the FCC has mandated that wireless
providers supply the geographic coordinates of a customers location, by means of network-based or
handset-based technologies, to public safety dispatch agencies. We believe that we will be able to
implement most aspects of the required Phase II systems by the applicable deadlines; however, it
appears unlikely that our network-based systems will be able to comply fully with the FCCs current
accuracy requirements for these systems. Although we intend to continue working with the FCC to
seek relaxed standards or extended deadlines for Phase II implementation in rural areas, there can
be no assurance that the FCC ultimately will permit such relaxed standards or extended deadlines,
that we will be able to comply with any such relaxed standards or extended deadlines, or that we
will not be subject to fines by the FCC in connection with our failure to comply with the FCCs
emergency 911 service rules. Each of our wireless licenses is subject to renewal upon expiration of its current term, which is
generally ten years. Grants of wireless license renewals are governed by FCC rules establishing a
presumption in favor of incumbent licensees that have complied with their regulatory obligations
during the ten-year license period. However, we cannot provide assurance that the FCC will grant
us any future renewal applications or that our applications will be free from challenge. In
addition, FCC rules require wireless licensees to meet build-out requirements with respect to
particular licenses, and failure to comply with these and other requirements in a given licensed
area could result in revocation or nonrenewal of our license for that area or the imposition of
fines by the FCC. Our designation or certification as an Eligible Telecommunications Carrier (ETC) in any state
where we conduct business could be refused, conditioned, or revoked due to circumstances beyond our
control, thus depriving us of financial support in that state from the Universal Service Funds
(USF). In addition, we cannot be certain that we will continue to receive payments at the
current levels. In order to receive financial support from the USF in any state, we must receive ETC certification
in that state. Currently, we are ETC certified in eight of the states in which we offer wireless
services. If designation or certification in these states were revoked or conditioned, our
financial results could be adversely affected. Further, the FCC is currently considering whether
to change the rules governing the eligibility of cellular carriers to receive USF payments.
Although the FCC is not expected to make any final decisions on changes in the rules until 2005 or
later, the FCC and state commissions could impose additional regulatory obligations on ETCs that we
may find unacceptable. At this time, it is not clear what impact changes in the rules, if any,
will have on our continued eligibility to receive USF support. Loss of USF revenues could
adversely affect our future financial performance. Equipment failure and natural disasters may adversely affect our operations. A major equipment failure or a natural disaster affecting any of our central switching offices,
microwave links, or cell sites could have a material adverse effect on our operations. Our
inability to operate any portion of our wireless system for an extended time period could result in
a loss of customers or impair our ability to attract new customers, which would have a material
adverse effect on our business, results of operations, and financial condition. Difficulties in upgrading our wireless systems could increase our planned capital expenditures,
delay the continued build-out of our networks, and negatively impact our roaming arrangements. Whenever we upgrade our networks, we need to:  
    select appropriate equipment vendors;
    select and acquire appropriate sites for our transmission equipment, or cell sites;
    purchase and install low-power transmitters, receivers, and control equipment,
or base radio equipment;
    build out any required physical infrastructure;
    obtain interconnection services from local telephone service carriers; and
    test cell sites. 10




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##### Table of Contents



Our ability to perform these necessary steps successfully may be hindered by, among other things,
any failure to:  
    obtain necessary zoning and other regulatory approvals;
    lease or obtain rights to sites for the location of our base radio equipment;
    obtain any necessary capital;
    acquire any additional necessary spectrum from third parties; and
    commence and complete the construction of sites for our equipment in a timely
and satisfactory manner. In addition, we may experience cost overruns and delays not within our control caused by acts of
governmental entities, design changes, material and equipment shortages, delays in delivery, and
catastrophic occurrences. Any failure to upgrade our wireless systems on a timely basis may affect
our ability to provide the quality of service in our markets consistent with our current business
plan, and any significant delays could have a material adverse effect on our business. Failure to
meet upgrade milestones or to comply with other requirements under our roaming agreements could
have an adverse effect on our roaming revenue. Our future financial results could be adversely impacted by asset impairments or other charges. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets(SFAS No. 142). As a result, we are required to test both
goodwill and other indefinite-lived intangible assets, consisting primarily of our spectrum
licenses, for impairment on an annual basis based upon a fair value approach, rather than
amortizing them over time. We are also required to test goodwill for impairment between annual
tests if an event occurs or circumstances change that would more likely than not reduce our
enterprise fair value below its book value. Additionally, the value of our licenses must be tested
between annual tests if events or changes in circumstances indicate that the value might be
impaired. The amount of any such annual or interim impairment charge could be significant and
could have a material adverse effect on our reported financial results for the period in which the
charge is taken. See Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations  Critical Accounting Policies and Estimates  Goodwill and Other
Indefinite-Lived Intangible Assets. Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(SFAS No. 144). As a result, we are required to assess the impairment of our
long-lived assets whenever events or changes in circumstances indicate that the carrying value may
not be recoverable as measured by the sum of the expected future undiscounted cash flows. See
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations 
Critical Accounting Policies and Estimates  Impairment of Long-Lived Assets. Any operating losses resulting from impairment charges under SFAS No. 142 or SFAS No. 144 could
have an adverse effect on the market price of our securities. We may not be able to successfully integrate acquired or exchanged properties, which could have an
adverse effect on our financial results. We seek to improve our networks and service areas through selective acquisitions of other
providers properties and other assets, and in some instances, we may exchange our properties or
assets for the properties and assets of another carrier. We will be required to integrate with our
operations any properties we acquire, which may have billing systems, customer care systems, and
other operational characteristics that differ significantly from those of our networks. We may be
unsuccessful in those efforts, and customer retention in acquired properties and surrounding areas
may suffer as a result, which could have an adverse effect on our business and results of
operations. 11




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We will continue to incur increased costs as a result of being a public company subject to the
Sarbanes-Oxley Act of 2002 (SOA), as well as new rules
implemented by the SEC and The Nasdaq Stock Market. As a public company, we incur significant legal, accounting, and other expenses. In addition, the
SOA, as well as new rules subsequently implemented by the SEC and the Nasdaq Stock Market, have
required changes in corporate governance practices of public companies. We expect these new rules
and regulations to increase our legal and financial compliance costs and to make certain activities
more time-consuming and costly. In addition, the new rules could make it more difficult for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be forced to accept
reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors, our board committees, or as
executive officers. Our common stock price has been and may continue to be volatile. Litigation instituted against us
and our officers and directors as a result of changes in the price of our securities could
materially and adversely affect our business, financial condition, and operating results. The trading price of our Class A common stock has been and is likely to continue to be highly
volatile and could be subject to wide fluctuations in response to factors such as:  
    actual or anticipated variations in operating results;
    our ability to finance our operations and meet obligations under our financing arrangements
    conditions or trends in the wireless communications industry and changes in
the economic performance and/or market valuation of other wireless communications
companies;
    our strategic partnerships, joint ventures, or capital commitments; and
    additions or departures of key personnel. In addition, the stock market in general has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of the affected
companies. These broad market and industry factors may materially and adversely affect the market
price of our securities, regardless of our actual operating performance. Often a drop in a companys stock price is followed by lawsuits against the company and its
officers and directors alleging securities fraud. The defense and eventual settlement of or
judgment rendered in any such actions could result in substantial costs. Also, the defense of any
such actions could divert managements attention and resources. Both the costs and the diversion
of management could materially and adversely affect our business, financial condition, and
operating results. In addition, any material adverse judgment could trigger an event of default
under our indebtedness. We have a significant amount of debt and preferred stock, which may limit our ability to meet our
debt service and dividend obligations, obtain future financing, make capital expenditures in
support of our business plan, react to a downturn in our business, or otherwise conduct necessary
corporate activities. As of December 31, 2004, we had approximately $1.7 billion of long-term liabilities (which includes
$457.0 million of senior and junior exchangeable preferred stock), approximately $166.3 million of
Class M and Class T preferred stock, and shareholders deficit of approximately $596.3 million. Of
the outstanding preferred stock, $532.2 million can be exchanged, at our option, subject to
compliance with certain leverage ratios under our credit agreement and the indentures related to
our senior secured, senior, and senior subordinated notes, for senior subordinated indebtedness. 12




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The current levels of our debt and preferred stock entail a number of risks, including the
following:  
    we must use a substantial portion of our cash flows from operations to make
interest payments on our debt, thereby reducing funds that would otherwise be available to
us for working capital, capital expenditures, future business opportunities, and other
purposes;
    we may not be able to obtain additional financing for working capital, capital
expenditures, and other purposes on terms favorable to us or at all;
    borrowings under our floating rate senior secured notes and our revolving
credit agreement are at variable interest rates, making us vulnerable to increases in
interest rates;
    we may have more debt than many of our competitors, which may place us at a
competitive disadvantage;
    we may have limited flexibility to react to changes in our business; and
    we may not be able to refinance our indebtedness or preferred stock on terms
that are commercially reasonable or at all. Our ability to generate sufficient cash flow from operations to pay the principal or liquidation
preference of, and interest or preferred dividends on, our indebtedness and preferred stock is not
certain. In particular, if we do not meet our anticipated revenue growth and operating expense
targets, our future debt and preferred stock service obligations could exceed the amount of our
available cash. The restrictive covenants in our existing debt and preferred stock instruments and agreements may
limit our ability to operate our business. The instruments governing our debt and the certificates of designation governing our preferred
stock impose significant operating and financial restrictions on us. These restrictions limit,
among other things, our ability and the ability of certain of our subsidiaries to:  
    incur additional debt;
    pay cash dividends on capital stock;
    repay junior debt and preferred stock prior to stated maturities;
    allow the imposition of dividend restrictions on certain subsidiaries;
    sell assets;
    make investments;
    engage in transactions with shareholders and affiliates;
    create liens; and
    engage in some types of mergers or acquisitions. Our failure to comply with these restrictions could lead to a default under the terms of the
relevant debt or a violation of the terms of the preferred stock even if we are able to meet debt
service and dividend obligations. Our revolving credit agreement requires us to maintain specified financial ratios if we draw
against it. Substantially all our assets are subject to liens securing indebtedness under our
revolving credit agreement and senior secured notes. These restrictions could limit our ability to
obtain future financing, make needed capital expenditures, withstand a downturn in our business, or
otherwise conduct necessary corporate activities. If there were an event of default under our revolving credit agreement or other debt, the holders
of the affected debt could elect to declare all of that debt to be due and payable, which, in turn,
could cause all of our other debt to become due and payable. We might not have sufficient funds
available, and we might be unable to obtain sufficient funds from alternative sources on terms
favorable to us or at all. If the amounts outstanding under our revolving credit agreement were
accelerated and we could not obtain sufficient funds to satisfy our obligations, our lenders could
proceed against our assets and the stock and assets of our subsidiaries that guarantee our
revolving credit agreement and senior secured notes. 13




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We are subject to limitations on our ability to pay cash dividends on and repurchase or otherwise
satisfy our obligations under our senior exchangeable preferred stock and junior exchangeable
preferred stock. If we do not satisfy these obligations, the holders of these series of preferred
stock may have the right to elect additional members to our board of directors. We are required to pay dividends on our exchangeable preferred stock. Since August 2003, dividends
on our senior exchangeable preferred stock are to be paid in cash. However, we have not declared
or paid any of the cash dividends on the senior exchangeable preferred stock. We are accruing the
undeclared dividends by increasing the carrying amount of the senior exchangeable preferred stock.
At December 31, 2004, we had accrued $34.8 million in undeclared dividends, which will be payable
at the senior preferred mandatory redemption date, if not sooner declared and paid. We currently
pay dividends on our junior exchangeable preferred stock by issuing additional shares. Beginning
in May 2005, dividends on our junior exchangeable preferred stock are to be paid in cash. Our ability to pay cash dividends on and to redeem for cash our senior exchangeable preferred stock
and junior exchangeable preferred stock when required is restricted under various covenants
contained in documents governing our outstanding preferred stock and our indebtedness. In
addition, under Minnesota law, we are permitted to pay dividends on or redeem our capital stock,
including the senior exchangeable preferred stock and the junior exchangeable preferred stock, only
if our board of directors determines that we will be able to pay our debts in the ordinary course
of business after paying the dividends or completing the redemption. In addition, in order to
redeem the junior exchangeable preferred stock, our board of directors must determine that we have
sufficient assets to satisfy the liquidation preferences of the senior exchangeable preferred
stock. Because we have failed to pay at least six quarterly dividends on the senior exchangeable preferred
stock, the holders of such stock currently have the right to elect the lesser of two directors or the number
of directors constituting 25% of the members of our board, if they so choose, by following the
procedures set forth in the certificate of designation. If, at any time, we have failed to pay six
or more quarterly dividends on our junior exchangeable preferred stock, the holders of such stock
would have the same right to elect directors. Failure to pay dividends on our preferred stock may
also result in a downgrade of our credit ratings, and such a downgrade could have an adverse effect
on our ability to refinance our existing indebtedness or otherwise raise capital. We have preferred shareholders who could exercise significant influence on management. The holders of our Class M convertible preferred stock currently are able to elect two members to
our board of directors and can vote, on an as-converted basis, approximately 2,075,471 shares of
our Class A common stock, which represented, as of December 31, 2004, approximately 11% of the
voting power of our common stock. The holders of our senior exchangeable preferred stock and
junior exchangeable preferred stock, under certain circumstances, may also be able to elect members
of our board of directors in the future. Because we have failed to pay at least six quarterly dividends on the senior exchangeable preferred
stock, the holders of such stock currently have the right to elect the lesser of two directors or the number
of directors constituting 25% of the members of our board, if they so choose, by following the
procedures set forth in the certificate of designation. We anticipate
that two directors will be elected by the holders of the senior
exchangeable preferred stock at the 2005 annual meeting. If any of
these preferred stock holders or the directors elected by them were to disagree with decisions
made by management or the board of directors about our plans or operations, they might be able to
bring significant pressure to change such plans or operations. Antitakeover provisions could adversely affect the price of our Class A common stock. Some of the provisions of our Articles of Incorporation, Amended and Restated Bylaws, and Minnesota
law could delay or prevent a change of control or a change in management that may be beneficial to
shareholders. These provisions include:  
    provisions for a classified board of directors;
    provisions for advance notice for director nominations and shareholder proposals;
    provisions allowing holders of our Class B common stock ten votes per share as
compared to one vote per share for our Class A common stock; 14




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##### Table of Contents




    provisions for supermajority votes to approve mergers or amend specified
provisions of the Articles and Bylaws; and
    statutory limits regarding share acquisitions and business combinations. We also have adopted a rights plan that could discourage, delay, or prevent someone from acquiring
us at a premium price. The rights plan provides that preferred stock purchase rights attached to
each share of our common stock become exercisable to purchase shares of common stock at 50% of
market value, causing substantial dilution to a person or group acquiring 15% or more of our common
stock if the acquisition is not approved by our board of directors. In addition, the documents governing our indebtedness contain limitations on our ability to enter
into a change of control transaction. Under these documents, the occurrence of a change of control
transaction, in some cases after notice and grace periods, would constitute an event of default
permitting acceleration of the indebtedness. (a) General Development of Business We are a wireless communications service provider focusing primarily on rural markets in the United
States. Our principal operating objective is to increase revenue and achieve profitability through
increased penetration in existing wireless markets. Our operating regions include portions of five states in the Northeast, three states in the
Northwest, four states in the Midwest, and three states in the South. Within each of our four
regions, we have deployed a strong local sales and customer service presence in the communities we
serve. Our marketed networks covered a total population of approximately 6.3 million POPs and
served approximately 730,000 voice customers as of December 31, 2004. The following table summarizes our existing wireless systems as of December 31, 2004. Post and Prepaid Customers(Not including paging and long distance) CustomersPercentage
    
    
    Service Area
    
    
    as of December 31,
    
    
    SquareOwnership
    
    
    POPS (1)
    
    
    2004
    
    
    2003 (2)
    
    
    Miles
    
    
    StatesCellular:Midwest
    
    
    100
    %
    
    
    741,000
    
    
    
    124,000
    
    
    
    118,000
    
    
    
    45,000
    
    
    MN, ND, SDNortheast
    
    
    100
    %
    
    
    2,068,000
    
    
    
    267,000
    
    
    
    271,000
    
    
    
    46,000
    
    
    MA, ME, NH, NY, VTSouth
    
    
    100
    %
    
    
    2,012,000
    
    
    
    118,000
    
    
    
    123,000
    
    
    
    79,000
    
    
    AL, KS, MSNorthwest
    
    
    100
    %
    
    
    706,000
    
    
    
    127,000
    
    
    
    130,000
    
    
    
    77,000
    
    
    ID, OR, WATotal
    
    
    
    
    
    
    5,527,000
    
    
    
    636,000
    
    
    
    642,000
    
    
    
    247,000PCS:Wireless Alliance
    
    
    70
    %
    
    
    754,000
    
    
    
    13,000
    
    
    
    16,000
    
    
    
    19,000
    
    
    MN, ND, SD, WIWholesale
    
    
    
    
    
    
    N/A
    
    
    
    81,000
    
    
    
    67,000
    
    
    
    N/ATotal
    
    
    
    
    
    
    6,281,000
    
    
    
    730,000
    
    
    
    725,000
    
    
    
    266,000
   (1)
    
    Reflects 2000 U.S. Census Bureau population data updated for December 2002.(2)
    
    Customers as of December 31, 2003 are provided on a pro forma basis, giving effect to the
property exchange with AWE, completed on March 1, 2004, in which the Company transferred to
AWE its Northwest region operations in Oregon RSA 4, including approximately 35,000 customers
as of December 31, 2003. The Company received from AWE certain of its operations in Alabama
and Mississippi, increasing its customers in the South region by approximately 14,000
customers as of December 31, 2003. 15




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We believe our market characteristics and network quality make us an attractive roaming
partner for other wireless communications service providers. We have preferred roaming
relationships with Cingular Wireless, LLC, T-Mobile, and Verizon Wireless in our various regions. We began a 2.5G network overlay process in late 2003, which we expect to be substantially complete
in 2005. We are also pursuing a strategy of expanding our network coverage in all of our regions,
which will, upon completion, increase our cell sites and total marketed POPs. We believe our
network overlay and expansion efforts will improve our ability to attract customers in addition to
providing our roaming partners greater access to our networks. Summary of year ended December 31, 2004 Our 2004 operating highlights reflect progress on our 2.5G network buildouts, transition of the
acquired AWE operations in our South Region, wireless number portability compliance, increased ETC
certification in certain states (which allows us to receive USF payments), and repurchases of
senior preferred stock. Service revenue increased 6.2% for the year ended December 31, 2004 to $377.2 million in spite of a
21,200 net customer decrease resulting from the AWE property exchange completed on March 1, 2004.
These results reflect an increase in USF support payments, which increased to $28.2 million for the
year ended December 31, 2004. For the year ended December 31, 2004, LSR increased to $46 as
compared to $43 in the previous year. Contributing to the increase in LSR were increased levels of
USF of approximately $2 together with increased access and features revenue of approximately $1. During the year ended December 31, 2004, our total customers decreased by 1.4% to 729,811 at
December 31, 2004 as compared to 745,516 at December 31, 2003. We believe the reasons contributing
to the decrease include the following:  
    The net customer decline resulting from the property exchange with AWE,
    The transitional stage of our networks, products, and services,
    The transition to a unified brand name across all regions, and
    Wireless local number portability. Roaming revenue for the year ended December 31, 2004 was $105.5 million as compared to $131.9
million in the year ended December 31, 2003. Roaming revenue this year was lower than in 2003
primarily because of the Oregon 4 property exchange with AWE, which occurred in March 2004,
declining roaming yield, and the accelerated transition by our national roaming partners to 2.5G
handsets. For the year ended December 31, 2004, the Oregon 4 service area provided approximately
$3.6 million of roaming revenue compared to approximately $14.9 million for the year ended December
31, 2003. Outcollect roaming yield for 2004 was $0.16 per minute as compared to $0.21 per minute
last year. At December 31, 2004, approximately 67% of our cell sites have been overlaid with 2.5G
technology. We expect outcollect roaming revenues for all of 2005 to be comparable to 2004. We expect capital spending for 2005 to be approximately $100 million as compared to $94.4 million
in 2004. In March 2004, we issued $350 million aggregate principal amount of 8 1/4% senior secured notes due
2012 and $160 million aggregate principal amount of senior secured floating rate notes due 2010.
The net proceeds from these notes, together with some of our existing cash, were used to repay all
outstanding obligations under our former credit agreement, to terminate interest rate exchange
agreements associated with the former credit agreement, and to pay fees and expenses associated
with the notes offering and the revolving credit agreement. 16




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##### Table of Contents



During the year ended December 31, 2004, we repurchased 80,500 shares of our 11 3/8% senior
exchangeable preferred stock for $68.4 million. The corresponding $22.6 million gain on redemption
of preferred shares was recorded as a reduction of interest expense. (b) Financial Information about Segments Our business consists of one reportable operating segment, the operation of wireless communication
systems in the United States. (c) Description of Business/Service Areas Marketing of Products and Services Local Service We have developed our marketing strategy on a market-by-market basis and offer service plan options
to our customers tailored to address their specific needs and to encourage cellular usage. In
general, because our customers typically live in rural areas, they are more likely to purchase
plans that provide a regional footprint rather than a national one. Most of our service plans have
a fixed monthly access fee, which includes a specified number of minutes, and incremental fees for
enhanced services. As a result of our focus on marketing strategies as well as the upgrade of our
networks to digital capability, we are able to offer our customers a wide array of services on an
individual or bundled basis. We believe these services, which include the following, stimulate
demand for wireless usage and increase customer loyalty:  
    Caller ID  Allows a customer to see the phone number and name of the calling
party before answering the call or after not answering a call.
    Short Message Service  Allows a customer to receive and send text messages or
content messages.
    Numeric Paging  Allows a caller to leave a phone number rather than a voice
message.
    Visual Message Notification  Alerts a customer that a text or voice message
has been received by displaying an icon on the customers phone.
    Add-A-Line  Allows an additional phone to be included on a single account for
a flat fee, permitting a customer to share the service plan minutes.
    Voicemail  Allows a customer to receive and retrieve voicemail.
    Regional Personal Toll-Free Number  Provides a customer with a regional
personal toll-free number, which encourages customers to distribute their cellular numbers
and keep their telephones turned on to accept incoming calls.
    Nationwide Calling Option  Allows a customer to pay a flat fee for all long
distance calls made from our service areas.
    Advanced 2.5G Technology Data Services  Includes picture phones, Brew and
Java service, e-mail access, data cards, and internet accessibility. In addition to tailoring our service plans based on features and minutes of use, we also offer our
customers regional calling plans and roaming packages that allow our customers to pay home usage
rates while traveling within specified regional zones, both within and outside of our cellular
service areas. We have also established preferred roaming contracts and developed system
integration with adjacent cellular 17




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##### Table of Contents



carriers, which permit our customers to receive automatic call delivery, call forwarding, toll-free
access to voicemail, and call hand-off nationwide. Roaming We have roaming agreements in our markets with various national carriers and have nationwide
roaming agreements including:  
    Cingular, which is effective through December 2009,
    T-Mobile, which is effective through December 2007, and
    Verizon, which is effective through December 2007. Under most of our roaming agreements, the roaming yield per minute we receive from outcollect
calling minutes, in addition to the cost per minute we pay for our customers incollect activity,
declines over time. We have structured our roaming agreements to enable us to provide expanded
network access to our customers both regionally and nationally and provide roaming rates based upon
factors such as network coverage, feature functionality, and number of customers. On a pro forma basis, giving effect to the Cingular acquisition of AWE, a substantial portion of
our roaming revenue has been derived from agreements with three national wireless providers,
Cingular, T-Mobile, and Verizon Wireless. For the years ended December 31, 2004, 2003, and 2002,
Cingular (on a pro forma basis giving effect to its merger with AWE), Verizon Wireless, and
T-Mobile accounted for approximately 86%, 89%, and 86%, respectively, of our total outcollect
roaming minutes. For the years ended December 31, 2004, 2003, and 2002, Cingular (on a pro forma
basis giving effect to its merger with AWE) accounted for approximately 9.9%, 14.5%, and 14.4% of
our total revenue. Under our agreements with Cingular and Verizon Wireless, we are able to attain preferred roaming
status by overlaying our existing Northeast, Northwest, and South networks with GSM/GPRS/EDGE and
our Midwest region with CDMA/2000/1XRTT technology. The GSM/GPRS/EDGE overlays in our Northeast and
Northwest networks and our CDMA/2000/1XRTT network in our Midwest region are substantially
completed. Our GSM/GPRS/EDGE overlay in our South region is expected to be completed during the
summer of 2005. Wireless Alliance has a roaming agreement with its joint venture partner T-Mobile. Customer Equipment We currently sell handsets manufactured by Audiovox Corporation, Ericsson, Inc., Kyocera
Corporation, LG Electronics, Inc., Motorola, Inc., and Nokia Telecommunications, Inc. and
accessories manufactured by a number of sources. 18




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##### Table of Contents



Distribution and Sales We market our wireless products and services through direct sales distribution channels, which
include company-owned retail stores and account executives. We also utilize indirect sales
distribution channels, including independent sales agents. All distribution channels are managed on
a regional basis. We believe that our decentralized sales distribution strategy contributes to our
service offering success because our regions are able to tailor their respective programs to meet
the needs of each local market. Our distribution channels include the following:  
    direct sales through:  o
    retail stores and kiosks that we operate and staff with our
employees. As of December 31, 2004, we had 86 stores, primarily located in our
more densely populated markets. In addition, we had 13 stand-alone kiosks. Our
retail locations help us establish our local presence and promote customer sales
and service;o
    account executives who are our employees and focus on business and
major account sales and service;o
    telesales, which are conducted by customer service representatives,
internet, and toll-free phone services; and  
    indirect sales through independent sales agents. Our independent sales agents
are established businesses in their communities and include retail electronics stores,
farm implement dealers, automobile dealers, automotive parts suppliers, college and
university bookstores, video and music stores, and local telephone companies. Most of the
agents sell our services in conjunction with their principal business. We provide
cellular, digital, and paging equipment to the agents for sale or lease to customers, and
the agents market our services utilizing a cooperative advertising program. Each region is responsible for recruiting, training, and supporting sales personnel for each
distribution channel. Customer Base At December 31, 2004, our customer base consisted of three types of customers: postpaid, wholesale,
and prepaid. Postpaid customers accounted for the largest portion of our customer base as of that
date, at 86%. These customers pay a monthly access fee for a wireless service plan that generally
includes a fixed number of minutes and certain service features. In addition to the monthly access
fee, these customers are typically billed in arrears for long-distance charges, roaming charges,
and minutes of use exceeding the rate plans. Our wholesale customers are similar to our postpaid
customers in that they pay monthly fees to utilize our network and services; however, the customers
are billed by a third party (reseller), who has effectively resold our service to the end user
(customer). We in turn bill the third party for the monthly usage of the end user. Wholesale
customers accounted for 11% of our total customer base as of December 31, 2004. Our prepaid
customers accounted for 3% of our customer base as of December 31, 2004. Customer Service To provide consistent customer service in our service centers, we have implemented local monitoring
and control systems and maintain customer service departments consisting of trained personnel who
are aware of the needs of the customers in our local markets. Our customer service centers are
located in Alexandria, Minnesota; Bangor, Maine; Enterprise, Alabama; and Bend, Oregon. Our
customer service centers can be accessed 24 hours a day, 365 days a year, and are responsible for
processing new service orders and service changes for existing customers and maintaining customer
records. 19




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##### Table of Contents



Service Marks In 2004, our Midwest and Northwest regions changed their brand name to UNICEL®. We now use the
UNICEL® brand, which we own, in all of our markets. The following table summarizes the brand names
we have used to market our services in our different regions in 2004 and 2003. Brand name use as of December 31, Region
    

2004
    

2003Northeast
    
    UNICEL®
    
    UNICEL®Midwest
    
    UNICEL®
    
    CELLULAR 2000®, UNICEL®Northwest
    
    UNICEL®
    
    CELLULARONE®South
    
    UNICEL®
    
    UNICEL®
 Network Operations We develop and build our wireless service areas in response to customer demand by adding channels
to existing cell sites, building new cell sites to increase coverage and capacity, and upgrading
entire networks with advanced technology and services. Where appropriate, we also upgrade acquired
properties to enable us to provide similar quality service over our entire network. We expect to
continue our wireless system expansion where necessary to add and retain customers, enhance
customer usage on our systems, and increase roaming traffic. We also enhance our systems through
scalable network equipment, cell site splitting, cell site sectorization, and digital upgrades of
our systems. In addition to improving service quality, these enhancements generally provide
improved network system performance and efficiency of operations. Our network consisted of 857 cell
sites as of December 31, 2004. Technology As described below, beginning in late 2003 and throughout 2004, we have been overlaying our
networks with 2.5G technology. 2.5G refers to wireless technology and capability usually
associated with General Packet Radio Services (GPRS), Enhanced Data rates for Global Evolution
(EDGE), and Code Division Multiple Access / 1x Radio Transmission Technology (CDMA2000/1XRTT). Technology
    
    Regional Deployment
    
    DescriptionCDMA2000/1XRTT
    
    Midwest regiondeployed in
2003 and 2004 and
commercially launched in
August 2004.
    
    CDMA2000/1XRTTis an
evolution of CDMA
technology and represents
a step towards 3G
technology and allows data
transmission at
approximately 50 kilobits
per second (Kbps).GSM/GPRS
    
    Northeast, Northwest
regionsdeployed in 2004
and commercially launched
in January 2005.
South regionis expected
to commercially launch
during the summer of 2005.
    
    GSM/GPRSfacilitates
certain applications that
have not previously been
available over GSM
networks due to the
limitations in speed of
Circuit Switched Data and
message length of the
Short Message Service.
Dataspeeds of up to
approximately 35 Kbps are
expected.EDGE
    
    Northeast, Northwest, and
South regionsare
selectively being overlaid
in 2004 through 2005.
    
    EDGEis an evolution of
GPRS technology and is a
system designed to
increase the speed of data
transmission via cell
phone, creating broadband
capability. EDGE
technology data speeds are
expected to be
approximately 70-135 Kbps.
 20




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##### Table of Contents



While these new networks typically can accommodate roaming traffic as individual sites come on
line, we commercially introduce 2.5G services to our customers only when a sufficient number of
cell sites within the region have been overlaid to provide relatively seamless 2.5G service.
Commercial introduction of CDMA/2000/1XRTT services in our Midwest region began in August 2004, and
commercial introduction of GSM/GPRS/EDGE services in our Northeast and Northwest regions began in
January 2005. In late 2004, we began the GSM/GPRS/EDGE overlay process in our South region and
anticipate a commercial launch in the summer of 2005. Our 2.5G technology networks utilize
existing cellular and PCS spectrum. At December 31, 2004, approximately 67% of our cell sites
incorporated 2.5G technology. The customer transition to 2.5G technology networks will take into account the pace of national
carrier 2.5G customer growth, our own anticipated growth of 2.5G technology services, the cost to
migrate existing TDMA customers to more expensive 2.5G technology handsets, and our desire to
ultimately operate from a single network technology platform. We believe that the majority of our
customers will be using 2.5G handsets by the end of 2006. We anticipate maintaining existing TDMA
networks in our regions as long as it is financially desirable and replacement equipment is
available. Using previously unbuilt PCS licenses that are adjacent to our traditional cellular footprint, we
are expanding our network coverage through the following initiatives:  
    Midwest region CDMA network expansion into the adjacent markets of Fargo and
Grand Forks, North Dakota,
    Northeast region GSM network expansion into the adjacent market of
Lewiston-Auburn, Maine,
    Northeast region GSM network expansion into the adjacent Lakes Area region in
east central New Hampshire, and
    Northwest region GSM network expansion in mid-2005 into the adjacent markets
of Lewiston-Moscow, Idaho and Madras, Oregon. We also have PCS networks in our Midwest and Northeast regions that satisfy FCC build-out
requirements and allow us to receive outcollect revenue from our national roaming partners and
minimize our incollect cost from our existing customers using their phones in those areas. We do
not market our wireless service to residents of these areas. Build-Out Conditions of PCS Licenses All PCS licenses are granted for 10-year terms conditioned upon timely compliance with the FCCs
build-out requirements. Pursuant to the FCCs build-out requirements, all 30 MHz broadband PCS
licensees must construct facilities that offer coverage to one-third of the licensed areas
population within five years of obtaining the license and to two-thirds of the licensed areas
population within ten years, and all 10 MHz broadband PCS licensees must construct facilities that
offer coverage to at least one-quarter of the population within five years or make a showing of
substantial service within that five year period. Failure to comply with these build-out
requirements could result in license cancellation or revocation. We are currently in compliance
with the build-out requirements of our PCS licenses. Wireless Alliance Wireless Alliance operates a GSM network and at December 31, 2004, had 66 cell sites using
T-Mobiles switch. Licenses Our reasons for building out our licenses can vary. We build out many of our licenses primarily to
market our wireless services directly to that regions population and to capture outcollect roaming
minutes. We build out other licenses to minimize incollect cost and capture outcollect roaming
minutes while not marketing our services to that regions population. In some cases, we have chosen
not to build out licensed areas, reflecting lack of sufficient current financial incentive. 21




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##### Table of Contents



Our total marketed service area served approximately 649,000 voice customers, excluding wholesale
customers, as of December 31, 2004. Throughout our regions, we have multiple licenses at different bandwidths covering similar service
areas. Accordingly, POPs in some service areas may be covered by more than one license and are not
incremental to our marketed POPs. The following table, which includes overlapping licenses, lists
our cellular and PCS licenses as of December 31, 2004: Description
    
    % Ownership
    
    POPs
    
    
    License
    
    Spectrum
    
    Date of AcquisitionMidwestMinnesota RSA 1
    
    100%
    
    
    49,000
    
    
    B
    
    25 MHz Cellular
    
    01-Apr-91Minnesota RSA 2
    
    100%
    
    
    66,000
    
    
    B
    
    25 MHz Cellular
    
    01-Apr-91Minnesota RSA 3
    
    100%
    
    
    58,000
    
    
    B
    
    25 MHz Cellular
    
    01-Apr-91Minnesota RSA 5
    
    100%
    
    
    216,000
    
    
    B
    
    25 MHz Cellular
    
    01-Apr-91Minnesota RSA 6
    
    100%
    
    
    284,000
    
    
    B
    
    25 MHz Cellular
    
    01-Apr-91Bemidji, MN, BTA 037
    
    100%
    
    
    67,000
    
    
    E
    
    10 MHz PCS
    
    18-Nov-04Brainerd, MN BTA 054
    
    100%
    
    
    98,000
    
    
    E
    
    10 MHz PCS
    
    18-Nov-04Duluth, Minnesota/Superior,
Wisconsin BTA 119
    
    70%
    
    
    293,000
    
    
    B
    
    20 MHz PCS
    
    10-Apr-97Fargo, North Dakota/Moorhead,
Minnesota BTA 166
    
    70%
    
    
    185,000
    
    
    B
    
    20 MHz PCS
    
    10-Apr-97Grand Forks, North Dakota BTA 166
    
    70%
    
    
    96,000
    
    
    B
    
    20 MHz PCS
    
    10-Apr-97Sioux Falls, South Dakota BTA 422
    
    70%
    
    
    180,000
    
    
    B
    
    20 MHz PCS
    
    06-Nov-97South Dakota RSA 4
    
    100%
    
    
    68,000
    
    
    B
    
    25 MHz Cellular
    
    01-Feb-99St. Cloud, MN BTA 391
    
    100%
    
    
    300,000
    
    
    C
    
    30 MHz PCS
    
    01-Jul-99Duluth, MN
    
    100%
    
    
    414,000
    
    
    D
    
    10 MHz PCS
    
    01-Mar-04Fargo, ND
    
    100%
    
    
    317,000
    
    
    F
    
    10 MHz PCS
    
    01-Mar-04Grand Forks, ND
    
    100%
    
    
    194,000
    
    
    E
    
    10 MHz PCS
    
    01-Mar-04Watertown, SD, BTA 464
    
    100%
    
    
    75,000
    
    
    C
    
    30 MHz PCS
    
    17-Nov-04NortheastMaine, Bangor MSA
    
    100%
    
    
    146,000
    
    
    B
    
    25 MHz Cellular
    
    01-May-97Maine, RSA 2
    
    100%
    
    
    141,000
    
    
    B
    
    25 MHz Cellular
    
    01-May-97Maine, RSA 3
    
    100%
    
    
    231,000
    
    
    B
    
    25 MHz Cellular
    
    01-May-97Massachusetts RSA 1
    
    100%
    
    
    72,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98New Hampshire RSA 1
    
    100%
    
    
    312,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98New York RSA 2
    
    100%
    
    
    231,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98Vermont RSA 1
    
    100%
    
    
    222,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98Vermont RSA 2
    
    100%
    
    
    239,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98Vermont, Burlington MSA
    
    100%
    
    
    156,000
    
    
    A
    
    25 MHz Cellular
    
    01-Jul-98Maine, RSA 1
    
    100%
    
    
    85,000
    
    
    B
    
    25 MHz Cellular
    
    31-Jul-98Manchester & Nashua, NH BTA 274
    
    100%
    
    
    638,000
    
    
    F
    
    10 MHz PCS
    
    01-Jan-01New Hampshire, Portsmouth MSA
    
    100%
    
    
    233,000
    
    
    B
    
    25 MHz Cellular
    
    01-Jan-01Portland, ME BTA 357
    
    100%
    
    
    535,000
    
    
    F
    
    10 MHz PCS
    
    01-Jan-01Bangor, ME BTA 30
    
    100%
    
    
    327,000
    
    
    A5
    
    10 MHz PCS
    
    15-Oct-03Burlington, VT BTA 63
    
    100%
    
    
    414,000
    
    
    F
    
    10 MHz PCS
    
    15-Oct-03Fulton County, NY 36035
    
    100%
    
    
    55,000
    
    
    D
    
    10 MHz PCS
    
    15-Oct-03Hamilton County, NY 36041
    
    100%
    
    
    5,000
    
    
    D
    
    10 MHz PCS
    
    15-Oct-03Keene, NH BTA 227
    
    100%
    
    
    120,000
    
    
    A5
    
    10 MHz PCS
    
    15-Oct-03Lebanon, NH BTA 249
    
    100%
    
    
    183,000
    
    
    A4
    
    10 MHz PCS
    
    15-Oct-03Lewiston, ME BTA 251
    
    100%
    
    
    223,000
    
    
    A5
    
    10 MHz PCS
    
    15-Oct-03Plattsburg, NY BTA 352
    
    100%
    
    
    120,000
    
    
    E
    
    10 MHz PCS
    
    15-Oct-03Presque Isle, ME BTA 363
    
    100%
    
    
    73,000
    
    
    A5
    
    10 MHz PCS
    
    15-Oct-03Rutland-Bennington, VT BTA 388
    
    100%
    
    
    100,000
    
    
    E
    
    10 MHz PCS
    
    15-Oct-03Waterville, ME BTA 465
    
    100%
    
    
    169,000
    
    
    A5
    
    10 MHz PCS
    
    15-Oct-03NorthwestOregon RSA 3
    
    100%
    
    
    158,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Oregon RSA 6
    
    100%
    
    
    224,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Washington RSA 2
    
    100%
    
    
    140,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Washington RSA 3

    
    100%
    
    
    60,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Washington RSA 8
    
    100%
    
    
    124,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Chelan County, WA 53007
    
    100%
    
    
    67,000
    
    
    D
    
    10 MHz PCS
    
    15-Oct-03Douglas County, WA 53017
    
    100%
    
    
    33,000
    
    
    D
    
    10 MHz PCS
    
    15-Oct-03Ferry County, WA 53019
    
    100%
    
    
    7,000
    
    
    E
    
    10 MHz PCS
    
    15-Oct-03Lewiston-Moscow, ID BTA 250
    
    100%
    
    
    124,000
    
    
    C
    
    30 MHz PCS
    
    18-Nov-04Okanogan County, WA 53047
    
    100%
    
    
    39,000
    
    
    D
    
    10 MHz PCS
    
    15-Oct-03Pend Oreille County, WA 53051
    
    100%
    
    
    12,000
    
    
    E
    
    10 MHz PCS
    
    15-Oct-03Stevens County, WA 53065
    
    100%
    
    
    41,000
    
    
    E
    
    10 MHz PCS
    
    15-Oct-03
 22




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##### Table of Contents



Description
    
    % Ownership
    
    POPs
    
    
    License
    
    Spectrum
    
    Date of AcquisitionBaker & Malheur counties, OR
    
    100%
    
    
    48,000
    
    
    D
    
    10 MHz PCS
    
    01-Mar-04Bend, OR
    
    100%
    
    
    165,000
    
    
    C5
    
    10 MHz PCS
    
    25-May-04Portland, OR (Grant, Wheeler &
Harney counties)
    
    100%
    
    
    16,000
    
    
    D
    
    10 MHz PCS
    
    01-Mar-04Walla Walla, WA
    
    100%
    
    
    177,000
    
    
    C & F
    
    10 MHz PCS
    
    25-May-04SouthAlabama RSA 3
    
    100%
    
    
    134,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Alabama RSA 4
    
    100%
    
    
    146,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Alabama RSA 5
    
    100%
    
    
    221,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Alabama RSA 7
    
    100%
    
    
    170,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 1
    
    100%
    
    
    27,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 11
    
    100%
    
    
    93,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 12
    
    100%
    
    
    48,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 13
    
    100%
    
    
    28,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 2
    
    100%
    
    
    29,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 6
    
    100%
    
    
    19,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Kansas RSA 7
    
    100%
    
    
    79,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Mississippi RSA 1
    
    100%
    
    
    185,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Mississippi RSA 3
    
    100%
    
    
    157,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Mississippi RSA 4
    
    100%
    
    
    130,000
    
    
    A
    
    25 MHz Cellular
    
    01-Apr-00Albany, GA
    
    100%
    
    
    359,000
    
    
    A5
    
    10 MHz PCS
    
    01-Mar-04Columbus, GA
    
    100%
    
    
    366,000
    
    
    A5
    
    10 MHz PCS
    
    01-Mar-04Columbus-Starkville, MS BTA
    
    100%
    
    
    152,000
    
    
    B4/5 & E
    
    30 MHz PCS
    
    01-Mar-04Dothan, AL BTA
    
    100%
    
    
    225,000
    
    
    F & C2
    
    25 MHz PCS
    
    01-Mar-04Meridian, MS
    
    100%
    
    
    208,000
    
    
    B5
    
    10 MHz PCS
    
    01-Mar-04Montgomery, AL BTA (Pike County
Only)
    
    100%
    
    
    30,000
    
    
    C3
    
    10 MHz PCS
    
    01-Mar-04Opelika, AL
    
    100%
    
    
    154,000
    
    
    F
    
    10 MHz PCS
    
    01-Mar-04Tupelo, MS BTA
    
    100%
    
    
    326,000
    
    
    C
    
    30 MHz PCS
    
    01-Mar-04
 23




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##### Table of Contents



The following map illustrates the geography of our 850 MHz Cellular and 1.9 GHz PCS licenses
as of December 31, 2004. (MAP) Suppliers and Equipment Partners We do not manufacture any customer or network equipment. The high degree of compatibility among
different manufacturers models of handsets and network facilities equipment allows us to design,
supply, and operate our systems without being dependent upon a single source of equipment.
Historically, we have used network equipment manufactured by Northern Telecom, Inc., Lucent
Technologies Inc., Harris, Inc., Nokia Telecommunications, Inc., Alcatel, Ericsson, Inc., and
Motorola, Inc. We also resell network equipment. 24




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##### Table of Contents



Competition We compete against wireless carriers in each of our markets and also compete with a number of
enhanced specialized mobile radio service providers. We compete for customers based on numerous
factors, including wireless system coverage and quality, service value equation (minutes and
features over price), local market presence, digital voice and features, customer service,
distribution strength, and brand name recognition. Some competitors also market other services,
such as landline local exchange and internet access service, with their wireless service offerings.
Many of our competitors have been operating for a number of years, currently serve a substantial
customer base, and have significantly greater financial, personnel, technical, marketing, sales,
and distribution resources than we do. The following table lists our major competitors by market: USAlltel
    
    
    Cingular
    
    
    Nextel
    
    
    Sprint
    
    
    T-Mobile
    
    
    Cellular
    
    
    Verizon
    
    
    Other (*)Midwest:Minnesota RSA 1 and 2
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    Western Wireless, Dobson CommunicationsMinnesota RSA 3, 5 and 6
    
    
    
    
    
    X
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    Dobson Communications, QwestSouth Dakota RSA 4
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    Western WirelessNortheast:Maine, Bangor MSA, RSA 1, 2 and 3
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    X
    
    
    XMassachusetts RSA 1
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    XNew Hampshire, Portsmouth, MSA
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    XNew Hampshire RSA 1
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    XNew York RSA 2
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    XVermont, Burlington MSA, RSA 1
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    XVermont RSA 2
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    XNorthwest:Oregon RSA 3
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    Qwest, Inland Cellular, Snake River WirelessOregon RSA 6
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    XWashington RSA 2
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    XWashington RSA 3
    
    
    
    
    
    X
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    XWashington RSA 8
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    Qwest, Inland CellularSouth:Alabama RSA 3
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    Southern LincAlabama RSA 4
    
    
    X
    
    
    
    
    
    X
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    Pine Belt Wireless, Southern LincAlabama RSA 5
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    Public Service Telephone, Southern LincAlabama RSA 7
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    Southern LincKansas RSA 1, 2, 6, 7, 12 and 13
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Westlink CommunicationsKansas RSA 11
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Panhandle TelecommunicationsMississippi RSA 1 and 4
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    Cellular SouthMississippi RSA 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    Cellular SouthDothan, AL BTA
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    Southern Linc,Tupelo, MS BTA
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    Cellular SouthColumbus-Starkville, MS BTA
    
    
    
    
    
    X
    
    
    X
    
    
    X
    
    
    X
    
    
    
    
    
    X
    
    
    Southern Linc, Cellular SouthWireless Alliance:Duluth, Minnesota/Superior, Wisconsin
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    XFargo, North Dakota/Moorhead,
Minnesota, Grand Forks, North Dakota.
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    X
    
    
    Western WirelessSioux Falls, South Dakota
    
    
    
    
    
    
    
    
    X
    
    
    X
    
    
    
    
    
    
    
    
    X
    
    
    Western Wireless
   (*) National Third Party Resellers.We also compete with national third party resellers including
Virgin Mobile USA, LLC and TracFone Wireless, Inc. These resellers purchase bulk wireless services
from wireless providers and resell through mass-market retail outlets, including Wal-Mart, Target,
Radio Shack, and Best Buy. TracFone purchases bulk wireless services from RCC in selected markets. Continuing industry consolidation has resulted in an increased presence of regional and
national wireless operators within our service areas. More recently, some national wireless
operators have begun to build small networks in more densely populated or well-traveled portions of
our service areas. National advertising and promotional programs by national wireless operators
run in our markets are a source of additional competitive and pricing pressures even though these
operators may not provide service in those markets. 25




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##### Table of Contents



In the future, we expect to face increased competition from entities holding licenses for PCS
spectrum not yet operating in our markets. The FCC has issued licenses for both narrowband and
broadband PCS, and six broadband licenses were issued in each of our cellular service areas. Under
FCC rules, PCS license holders are allowed to disaggregate the spectrum covered by their license.
Accordingly, we may face competition from additional providers of PCS if the FCC approves a
disaggregation of spectrum for any PCS license in one of our service areas. In addition, the
Omnibus Budget Reconciliation Act of 1993 required, among other things, the allocation to
commercial use of a portion of 200 MHz of the spectrum currently reserved for government use. Some
portion of this spectrum may be used to create new land-mobile services or to expand existing
land-mobile services. Further, the FCC has auctioned or announced plans to auction licenses in the
39 GHz spectrum and 700 MHz spectrum that may be used for wireless communications that would
compete with our services. We may also face competition from our roaming partners if they decide to overbuild or acquire
networks in our service areas. Many of our roaming partners are national carriers with greater
financial resources and access to capital than we have. We also compete to a lesser extent with resellers, landline telephone service providers, fixed
wireless services, specialized mobile radio, private radio systems and satellite-based
telecommunications systems. A reseller provides wireless services to customers but does not hold an
FCC license and might not own facilities. Instead, the reseller buys blocks of wireless telephone
numbers and capacity from a licensed carrier and resells service through its own distribution
network to the public. Thus, a reseller is both a customer of a wireless licensees service and
also a competitor of that licensee. Several small resellers currently operate in our service areas. Cable companies are providing telecommunications services to the home, and of these, some carriers
are providing local and long distance voice services using Voice over Internet Protocol, or VoIP.
In particular circumstances, these carriers may be able to avoid payment of access charges to local
exchange carriers for the use of their networks on long distance calls. Cost savings for these
carriers could result in lower prices to customers and increased competition for wireless
services. The telecommunications industry is experiencing significant technological changes, as evidenced by
the increasing pace of improvements in the capacity and quality of digital technology, shorter
cycles for new products and enhancements, and changes in consumer preferences and expectations.
Accordingly, with the entry of new competitors and the development of new technologies, products,
and services, competition in the wireless telecommunications industry has been dynamic and intense. Our ability to compete successfully is dependent, in part, on our ability to anticipate and respond
to various competitive factors affecting the industry. Our marketing and sales organization
includes a group that carefully monitors and analyzes competitive products and service offerings,
changes in consumer preferences, changes in demographic trends and economic conditions, and pricing
strategies by competitors that could adversely affect our operations or present strategic
opportunities. We believe that we are strategically positioned to compete with other communications technologies
that now exist. Continuing technological advances in telecommunications and FCC policies that
encourage the development of new spectrum-based technologies make it difficult, however, to predict
the extent of future competition. 26




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Legislation and Regulation The following summary of regulatory developments and legislation does not purport to describe all
present and proposed federal, state, and local regulation and legislation affecting the
telecommunications industry. Many existing federal, state, and local laws and regulations are
currently the subject of judicial proceedings, legislative hearings, and administrative proposals
that could change, in varying degrees, the manner in which the telecommunications industry
operates. Neither the outcome of these proceedings nor their impact upon the telecommunications
industry or us can be predicted. Overview Our business is subject to varying degrees of federal, state, and local regulation. The FCC has
jurisdiction over all facilities of, and services offered by, wireless licensees such as us, to the
extent those facilities are used to provide, originate, or terminate interstate or international
communications. The Communications Act of 1934, as amended (the Communications Act), preempts
state and local regulation of the entry of, or the rates charged by, any provider of commercial
mobile radio service (CMRS), which includes our cellular service and broadband personal
communications service. Otherwise, state and local regulatory commissions may exercise jurisdiction
over most of the same facilities and services to the extent they are used to originate or terminate
intrastate or intra-Major Trading Area communications and with respect to zoning and similar
matters. The manner in which we are regulated is subject to change in ways we cannot predict. Federal Licensing of Wireless Systems Geographic Market Area Licenses.CMRS providers operate under licenses granted by the FCC within a
specified geographic market area. For cellular systems, those market areas are typically
Metropolitan Statistical Areas (MSAs) or Rural Service Areas (RSAs) as defined by the FCC. PCS
systems are normally licensed within market areas known as Major Trading Areas (MTAs) or Basic
Trading Areas (BTAs), although it is possible to obtain, and we currently hold, some PCS licenses
that are for market areas smaller than an entire MTA or BTA, known as a partitioned area. While the FCC has used an assortment of methods in the past to grant licenses, most if not all new
CMRS licenses granted by the FCC are by auction. The FCC determines the availability of licenses in
particular frequency ranges, as well as the terms under which license auctions are conducted. Our
ability to secure new licenses that could be used to introduce advanced third generation wireless
services may depend upon our success in future FCC auctions. For example, in 2006 the FCC is
expected to auction and license 90 megahertz of spectrum for third generation and advanced wireless
services, specifying comparatively large geographic areas, known as Regional Economic Area Groups,
for licensing of 50-60 megahertz of the available spectrum. Construction and Operation.Most cellular licensees, including RCC, have substantially constructed
their systems and have license rights in their Cellular Geographic Service Areas that cut off
rights of others to obtain licenses on the same frequencies in the same areas. We do not need to
perform additional construction under our cellular licenses to retain those licenses. If we were to
discontinue operation of a cellular system for a period of at least 90 continuous days, our license
for such area would be automatically forfeited. However, we have no intention of allowing any
discontinuance of service that may occur to last as long as 90 continuous days. In order to retain licenses, PCS licensees, including RCC, are required by the FCCs rules to
construct facilities in the geographic areas authorized under their PCS licenses. That construction
must result in a signal level adequate to permit an offering of services to a certain percentage of
the population covered by those licenses within specified periods, based on the date of the grant
of the licenses. Our PCS licenses are subject to revocation or nonrenewal by the FCC, as are all
similar licenses held by other companies, if these build-out requirements are not satisfied in a
timely manner. Build-out requirements apply as to certain PCS 27




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licenses we have acquired from other entities. We believe that our construction will progress at a
pace that allows for timely compliance with the construction requirements. Because we hold PCS licenses, we must comply with FCC microwave relocation rules. A block of
spectrum licensed for PCS may be encumbered by a previously licensed microwave system. In such a
case, if the PCS licensee cannot avoid interference with the microwave system, the FCC requires the
PCS licensee to provide six months advance notice that interference may occur upon simultaneous
operation of the PCS and microwave facilities and direct the microwave licensee to cease operation
or move to other, non-interfering frequencies after such period of time. A PCS licensee is also
obligated to participate in cost-sharing if a previous relocation of a microwave incumbent benefits
more than one PCS licensee. However, a PCS licensee will not trigger any new cost-sharing
obligations for sites activated April 5, 2005 or later, due to a scheduled termination of the FCCs
cost-sharing plan as of April 4, 2005. We believe that we are in compliance with applicable FCC
microwave relocation and cost-sharing rules. CMRS providers also must satisfy a variety of FCC requirements relating to technical and reporting
matters, including coordination of proposed frequency usage with adjacent systems in order to avoid
electrical interference between adjacent systems. The FCC also requires licensees to secure FCC
consent to system modifications in specified instances. Entities such as RCC that own towers used for radio systems are subject to Federal Aviation
Administration and FCC regulations respecting the location, marking, lighting, and construction of
towers and are subject to the requirements of the National Environmental Policy Act, National
Historic Preservation Act, and other environmental statutes enforced by the FCC. The FCC has also
adopted guidelines and methods for evaluating human exposure to radio frequency emissions from
radio equipment. We believe that all wireless devices we currently provide to our customers, and
all our radio systems on towers that we own or occupy, comply with these requirements, guidelines,
and methods. We use, among other facilities, common carrier point-to-point microwave facilities to connect cell
sites and to link the cell sites to the main switching office. These facilities are separately
licensed by the FCC and are subject to regulation as to technical parameters, frequency protection,
and service. Renewal of Licenses.Near the conclusion of the generally ten-year term of a spectrum license, a
licensee must file an application for renewal of the license to obtain authority to operate for up
to an additional ten-year term. An application for license renewal may be denied if the FCC
determines that the renewal would not serve the public interest, convenience, or necessity. The FCC
also may revoke a license prior to the end of its term in extraordinary circumstances. In addition,
at license renewal time, other parties may file competing applications for the authorization. The
FCC has adopted specific standards stating renewal expectancy will be awarded to a spectrum
licensee that has provided substantial service during its license term and has substantially
complied with applicable FCC rules and policies and the Communications Act. If the FCC awards the
licensee a renewal expectancy, its license renewal application generally is granted and the
competing applications are dismissed. Although we are unaware of any circumstances that would prevent the approval of any future renewal
application, no assurance can be given that the FCC will renew any of our licenses. Moreover, the
FCC has the authority to restrict the operation of a licensed facility or revoke or modify
licenses. None of our licenses has ever been revoked or involuntarily modified. Assignment of Licenses or Transfer of Control of Licensees.FCC licenses generally may be
transferred and assigned, subject to specified limitations prescribed by the Communications Act and
the FCC. The FCCs prior approval is required for the assignment or transfer of control of a
license for a wireless system. Before we can complete a purchase or sale, we must file appropriate
applications with the FCC, and the public is by law granted a period of time, typically 30 days, to
oppose or comment on the proposed transaction. In addition, the FCC has established transfer
disclosure requirements that require licensees who assign or transfer control of a license acquired
through an auction within the first three years of their license terms to file associated sale
contracts, option agreements, management agreements, or other documents disclosing the total
consideration that the licensee would receive in return for the transfer or assignment of its
license. 28




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In any instance where a proposed transaction would result in an entity holding attributable
ownership interests in both the frequency Block A and frequency Block B cellular carriers in the
same MSA or RSA, the FCC conducts a case-by-case analysis of the potential effect upon competition
and may disapprove of the transaction or issue approval subject to conditions that may or may not
be acceptable to the parties. Non-controlling minority interests in an entity that holds a FCC
license generally may be bought or sold without FCC approval, subject to any applicable FCC
notification requirements. Limitation on Foreign Ownership.Ownership of our capital stock by non-U.S. citizens is subject to
limitations under the Communications Act and FCC regulations. Under existing law, no more than 20%
of a licensees capital stock may be directly owned or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives, or by a foreign corporation. If an
FCC licensee is controlled by another entity, up to 25% of that entitys capital stock may be owned
or voted by non-U.S. citizens or their representatives, by a foreign government or its
representatives, or by a foreign corporation. Indirect foreign ownership above the 25% level may be
allowed should the FCC find such higher levels not inconsistent with the public interest. Regulatory Matters and Developments Enhanced 911 Services.Cellular and PCS licensees must comply with the FCCs rules regarding
emergency 911 service. There is a staged process for the required deployment of enhanced 911
services, referred to by the FCC as Phase I and Phase II. Under Phase I, cellular and PCS licensees were required as of April 1, 1998, or within six months
of a request from the designated Public Safety Answering Point (PSAP), whichever is later, to be
able to provide, if available to the serving carrier, the telephone number of the originator of a
911 call and to provide to the designated PSAP the location of the cell site or base station
receiving a 911 call from any mobile handset accessing their systems through the use of Automatic
Number Identification and Pseudo-Automatic Number Identification. We are in substantial compliance
with Phase I requirements. Under Phase II, cellular and PCS licensees must be able to provide to the designated PSAP the
location of all wireless 911 callers, by longitude and latitude, in conformance with particular
accuracy requirements. To comply, licensees may elect either network-based or mobile radio
handset-based location technologies and thereafter meet, according to a phased-in schedule, the
enhanced 911 service standards stated in the FCCs rules. We notified the FCC of our intention to
utilize network-based location technologies to provide Phase II enhanced 911 service and amended
the notification to indicate that, where we utilize CDMA network technology, we will rely upon a
handset-based Phase II solution. Pursuant to terms and conditions of an FCC Order to Stay adopted
in July 2002, granting us an extension of the compliance deadlines, we are subject to requirements
of the FCC where we have deployed a network-based Phase II solution that we provide Phase II
enhanced 911 service to at least 50% of a requesting PSAPs coverage area or population beginning
March 1, 2003, or within six months of a PSAP request, whichever is later, and to 100% of a
requesting PSAPs coverage area or population by March 1, 2004 or within 18 months of such a
request, whichever is later. We have received requests from PSAPs for deployment of Phase II
enhanced 911 service that relate to various areas where we provide cellular or PCS service and we
have met the applicable 50%-coverage benchmark. Nevertheless, if the FCC finds that the accuracy
results produced by any of our Phase II deployments are not in compliance with FCC rules, the FCC
could issue enforcement orders and impose monetary forfeitures upon us. The FCC has issued notices
of apparent liability requiring other CMRS providers to pay fines based upon violations of enhanced
911 service requirements. The 29




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implementation of enhanced 911 obligations may have a financial impact on us. We are not yet able
to predict the extent of that impact. Interconnection. FCC rules provide that a local exchange carrier (LEC) must provide CMRS
providers interconnection within a reasonable time after it is requested, unless such
interconnection is not technically feasible or economically reasonable, and that CMRS providers are
entitled to compensation from LECs for terminating wireline-to-wireless traffic that originates and
terminates within the same MTA. Recently, the FCC decided to amend
its rules so as to allow LECs to request interconnection agreements
with CMRS providers that operate within the same MTA. As a result,
LECs will be able to establish reciprocal compensation arrangements
for termination of telecommunications traffic even when a CMRS
provider has no need for direct interconnection with a LEC that
provides service in the same MTA. The FCC has a rulemaking proceeding in progress to consider
whether, and possibly how, to replace the current system of reciprocal compensation for termination
of local telecommunications traffic, and access charges for inter-MTA traffic, with a uniform
intercarrier compensation plan. That proceeding could result in changes to compensation
arrangements we have with LECs and interexchange carriers for the exchange of telecommunications
traffic. Additionally, although key provisions of FCC orders implementing the Communications Acts
interconnection requirements have been affirmed by the courts, certain court challenges to the FCC
rules are pending. Universal Service.The Communications Act mandates that telecommunications carriers, such as us,
contribute to the federal USF, the purpose of which is to ensure that basic telephone services are
available and affordable for all citizens and that consumers in rural areas have similar choices in
telecommunications services as consumers living in urban areas. The USF is intended to promote
telecommunications infrastructure development in high cost areas and to provide subsidies to low
income persons, schools, libraries, and rural health care providers. We also are required to
contribute to state universal service programs administered by some states. The federal USF is
administered jointly by the FCC, the fund administrator, and state regulatory authorities. Because
we are a collection agent for customer contributions, we expect that our obligation to remit USF
contributions will have a minimal financial impact on us. 1996 amendments to the Communications Act allow wireless carriers such as us to propose services
and pursue eligibility to receive USF funding for constructing, maintaining and improving our
facilities and services in high-cost areas. When declared eligible for USF funding we are also
obligated to offer discounts to low-income customers, which amounts are reimbursed to us through
the federal Lifeline and Link-up programs. We must be designated as an eligible telecommunications
carrier (ETC) by the state where we provide service (or, in some cases, the FCC) and the state
(or, in some cases, we) must certify our eligibility to the FCC so that we may ultimately receive
USF support. We have received ETC designation in the states of Alabama, Kansas, Maine, Minnesota,
Mississippi, Oregon, Vermont, and Washington. We are currently receiving USF support, or expect
soon to begin receiving USF support, in each of these states. We have filed additional applications
for ETC designation in New Hampshire and South Dakota. To be eligible from year-to-year to receive
USF support, our ETC certifications must be renewed each year. Our ability to receive USF support,
and our obligations to pay into state and federal universal service funds, are subject to change
based upon pending regulatory proceedings, court challenges, and marketplace conditions. Local Number Portability.The FCC has adopted rules on telephone number portability in an effort
to achieve more efficient number utilization. Cellular and PCS licensees are required to provide
number portability, which enables customers to change providers and services without changing their
telephone number. By November 24, 2003, CMRS providers in the top 100 markets were required to
offer number portability without impairment of quality, reliability, or convenience when customers
switch wireless service providers, including the ability to support roaming throughout their
networks. Providers in other markets were to comply by May 24, 2004 if they received a bona fide
request to be open for porting-out of customer numbers at least six months prior from another
wireless service provider. Where our operations are subject to the FCC mandate we are in
compliance. In other areas any failure to comply with this obligation could result in a fine or
revocation of our licenses. 30




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In addition, the FCC provided guidance to the wireline and wireless industries in the form of a
decision released November 10, 2003 in response to a petition filed by the Cellular
Telecommunications & Internet Association requesting that wireline carriers be required to allow
their customers to retain their numbers when switching to a wireless carrier. The FCC concluded
that, as of November 24, 2003, upon the request of a customer, wireline carriers in the top-100
markets must port numbers to wireless carriers where the wireless carriers coverage area
overlaps the geographic location of the rate center in which the customers wireline number is
provisioned, provided that the porting-in carrier maintains the numbers original rate center
designation following the port. The wireless coverage area was defined by the FCC as the area in
which wireless service can be received from the wireless carrier. Wireline carriers outside the
top-100 markets were given until May 24, 2004 to comply with the same porting obligations. The FCC
subsequently granted an extension of time until May 24, 2004 to wireline carriers in the top-100
markets that serve fewer than two percent of the nations customer lines if such wireline carriers
had not received a request for local number porting from either a wireline carrier prior to May 24,
2003, or a wireless carrier that has a point of interconnection or numbering resources in the rate
center where the customers wireline number is provisioned. In addition, state public utility
commissions have authority under the Communications Act to suspend or extend FCC number portability
requirements faced by wireline carriers that serve fewer than two percent of the nations customer
lines. On March 11, 2005, the U.S. Court of Appeals, D.C. Circuit,
issued decisions that upheld the FCCs requirements concerning
wireline-to-wireless as well as wireless-to-wireless porting,
although the court stayed the wireline-to-wireless obligations of
certain LECs that qualify as small entities under the Regulatory
Flexibility Act until the FCC completes its final regulatory
flexibility analysis and publishes it in accordance with the
applicable federal statute. Meanwhile, the FCC invited and has received written comments on issues that bear upon wireless
carriers obligations to port numbers to wireline carriers upon customer request. We expect to face
obligations that will allow our customers to port their numbers to wireline carriers. CALEA.Telecommunications carriers also are subject to the Communications Assistance for Law
Enforcement Act (CALEA), which is administered by the Department of Justice, Federal Bureau of
Investigation (FBI) and the FCC. CALEA requires carriers to have a specific number of open ports
available for law enforcement personnel with the appropriate legal authority to perform wiretaps on
each carriers network. Full implementation of CALEAs assistance capability requirements was
previously required by June 30, 2000. However, because the FCC found that there was a lack of
equipment available to meet these requirements, it accepted petitions for a two-year extension of
this deadline on a carrier-by-carrier basis. We submitted such a petition and were granted a
two-year extension, until June 30, 2002, to comply with CALEAs assistance capability requirements.
We petitioned the FCC for another two-year extension and received from the FBI a letter of support
for our petition for extension. At this time CALEA features are installed and operational at all
but one of our switching facilities. We have petitioned for
additional time, through May 31, 2005,
to complete final installation of CALEA features on a switch located in Alexandria, Minnesota.
Additional requirements have been adopted to require cellular and PCS licensees to accommodate
interception of digital packet mode telecommunications. We will become obligated to comply with
these requirements only if and when we commence to offer services that make use of digital packet
mode technology. If we are not able to comply with CALEA prior to the applicable deadlines, we
could be subject to substantial fines that, under existing law, could be as much as $10,000 per
day. We cannot predict yet whether we will be able to comply with CALEA requirements prior to the
applicable deadlines. Other FCC-Mandated Payments.We also are required to contribute annually to the Telecommunications
Relay Service Fund and the North American Numbering Plan Administration Fund and to remit
regulatory fees to the FCC with respect to our licenses and operations. We do not expect that these
financial obligations will have a material impact on us. Access by the Disabled.The FCC has adopted rules that determine the obligations of
telecommunications carriers to make their services accessible to individuals with disabilities. The
rules require wireless and other providers to offer equipment and services that are accessible to
and useable by persons with disabilities. While the rules exempt telecommunications carriers from
meeting general disability access requirements if these results are not readily achievable, it is
not clear how the FCC will construe this exemption. Accordingly, the FCC occasionally adopts rules
that may require us to make material changes 31




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to our network, product line, or services at our expense. By September 16, 2006, we must begin to
offer hearing aid compatible handsets, and by February 28, 2008, 50% of all phone models offered
must meet the U3 performance level for acoustic coupling to accommodate hearing aid compatible
functions. We are required to file with the FCC periodic progress reports on our preparation for
implementing these offerings. Health and Safety.Various media reports and plaintiffs attorneys in lawsuits not involving us
have suggested that radio frequency emissions from wireless handsets may be linked to an assortment
of health concerns, including cancer, and may interfere with some electronic medical devices,
including hearing aids and pacemakers. The FCC and foreign regulatory agencies have updated and may
continue to update the guidelines and methods they use for evaluating radio frequency emissions
from radio equipment, including wireless handsets. In addition, interest groups have requested that
the FCC investigate claims that wireless technologies pose health concerns and cause interference
with airbags, hearing aids, and medical devices. The FDA has issued guidelines for the use of
wireless phones by pacemaker wearers. Safety concerns have also been raised with respect to the use
of wireless handsets while driving. Federal, state, and local legislation has been proposed and, in
some instances, enacted in response to these issues. Concerns over radio frequency emissions may
have the effect of discouraging the use of wireless handsets, and thus decrease demand for wireless
products and services. Regulatory Oversight.The rapid growth and penetration of wireless services has prompted the
interest of the FCC, state legislatures, and state public utility commissions to oversee certain
practices by the wireless industry, generally in the form of efforts to regulate service quality,
customer billing, termination of service arrangements, advertising, filing of informational
tariffs, certification of operation, and other matters such as deterrence of spam messaging to
wireless devices. While the Communications Act generally preempts state and local governments from
regulating the entry of, or the rates charged by, wireless carriers, a state has authority to
regulate other terms and conditions of service offerings by CMRS providers and may petition the
FCC to allow it to regulate the rates of CMRS providers. Several states have proposed or imposed
consumer protection regulations on CMRS providers. Moreover, in securing ETC status, we may become
subject to such rules (as we already are in Maine and Vermont), may be required to offer a specific
universal service rate plan, as we have in Maine, or may become subject to other state-imposed
requirements as a condition of their granting ETC status. In some states, we are or expect to be
required annually to demonstrate that funds we collect from the high-cost fund are used for the
required purpose of constructing, maintaining, or improving our facilities and services. These
additional regulatory obligations can be expected to increase our costs of doing business. The FCC has rules that require CMRS providers to report to the FCC network outages of at least 30
minutes duration that potentially affect at least 900,000 user minutes. We do not expect this
requirement to have a substantial impact on our costs of operation. On August 4, 2004 the FCC adopted a Notice of Proposed Rulemaking to consider how the Emergency
Alert System (EAS) can become a more effective mechanism for warning the American public of an
emergency. The proceeding inquires whether EAS should be extended beyond broadcast and cable TV to
other services such as commercial wireless. We may be obligated to purchase additional hardware
and/or software to comply with any EAS requirements the FCC ultimately adopts that are applicable
to wireless carriers. At the local level, wireless facilities typically are subject to zoning and land use regulation and
may be subject to fees for use of public rights of way. Although local and state governments cannot
categorically prohibit the construction of wireless facilities in any community, or take actions
that have the effect of prohibiting construction, securing state and local government approvals for
new tower sites may become a more difficult and lengthy process. The FCC has expanded the flexibility of cellular, PCS, and other CMRS providers to provide fixed as
well as mobile services. Such fixed services include, but need not be limited to, wireless local
loop services to apartment and office buildings and wireless backup services to private business
exchanges and local area networks to be used in the event of interruptions due to weather or other
emergencies. The FCC has 32




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determined that fixed services provided as ancillary services to a carriers mobile service will be
regulated as commercial mobile radio services. The FCC authorizes spectrum leasing for a variety of wireless services. Such rules may provide us
with opportunities to expand our services into new areas, or provide us with access to additional
spectrum, without need for us to purchase licenses, but the same rules also have the potential to
induce new competitors to enter our markets. In addition, proceedings relating to human exposure to
radio frequency emissions, the feasibility of making additional spectrum available for unlicensed
devices, and the provision of spectrum-based services in rural areas are pending before the FCC.
All of these initiatives could have an effect on the way we do business and the spectrum that is
available to us and our competitors. The FCC does not currently specify the rates CMRS carriers may charge for their services, nor does
it require the filing of tariffs for wireless operations. However, the FCC has the authority to
regulate the rates, terms, and conditions under which we provide service because CMRS carriers are
statutorily considered to be common carriers and thus are required to charge just and reasonable
rates and are not allowed to engage in unreasonable discrimination. The FCC has adopted rules and
has proposed further rules relating to the use of customer proprietary network information
(CPNI). Petitions for reconsideration of the CPNI rules are pending before the FCC. Additionally,
the FCC has adopted rules governing billing practices. While none of these existing requirements
has a material impact on our operations, there is no assurance that future regulatory changes will
not materially impact us. The FCC has ruled that the Communications Act does not preempt state
damages claims as a matter of law, but whether a specific damage award is prohibited would depend
upon the facts of a particular case. This ruling may affect the number of class action suits
brought against CMRS providers and the amount of damages awarded by courts. Employees and Sales Agents As of December 31, 2004, we had 1,074 employees, including 447 in sales and marketing, 307 in
customer service, 181 in network and systems operations, 88 in administration, and 51 in finance
and accounting. Approximately 51 of our employees were part-time. None of our employees is
represented by a labor organization, and we believe we have excellent relations with our employees.
In addition, we utilize approximately 423 independent sales agents. 
 ITEM 2. PROPERTIES Our corporate facilities include the following: Leased/
    
    SquareAddress
    
    Owned
    
    FeetMidwest:Principal Corporate HQ
    
    3905 Dakota Street SWAlexandria, Minnesota
    
    Owned
    
    50,000Northeast:Regional Office
    
    302 Mountain View DriveColchester, Vermont
    
    Leased
    
    10,413Regional HQ
    
    6 Telcom DriveBangor, Maine
    
    Owned
    
    36,250Regional Office
    
    323 North Street Saco, Maine
    
    Owned
    
    4,000Northwest:Regional HQ
    
    300 SE Reed Market RoadBend, Oregon
    
    Leased
    
    9,272South:Regional HQ
    
    621 Boll Weevil Circle, Suite 2Enterprise, Alabama
    
    Leased
    
    18,000
 33




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As of December 31, 2004, our network consisted of the following cell sites: Midwest
    
    
    148Wireless Alliance
    
    
    66Northeast
    
    
    240Northwest
    
    
    138South
    
    
    265Total
    
    
    857
 Our leased sites consist of land leases, tower leases or both. We own all the equipment within
the leased sites. The leases covering these sites have various expiration dates and are with
numerous lessors. These leases generally have renewal options that we would anticipate exercising.
Due to our network design, loss of a leased location would not have a material impact on the
operations of a regions business. We have 99 retail locations, of which almost all are leased. The leases covering these locations
have various expiration dates. We believe that the loss of any one of these retail sites would not
have a material impact on our business as we would likely be able to obtain substantially
equivalent alternative space. 
 ITEM 3. LEGAL PROCEEDINGS We are involved from time to time in routine legal matters and other claims incidental to our
business. We believe that the resolution of such routine matters and other incidental claims,
taking into account established reserves and insurance, will not have a material adverse impact on
our consolidated financial position or results of operations. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with regard to each of our executive officers: Name
    
    Age
    
    PositionRichard P. Ekstrand
    
    
    55
    
    
    President, Chief Executive Officer and DirectorWesley E. Schultz
    
    
    48
    
    
    Executive Vice President, Chief Financial
Officer and DirectorAnn K. Newhall
    
    
    53
    
    
    Executive Vice President, Chief Operating
Officer and DirectorDavid J. Del Zoppo
    
    
    49
    
    
    Vice President, Finance and Accounting
 Richard P. Ekstrandhas served as our President, Chief Executive Officer, and a director since
1990. He currently serves on the board of directors and executive committee of the Cellular
Telecommunications & Internet Association (CTIA) and the Wireless Foundation. Mr. Ekstrand
previously served as Chairman of the Board of Directors of both CTIA and the Wireless Foundation.
He also was a founding director of the Rural Cellular Association (RCA) and served as a director
until 2000. He was again elected to the RCA Board in September 2000. In addition, he is past
President of the Minnesota Telephone Association, the Association of Minnesota Telephone Utilities,
and the Minnesota Telecommunications Association. He also serves on the board of directors of the
Minnesota Zoo Foundation. Mr. Ekstrand is the sole shareholder, president, and a director of North
Holdings, Inc. (formerly Lowry Telephone Co., Inc.), which is a shareholder of Rural Cellular. From
1980 through 2000, Mr. Ekstrand had served as vice president and a director of Lowry Telephone Co.,
Inc. North Holdings, Inc. is a member of Lowry Telephone Company, LLC, of which Mr. Ekstrand is the
treasurer and a member of the board of governors. 34




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Wesley E. Schultzhas served as Executive Vice President and Chief Financial Officer since 2000 and
as a director since 1999. He joined us in 1996 as Vice President of Finance and Chief Financial
Officer. In 1999, he was appointed Senior Vice President and Chief Financial Officer and Assistant
Secretary. Mr. Schultz is a certified public accountant and served for three years as an auditor
with Deloitte & Touche LLP. Ann K. Newhallhas served as Executive Vice President, Chief Operating Officer, and Secretary since
2000 and as a director since 1999. She joined us as Senior Vice President and General Counsel in
1999. Prior to joining us, Ms. Newhall was a shareholder attorney with Moss & Barnett, A
Professional Association, most recently serving as President and a director of the firm. Ms.
Newhall received her J.D. from the University of Minnesota Law School in 1977. She serves on the
board of directors of Alliant Energy Corporation, a gas and electric utility. David J. Del Zoppohas served as Vice President, Finance and Accounting since 1999. He joined us in
1997 as Controller and was appointed Vice President in 1998. Mr. Del Zoppo is a certified public
accountant and served for four years as an auditor with KPMG, LLP. 35




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
REPURCHASE OF EQUITY SECURITIES Until December 17, 2002, our Class A common stock was quoted on the Nasdaq National Market, and
between December 18, 2002 and December 29, 2003, was quoted on the OTC Bulletin Board. On December
30, 2003, it was again listed on the Nasdaq National Market under the symbol RCCC. The following table indicates the high and low sales price of the Class A Common Stock
for each quarter of the 2004 and 2003 fiscal years as quoted on the OTC Bulletin Board or The
Nasdaq National Market. High
    
    
    Low2004First Quarter
    
    $
    14.38
    
    
    $
    8.00Second Quarter
    
    $
    10.20
    
    
    $
    6.80Third Quarter
    
    $
    9.71
    
    
    $
    6.66Fourth Quarter
    
    $
    7.18
    
    
    $
    4.702003First Quarter
    
    $
    1.58
    
    
    $
    0.71Second Quarter
    
    $
    4.40
    
    
    $
    0.85Third Quarter
    
    $
    10.05
    
    
    $
    4.00Fourth Quarter
    
    $
    10.50
    
    
    $
    6.85
 Our Class B common stock is not publicly traded. As of February 25, 2005, there were approximately 123 holders of record of our Class A common stock
and approximately 15 holders of record of our Class B common stock. Dividend Policy RCC has never paid dividends on its Common Stock. The terms of our credit agreement, outstanding
notes, and exchangeable preferred stock limit our ability to pay dividends on our Common Stock. 
 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth certain of our consolidated financial and operating data as of and
for each of the five years in the period ended December 31, 2004, which we derived from our
consolidated financial statements. The data set forth below should be read in conjunction with
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and
the consolidated financial statements and accompanying notes included elsewhere in this Form 10-K. 36




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Years
 ended December 31,(In thousands, except per share and other operating data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000 (1)Statement of Operations Data:Revenue:Service
    
    $
    377,219
    
    
    $
    355,038
    
    
    $
    319,933
    
    
    $
    310,520
    
    
    $
    238,556Roaming
    
    
    105,504
    
    
    
    131,896
    
    
    
    122,703
    
    
    
    116,541
    
    
    
    98,693Equipment
    
    
    22,094
    
    
    
    20,455
    
    
    
    20,442
    
    

    
    18,627
    
    
    
    18,848Total revenue
    
    
    504,817
    
    
    
    507,389
    
    
    
    463,078
    
    
    
    445,688
    
    
    
    356,097Operating expenses:Network costs
    
    
    104,071
    
    
    
    96,069
    
    
    
    97,200
    
    
    
    101,509
    
    
    
    85,988Cost of equipment sales
    
    
    40,372
    
    
    
    37,636
    
    
    
    29,184
    
    
    
    28,415
    
    
    
    34,711Selling, general and administrative
    
    
    135,170
    
    
    
    131,761
    
    
    
    119,185
    
    
    
    122,387
    
    
    
    95,034Depreciation and amortization
    
    
    76,355
    
    
    
    76,429
    
    
    
    82,497
    
    
    
    112,577
    
    
    
    91,078Impairment of assets
    
    
    47,136
    
    
    
    42,244
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    403,104
    
    
    
    384,139
    
    
    
    328,066
    
    
    
    364,888
    
    
    
    306,811Operating income
    
    
    101,713
    
    
    
    123,250
    
    
    
    135,012
    
    
    
    80,800
    
    
    
    49,286Other income (expense):Interest expense
    
    
    (163,977
    )
    
    
    (136,262
    )
    
    
    (114,478
    )
    
    
    (130,432
    )
    
    
    (90,764
    )Interest and dividend income
    
    
    1,727
    
    
    
    916
    
    
    
    562
    
    
    
    1,172
    
    
    
    2,249Other
    
    
    (76
    )
    
    
    891
    
    
    
    66
    
    
    
    (752
    )
    
    
    (24
    )Other expense, net
    
    
    (162,326
    )
    
    
    (134,455
    )
    
    
    (113,850
    )
    
    
    (130,012
    )
    
    
    (88,539
    )Income (loss) before income taxes and
cumulative change in accounting
principle
    
    
    (60,613
    )
    
    
    (11,205
    )
    
    
    21,162
    
    
    
    (49,212
    )
    
    
    (39,253
    )Income tax benefit
    
    
    (1,672
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before cumulative change
in accounting principle
    
    
    (58,941
    )
    
    
    (11,205
    )
    
    
    21,162
    
    
    
    (49,212
    )
    
    
    (39,253
    )Cumulative change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (417,064
    )
    
    
    1,621
    
    
    
    Net loss
    
    
    (58,941
    )
    
    
    (11,205
    )
    
    
    (395,902
    )
    
    
    (47,591
    )
    
    
    (39,253
    )Preferred stock dividend
    
    
    (12,915
    )
    
    
    (38,877
    )
    
    
    (60,556
    )
    
    
    (54,545
    )
    
    
    (44,081
    )Net loss applicable to common shares
    
    $
    (71,856
    )
    
    $
    (50,082
    )
    
    $
    (456,458
    )
    
    $
    (102,136
    )
    
    $
    (83,334
    )Weighted average common shares
outstanding
    
    
    12,239
    
    
    
    12,060
    
    
    
    11,920
    
    
    
    11,865
    
    
    
    11,510Net loss applicable to common shares
before cumulative change in accounting
principle
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (3.30
    )
    
    $
    (8.74
    )
    
    $
    (7.24
    )Cumulative change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (34.99
    )
    
    
    .13
    
    
    
    Net loss per basic and diluted share
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (38.29
    )
    
    $
    (8.61
    )
    
    $
    (7.24
    )
 37




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As of December 31,(In thousands, except other operating data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000 (1)Balance Sheet Data:Working capital (deficit)
    
    $
    45,308
    
    
    $
    86,135
    
    
    $
    (55,496
    )
    
    $
    (18,273
    )
    
    $
    (23,578
    )Net property and equipment
    
    
    276,133
    
    
    
    226,202
    
    
    
    240,536
    
    
    
    244,980
    
    
    
    234,490Total assets
    
    
    1,417,450
    
    
    
    1,521,058
    
    
    
    1,462,978
    
    
    
    1,836,779
    
    
    
    1,771,796Total long-term liabilities
    
    
    1,733,079
    
    
    
    1,764,867
    
    
    
    1,211,026
    
    
    
    1,286,301
    
    
    
    1,157,472Total shareholders (deficit) equity
    
    $
    (596,338
    )
    
    $
    (526,830
    )
    
    $
    (483,115
    )
    
    $
    (33,830
    )
    
    $
    79,955
 As of December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000 (1)Other Operating Data:Customers (not including long
distance and paging):Postpaid
    
    
    628,614
    
    
    
    656,110
    
    
    
    639,221
    
    
    
    599,514
    
    
    
    531,290Prepaid
    
    
    20,391
    
    
    
    22,302
    
    
    
    27,452
    
    
    
    33,255
    
    
    
    20,832Wholesale
    
    
    80,806
    
    
    
    67,104
    
    
    
    55,700
    
    
    
    29,139
    
    
    
    12,727Total customers
    
    
    729,811
    
    
    
    745,516
    
    
    
    722,373
    
    
    
    661,908
    
    
    
    564,849Marketed POPs (2)
    
    
    6,279,000
    
    
    
    5,962,000
    
    
    
    5,893,000
    
    
    
    5,893,000
    
    
    
    5,443,000Penetration (3)
    
    
    10.3
    %
    
    
    11.4
    %
    
    
    11.3
    %
    
    
    10.7
    %
    
    
    10.1
    %Retention (4)
    
    
    97.9
    %
    
    
    98.1
    %
    
    
    98.2
    %
    
    
    97.8
    %
    
    
    98.2
    %Average monthly revenue per customer (5)
    
    $
    60
    
    
    $
    59
    
    
    $
    57
    
    
    $
    59
    
    
    $
    61Acquisition cost per customer (6)
    
    $
    438
    
    
    $
    417
    
    
    $
    373
    
    
    $
    287
    
    
    $
    358Cell sites / Base stations:
    
    
    857
    
    
    
    754
    
    
    
    732
    
    
    
    684
    
    
    
    654
   (1)
    
    In April 2000, we acquired wireless operations and licenses covering portions
of Alabama, Kansas, Mississippi, Oregon, and Washington. These acquired operations are
reflected in our financial statements only after the date of acquisition. Our results
of operations for the years beginning after December 31, 2000 reflect these operations
for the full year. As a result, our results of operations for the year ended December
31, 2000 are not fully comparable to those of subsequent years.(2)
    
    For 2004, 2003, 2002, and 2001 updated to reflect 2000 U.S. Census Bureau
Official Statistics. For 2000, updated to reflect July 1, 1997, 1990 U.S. Census
Bureau Official Statistics.(3)
    
    Represents the ratio of wireless voice customers, excluding wholesale
customers, at the end of the period to population served.(4)
    
    Determined for each period by dividing total postpaid wireless voice
customers discontinuing service during such period by the average postpaid wireless
voice customers for such period (customers at the beginning of the period plus
customers at the end of the period, divided by two), dividing that result by the
number of months in the period, and subtracting such result from one.(5)
    
    Determined for each period by dividing service revenue (not including
pass-through regulatory fees) and roaming revenue by the monthly average postpaid
customers for such period.(6)
    
    Determined for each period by dividing selling and marketing expenses, net
costs of equipment sales, and depreciation of rental telephone equipment by the gross
postpaid wireless voice customers added during such period. 38




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS Business Overview We are a wireless communications service provider focusing primarily on rural markets in the United
States. Our principal operating objective is to increase revenue and achieve profitability through
increased penetration in existing wireless markets. Our operating regions include portions of five states in the Northeast, three states in the
Northwest, four states in the Midwest, and three states in the South. Within each of our four
regions, we have deployed a strong local sales and customer service presence in the communities we
serve. Our marketed networks covered a total population of approximately 6.3 million POPs and
served approximately 730,000 voice customers as of December 31, 2004. We believe our market characteristics and network quality make us an attractive roaming partner for
other wireless communications service providers. We have preferred roaming relationships with
Cingular Wireless, LLC, T-Mobile, and Verizon Wireless in our various regions. We began a 2.5G network overlay process in late 2003, which we expect to be substantially complete
in 2005. We are also pursuing a strategy of expanding our network coverage in all of our regions,
which will, upon completion, increase our cell sites and our total marketed POPs. We believe our
network overlay and expansion efforts will improve our ability to attract customers in addition to
providing our roaming partners greater access to our networks. Operating Revenue Our revenue primarily consists of service, roaming, and equipment revenue, each of which is
described below:  
    Service revenue includes monthly access charges, charges for airtime used in
excess of the time included in the service package purchased, long distance charges
derived from calls placed by customers as well as wireless and paging equipment lease
revenue. Also included are charges for features such as voicemail, call waiting, call
forwarding, and incollect revenue, which consists of charges to our customers when they
use their wireless phones in other wireless markets. We do not charge installation or
connection fees. We also include in service revenue the USF support funding that we
receive as a result of our ETC status in certain states in addition to USF pass-through
fees we charge our customers.
    Roaming revenue includes only outcollect revenue, which we receive when other
wireless providers customers use our network.
    Equipment revenue includes sales of wireless and paging equipment and
accessories to customers, network equipment reselling, and customer activation fees. 39




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Operating Expenses Our operating expenses include network costs, cost of equipment sales, selling, general and
administrative expenses, and depreciation and amortization, each of which is described below:  
    Network costsinclude switching and transport expenses and expenses associated
with the maintenance and operation of our wireless network facilities, including salaries
for employees involved in network operations, site costs, charges from other service
providers for resold minutes, and the expense associated with incollect revenue.
    Cost of equipment salesincludes costs associated with telephone equipment and
accessories sold to customers. In recent years, we and other wireless providers have
increased the use of discounts on phone equipment as competition between service providers
has intensified. As a result, we have incurred, and expect to continue to incur, losses on
equipment sales per gross additional customer. We expect to continue these discounts and
promotions because we believe they will increase the number of our wireless customers and,
consequently, increase service revenue.
    Selling, general and administrative(SG&A) expenses include salaries,
benefits, and operating expenses such as marketing, commissions, customer support,
accounting, administration, and billing. We also include in SG&A contributions payable to
the USF.
    Depreciation and amortizationrepresents the costs associated with the
depreciation of fixed assets and the amortization of customer lists. Under the rules of
SFAS No. 142, RCC treats licenses and goodwill as having indefinite useful lives and,
therefore, since January 1, 2002, they are not being amortized. Depreciation and
amortization also includes the depreciation of the capitalized cost of handsets leased to
customers. Other Expenses  
    Interest expense primarily results from borrowings under our credit agreement
and the issuance of outstanding notes and exchangeable preferred stock, the proceeds of
which were used to finance acquisitions, repay other borrowings, and further develop our
wireless network.Interest expense includes the following:  -
    Interest expense on our credit agreement, senior secured notes, senior
notes, and senior subordinated notes,-
    Amortization of debt issuance costs,-
    Early extinguishment of debt issuance cost,-
    Dividends on senior and junior exchangeable preferred stock subsequent to
adoption of SFAS No. 150 on July 1, 2003,-
    Related amortization of stock issuance costs subsequent to adoption of
SFAS No. 150 on July 1, 2003,-
    Gain (loss) on derivative instruments, and-
    Gains on repurchase of preferred stock.  All of our derivative financial instruments entered into after January 1, 2003 are marked
to market, with changes in fair value included in interest expense.
    Preferred stock dividends are accrued on our outstanding Class M convertible
preferred stock and Class T convertible preferred stock. Through June 30, 2003, preferred
stock dividends also included dividends on our senior and junior exchangeable preferred
securities. 40




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Critical Accounting Policies and Estimates The following discussion and analysis is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States
of America. The preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of revenue, expenses, assets, and
liabilities during the periods reported. Estimates are used when accounting for certain items such
as unbilled revenue, allowance for doubtful accounts, depreciation and amortization periods, income
taxes, valuation of intangible assets, and litigation contingencies. We base our estimates on
historical experience, where applicable, and other assumptions that we believe are reasonable under
the circumstances. We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial
statements. Goodwill and Other Indefinite-Lived Intangible Assets We review goodwill and other indefinite-lived intangible assets for impairment based on the
requirements of SFAS No. 142. Goodwill is tested for impairment at the reporting unit level on an
annual basis as of October 1st or on an interim basis if an event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying value. These events or
circumstances would include a significant change in the business climate, legal factors, operating
performance indicators, competition, sale or disposition of a significant portion of the business
or other factors. In analyzing goodwill for potential impairment, we use projections of future cash
flows from the reporting units. These projections are based on our view of growth rates,
anticipated future economic conditions, the appropriate discount rates relative to risk, and
estimates of residual values. We believe that our estimates are consistent with assumptions that
marketplace participants would use in their estimates of fair value. If changes in growth rates,
future economic conditions, discount rates, or estimates of residual values were to occur, goodwill
may become impaired. Additionally, impairment tests for indefinite-lived intangible assets, consisting of FCC licenses,
are required to be performed on an annual basis or on an interim basis if an event occurs or
circumstances change that would indicate the asset might be impaired. In accordance with Emerging
Issues Task Force (EITF) No. 02-7, Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets(EITF No. 02-7), impairment tests for FCC licenses are
performed on an aggregate basis by reporting unit. We utilize a fair value approach, incorporating
discounted cash flows, to complete the test. This approach determines the fair value of the FCC
licenses, using start-up model assumptions and, accordingly, incorporates cash flow assumptions
regarding the investment in a network, the development of distribution channels, and other inputs
for making the business operational. These inputs are included in determining free cash flows of
the reporting unit, using assumptions of weighted average costs of capital and the long-term rate
of growth for our reporting unit. We believe that our estimates are consistent with assumptions
that marketplace participants would use in their estimates of fair value. If any of the assumptions
were to change, our FCC licenses may become impaired. Following adoption of SFAS No. 142 on January 1, 2002, we completed a transitional impairment test
for both our goodwill and licenses and determined that there were impairments of $5.0 million and
$412.0 million, respectively. We used a fair value approach, using primarily discounted cash flows,
to complete the transitional impairment tests. In accordance with SFAS No. 142, the impairment
charges were recorded as a cumulative change in accounting principle in our consolidated financial
statements for the first quarter of 2002. No additional impairment was found on the October 1, 2002
assessment date. Under SFAS No. 142, we performed annual impairment tests in 2003 and 2004 for our indefinite lived
assets. Based on these tests, we recorded a noncash impairment charge of $47.1 million (included
in operating expenses) in the fourth quarter of 2004. There was no impairment charge in 2003
related to our annual assessment under SFAS No. 142. 41




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Revenue Recognition  Service We recognize service revenue based upon contracted service fees and minutes of use processed. As a
result of our billing cycle cut-off times, we are required to make estimates for service revenue
earned, but not yet billed, at the end of each month. These estimates are based primarily upon
historical minutes of use processed. We follow this method since reasonable, dependable estimates
of the revenue can be made. Actual billing cycle results and related revenue may vary from the
results estimated at the end of each quarter, depending on customer usage and rate plan mix. For
customers who prepay their monthly access fees, we match the recognition of service revenue to
their corresponding usage. Revenues are net of credits and adjustments for service. We adopted
EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables(EITF No.
00-21),effective July 1, 2003, on a prospective basis. The adoption did not have a material
impact on our financial position, results of operations or cash flows. We receive USF revenue reflecting our ETC status in certain states. We recognize support revenue
depending on the level of its collection experience in each ETC qualified state. Where we do not
have adequate experience to determine the time required for reimbursement, we recognize revenue
upon cash receipt. Where we do have adequate experience as to the amount and timing of the receipt
of these funds, we recognize revenue on an accrual basis. We include the pass-through fees we collect from customers as service revenue with a corresponding
charge to SG&A expense. These pass-through fees, which we have the option of passing to our
customers, include state and federal USF fees, together with city utility and state gross receipt
taxes. Revenue Recognition  Roaming Revenue and Incollect Cost Roaming revenue and incollect cost information is provided to us primarily through a third party
centralized clearinghouse. From the clearinghouse we receive monthly settlement data. We base our
accrual of roaming revenue and incollect expense on these clearinghouse reports. We follow this
method since reasonably dependable estimates of roaming revenue and incollect cost can be made
based on these reports. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses that will result from failure
of our customers to pay amounts owed. We base our estimates on the aging of our accounts receivable
balances and our historical write-off experience, net of recoveries. If the financial condition of
our customers were to deteriorate, we may be required to maintain higher allowances. Depreciation of Property and Equipment We depreciate our wireless communications equipment using the straight-line method over estimated
useful lives. We periodically review changes in our technology and industry conditions, asset
retirement activity, and salvage to determine adjustments to estimated remaining useful lives and
depreciation rates. Total depreciation expense for the years ended December 31, 2004, 2003, and
2002 was $57.4 million, $56.2 million, and $61.5 million, respectively. Effective January 1, 2003, we implemented the results of a review of the estimated service lives of
our remaining TDMA network assets. Useful lives were shortened to substantially depreciate all such
equipment by December 31, 2008. During the fourth quarter of 2004, we again reviewed the lives of
the TDMA assets and reduced the remaining useful life of this equipment to 30 months. As of
December 31, 2004, all TDMA equipment will be fully depreciated by June 30, 2007. The net book
value of this equipment as of December 31, 2004, was approximately $86.9 million. While we will continue to sell and market TDMA services for the foreseeable future, the amount of
future cash flows to be derived from the TDMA network assets is highly dependent upon the rate of
transition of 42




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##### Table of Contents



existing customers using TDMA equipment to 2.5G capable equipment, as well as other competitive and
technological factors. We determined that a reduction in the useful lives of these assets was
warranted based on the projected transition of network traffic. We will continue to review the
useful lives of the TDMA assets throughout the period of transition to 2.5G capable equipment to
determine whether further changes are warranted. Impairment of Long-Lived Assets We review long-lived assets, consisting primarily of property, plant and equipment and intangible
assets with finite lives, for impairment in accordance with SFAS No. 144. In analyzing potential
impairment, we use projections of future undiscounted cash flows from the assets. These projections
are based on our view of growth rates for the related business, anticipated future economic
conditions, the appropriate discount rates relative to risk, and estimates of residual values. We
believe that our estimates are consistent with assumptions that marketplace participants would use
in their estimates of fair value. If changes in growth rates, future economic conditions, discount
rates, or estimates of residual values were to occur, long-lived assets may become impaired. Income Taxes We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. As part
of the process of preparing the consolidated financial statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate. This process involves estimating
actual current tax exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in deferred tax assets
and liabilities. We must then assess the likelihood that deferred tax assets will be recovered from
future taxable income and, to the extent we believe that recovery is not likely, we must establish
a valuation allowance. To the extent we increase or decrease the valuation allowance in a period,
we must include an expense or benefit within the tax provision in the consolidated statement of
operations. Significant management judgment is required in determining the provision for income taxes, deferred
tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets.
As of December 31, 2004, our valuation allowance was $178.8 million due to uncertainties related to
our ability to utilize the deferred tax assets. The deferred tax assets consist principally of
certain net operating losses (NOLs) being carried forward, as well as impairment write-downs of
intangible assets not currently deductible for tax purposes. The valuation allowance is based on
our historical operations projected forward and our estimate of future taxable income and the
period over which deferred tax assets will be recoverable. It is possible that we could be
profitable in the future at levels that cause us to conclude that it is more likely than not that
we will realize a portion or all of the NOL carryforward. Upon reaching such a conclusion, we would
immediately record the estimated net realizable value of the deferred tax asset at that time and
would then provide for income taxes at a rate equal to our combined federal and state effective
rates, which would be approximately 38% under current tax law. Subsequent revisions to the
estimated net realizable value of the deferred tax asset could cause the provision for income taxes
to vary significantly from period to period, although our cash tax payments would likely remain
unaffected until the benefit of the NOLs is utilized or the NOLs expire unused. Litigation and Other Loss Contingencies In the ordinary course of business, we are subject to litigation and other contingencies.
Management must use its best judgment and estimates of probable outcomes when determining the
impact of these contingencies. We assess the impact of claims and litigation on a regular basis and
update the assumptions and estimates used to prepare the consolidated financial statements. 43




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Recently Issued Accounting Pronouncements Accounting for Share-Based Compensation On December 16, 2004, the Financial Accounting Standards Board (''FASB) issued SFAS No. 123(R),
Share-Based Paymentwhich is a revision of SFAS No. 123 and supersedes Accounting Principles
Board (APB) Opinion No. 25. SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be valued at fair value on the date of grant and to
be expensed over the applicable vesting period. Pro forma disclosure of the income statement
effects of share-based payments is no longer an alternative. SFAS No. 123(R) is effective for all
share-based awards granted on or after July 1, 2005. In addition, companies must also recognize
compensation expense related to any awards that are not fully vested as of the effective date.
Compensation expense for the unvested awards will be measured based on the fair value of the awards
previously calculated in developing the pro forma disclosures in accordance with the provisions of
SFAS No. 123. We are currently assessing the impact of adopting
SFAS No. 123(R) on our consolidated
results of operations. Accounting for Nonmonetary Exchanges In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  An Amendment of
APB Opinion No. 29 (SFAS No. 153). SFAS No. 153 amends APB Opinion No. 29, Accounting for
Nonmonetary Transactions.The amendments made by SFAS No. 153 are based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets, which requires that the accounting for the exchange be based on the recorded
amount of the asset relinquished, and replaced it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. The provisions in SFAS No. 153 are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application is permitted and companies must apply the standard prospectively. We are
currently assessing the impact of adopting SFAS No. 153 on our consolidated results of operations. 44




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Results of Operations Years ended December 31, 2004 and 2003 Revenue Operating Revenue: Years Ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2004
    
    
    2003
    
    
    
    (Decrease)
    
    
    (Decrease)Service
    
    $
    377,219
    
    
    $
    355,038
    
    
    
    $
    22,181
    
    
    
    6.2
    %Roaming
    
    
    105,504
    
    
    
    131,896
    
    
    
    
    (26,392
    )
    
    
    (20.0
    )Equipment
    
    
    22,094
    
    
    
    20,455
    
    
    
    
    1,639
    
    
    
    8.0Total revenue
    
    $
    504,817
    
    
    $
    507,389
    
    
    
    $
    (2,572
    )
    
    
    (0.5
    )%
 Service Revenue.Service revenue growth for the year ended December 31, 2004 reflects USF
support payments increasing to $28.2 million as compared to $8.8 million for the year ended
December 31, 2003. We are currently receiving USF support in the states of Alabama, Kansas, Maine,
Minnesota, Mississippi, Oregon, Vermont, and Washington. We have filed additional applications for
ETC designation in New Hampshire and South Dakota. We expect the amount of USF support in 2005 to
be approximately $30 million. Local service revenue per customer (LSR) increased to $46 for the
year ended December 31, 2004, as compared to $43 for the year ended December 31, 2003. Contributing
to the increase in LSR were increased levels of USF of approximately $2 and increased access and
features revenue of approximately $1. Reflecting FCC changes to the USF rate structure, our customer pass-through charges were $11.2
million during the year ended December 31, 2004 as compared to $8.9 million for the year ended
December 31, 2003. Service revenue was negatively impacted by a decrease in customers resulting from the AWE property
exchange completed on March 1, 2004 and customers lost due to the transition of our TDMA networks
to 2.5G technology. Customers.Our total customers decreased to 729,811 at December 31, 2004 as compared to 745,516 at
December 31, 2003, primarily due to the transfer of approximately 35,000 Oregon RSA 4 customers to
AWE on March 1, 2004. As part of the property exchange, we received from AWE operations in Alabama
and Mississippi, including approximately 14,000 customers. Customer reconciliation giving effect to the AWE property exchange:
(not including long distance and paging) Postpaid
    
    
    Prepaid
    
    
    Wholesale
    
    
    
    TotalCustomers at December 31, 2003
    
    
    656,110
    
    
    
    22,302
    
    
    
    67,104
    
    
    
    
    745,516Net customer adds (loss)
    
    
    (5,487
    )
    
    
    (2,710
    )
    
    
    13,746
    
    
    
    
    5,549AWE Property Exchange:South region customers acquired
    
    
    12,858
    
    
    
    979
    
    
    
    
    
    
    
    
    13,837Oregon RSA 4 customers transferred
    
    
    (34,867
    )
    
    
    (180
    )
    
    
    (44
    )
    
    
    
    (35,091
    )Net customer change
    
    
    (22,009
    )
    
    
    799
    
    
    
    (44
    )
    
    
    
    (21,254
    )Customers at December 31, 2004
    
    
    628,614
    
    
    
    20,391
    
    
    
    80,806
    
    
    
    
    729,811
 45




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During the year ended December 31, 2004, postpaid retention declined to 97.9% as compared to
98.1% in the year ended December 31, 2003. A primary contributor to the decline in retention was
the transition stage of our networks from TDMA to 2.5G technology throughout 2004. We believe TDMA
technology is not as attractive to customers as newer technologies. Accordingly, total customer
net additions decreased to 5,549 in 2004 as compared to 23,143 in 2003. Roaming Revenue.The 20.0% decrease in roaming revenue during the year ended December 31, 2004
primarily reflects the effect of the transfer of our Northwest Region Oregon 4 (Oregon 4) service
area to AWE on March 1, 2004. For the year ended December 31, 2004, the Oregon 4 service area
provided approximately $3.6 million of roaming revenue compared to approximately $14.9 million for
the year ended December 31, 2003. In addition, our outcollect yield for the year ended December 31,
2004 was $0.16 per minute as compared to $0.21 per minute in 2003. Also impacting roaming revenue during the year ended December 31, 2004 was the accelerated
transition by our national roaming partners to 2.5G technology handsets. Our most significant
roaming partners are performing overlays of their existing networks with 2.5G technology at an
accelerated pace. We believe that during 2004 these partners converted their customer base to this
new technology before we had completed our network overlays. Reflecting the transition of our
networks and our roaming partners 2.5G technology customer base, we believe we did not capture a
portion of available roaming revenue. At December 31, 2004, approximately 67% of our 857 cell sites
have been overlaid with 2.5G technology. With our 2.5G networks substantially completed in our
Northeast and Northwest regions as of January 2005, three of our four regions are now overlaid with
2.5G network technology. Our South region may continue to lose roaming minutes until its upgrade
is completed in late second quarter. For the years ended December 31, 2004 and 2003, Cingular (on a pro forma basis giving effect to its
merger with AWE), Verizon Wireless, and T-Mobile accounted for approximately 86% and 89%,
respectively, of our total outcollect roaming minutes. For the years ended December 31, 2004 and
2003, Cingular (on a pro forma basis giving effect to its merger with AWE) accounted for
approximately 9.9% and 14.5% of our total revenue. Our roaming agreements with Cingular, T-Mobile, and Verizon are effective through December 2009,
December 2007, and December 2007, respectively. Outcollect yields under these agreements will
continue to decline over the terms of the agreements. In certain markets, these decreases may be
offset by increases in outcollect minutes. Under these agreements, we are able to attain preferred
roaming status by overlaying our existing TDMA networks with GSM/GPRS/EDGE or CDMA/2000/1XRTT
technologies. Our Northeast, Northwest, and South networks are being overlaid with GSM/GPRS/EDGE
technology, while our Midwest region network is overlaid with CDMA/2000/1XRTT technology. We
expect to have these technology conversions substantially completed during 2005. We expect
outcollect roaming yield for all of 2005 to be approximately $0.13. 46




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Equipment Revenue.Equipment revenue increased 8.0% to $22.1 million during the year ended December
31, 2004 as compared to $20.5 million during the year ended December 31, 2003. Primarily
contributing to increased equipment revenue was our adoption of EITF No. 00-21, which was effective
for us, prospectively, on July 1, 2003 and resulted in our classifying activation fees as equipment
revenue rather than as service revenue. Revenue reflecting EITF No. 00-21 was $3.0 million for the
year ended December 31, 2004, as compared to $1.8 million for the year ended December 31, 2003.
Partially offsetting increased equipment revenue was a decline in equipment reselling during the
year ended December 31, 2004 to $735,000 as compared to $1.5 million during the year ended December
31, 2003. Operating Expenses Years Ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2004
    
    
    2003
    
    
    
    (Decrease)
    
    
    (Decrease)Network costIncollect cost
    
    $
    45,745
    
    
    $
    44,055
    
    
    
    $
    1,690
    
    
    
    3.8
    %Other network cost
    
    
    58,326
    
    
    
    52,014
    
    
    
    
    6,312
    
    
    
    12.1
    %104,071
    
    
    
    96,069
    
    
    
    
    8,002
    
    
    
    8.3
    %Cost of equipment sales
    
    
    40,372
    
    
    
    37,636
    
    
    
    
    2,736
    
    
    
    7.3
    %Selling, general and administrative
    
    
    135,170
    
    
    
    131,761
    
    
    
    
    3,409
    
    
    
    2.6
    %Depreciation and amortization
    
    
    76,355
    
    
    
    76,429
    
    
    
    
    (74
    )
    
    
    (0.1
    )%Loss on impairment of assets
    
    
    47,136
    
    
    
    42,244
    
    
    
    
    4,892
    
    
    
    11.6
    %Total operating expenses
    
    $
    403,104
    
    
    $
    384,139
    
    
    
    $
    18,965
    
    
    
    4.9
    %
 Network Cost.Network cost, as a percentage of total revenues, increased to 20.6% in the year
ended December 31, 2004 as compared to 18.9% in the year ended December 31, 2003. Our network cost
for the year ended December 31, 2004 increased 8.3% to $104.1 million, reflecting additional costs
of operating multiple networks (TDMA and 2.5G networks), increased incollect expense, additional
cell sites and additional costs resulting from the AWE property exchange. Per minute incollect cost
for 2004 was approximately $0.12 per minute as compared to $0.15 in 2003. Cost of Equipment Sales.Cost of equipment sales increased 7.3% to $40.4 million in the year ended
December 31, 2004, reflecting the increased cost of customer migration. As a percentage of
revenue, cost of equipment sales for 2004 increased to 8.0% as compared to 7.4% in 2003. Post and
prepaid gross customer additions in 2004 were approximately 169,000 as compared to 185,000 in 2003. Selling, General and Administrative.Contributing to the increase in SG&A was an increase in
regulatory pass-through fees to $11.5 million in the year ended December 31, 2004 as compared to
$9.3 million in the year ended December 31, 2003. Additionally, sales and marketing costs
increased by 3.7% as a result of the market launch of next-generation technology products and costs
relating to brand name change activities. As a percentage of revenue, SG&A increased to 26.8% in
the year ended December 31, 2004 as compared to 26.0% during the year ended December 31, 2003. Components of SG&A are as follows: Years Ended December 31,$ Increase
    
    
    % Increase(in thousands)
    
    2004
    
    
    2003
    
    
    
    (Decrease)
    
    
    (Decrease)General and administrative
    
    $
    59,853
    
    
    $
    60,860
    
    
    
    $
    (1,007
    )
    
    
    1.7
    %Sales and marketing
    
    
    54,077
    
    
    
    52,150
    
    
    
    
    1,927
    
    
    
    3.7
    %Bad debt,
net of recoveries
    
    
    9,762
    
    
    
    9,412
    
    
    
    
    350
    
    
    
    3.7
    %Regulatory pass-through fees
    
    
    11,478
    
    
    
    9,339
    
    
    
    
    2,139
    
    
    
    22.9
    %$
    135,170
    
    
    $
    131,761
    
    
    
    $
    3,409
    
    
    
    2.6
    %
 Depreciation and Amortization.Depreciation expense was unchanged at $76.4 million for both
2004 and 2003. A $7.2 million decline in phone service depreciation in 2004 as compared to 2003 was
offset by an increase in depreciation resulting from the 2.5G technology overlay and the
accelerated deprecation of 47




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TDMA equipment. As of December 31, 2004, our network had 857 cell sites. We expect depreciation
expense to increase in 2005 as our network overlays become activated and we continue other network
construction efforts. Loss on Impairment of Assets Under SFAS No. 142, we performed our annual impairment test for our indefinite lived assets. Based
on this analysis, we recorded a noncash impairment charge of $47.1 million (included in operating
expenses) in the fourth quarter of 2004. There was no impairment charge in 2003 related to our
annual assessment under SFAS No. 142. In October 2003, we entered into an agreement with AWE to exchange certain wireless properties. In
connection with this transaction, we recorded a non-cash impairment charge on assets held for sale,
in accordance with SFAS No. 144, of $42.2 million effective in the third quarter of 2003. This
transaction was completed on March 1, 2004. Other Income (Expense) Interest Expense.Interest expense for the year ended December 31, 2004, including the effect of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS No. 150), increased 20.3% to $164.0 million as compared to $136.3
million in the year ended December 31, 2003. This increase reflects a full years effect of the
adoption of SFAS No. 150, effective July 1, 2003. Pursuant to SFAS No. 150, our 11 3/8% senior
exchangeable and 12 1/4% junior exchangeable preferred securities were reclassified to Long-Term
Liabilities, and dividend expense related to these instruments is reported as interest expense in
our Consolidated Statements of Operations. Prior to July 1, 2003, dividends on our 11 3/8% senior
exchangeable and 12 1/4% junior exchangeable preferred securities were reported as a component of
Preferred Stock Dividend in our Consolidated Statements of Operations. SFAS No. 150 does not
permit reclassification of prior year amounts to conform to the current year presentation. Also contributing to the increase in interest expense were $12.6 million in the write-off of debt
issuance costs related to the repayment of our previous credit facility in March 2004 as compared
to $6.1 million in 2003 and an increase in the effective rate of interest on our debt (excluding
senior and junior exchangeable preferred stock) to 8.97% in 2004 as compared to 8.03% in 2003.
Partially offsetting these increases were gains on redemption of senior exchangeable preferred
stock. Year Ended December 31,(in thousands)
    
    2004
    
    
    2003Interest expense on credit agreement
    
    $
    5,135
    
    
    $
    44,574Interest expense on senior secured notes
    
    
    29,753
    
    
    
    Interest expense on senior notes
    
    
    32,094
    
    
    
    13,372Interest expense on senior subordinated notes
    
    
    41,281
    
    
    
    41,281Amortization of debt issuance costs
    
    
    4,674
    
    
    
    4,773Write-off of debt issuance costs
    
    
    12,605
    
    
    
    6,134Senior and junior preferred stock dividends
    
    
    55,373
    
    
    
    27,973Effect of derivative instruments
    
    
    5,208
    
    
    
    (3,502
    )Gain on redemption of senior exchangeable
preferred stock
    
    
    (22,572
    )
    
    
    Other
    
    
    426
    
    
    
    1,657$
    163,977
    
    
    $
    136,262
 Gain on redemption of preferred stock.During the year ended December 31, 2004, we repurchased
80,500 shares of our 11 3/8% senior exchangeable preferred stock for $68.4 million. The
corresponding $22.6 million gain on redemption of preferred shares was recorded as a reduction of
interest expense. 48




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##### Table of Contents



Preferred Stock Dividends Preferred stock dividends for the year ended December 31, 2004 decreased by 66.8% to $12.9 million
as compared to $38.9 million in the year ended December 31, 2003. The decline in preferred stock
dividends results from the adoption of SFAS No. 150, as described above, which requires that
dividends on certain preferred stock be treated as interest expense. Years ended December 31, 2003 and December 31, 2002 Operating Revenue: Year Ended December 31,(In thousands)
    
    2003
    
    
    2002
    
    
    
    $ Increase
    
    
    % IncreaseService
    
    $
    355,038
    
    
    $
    319,933
    
    
    
    $
    35,105
    
    
    
    11.0
    %Roaming
    
    
    131,896
    
    
    
    122,703
    
    
    
    
    9,193
    
    
    
    7.5
    %Equipment
    
    
    20,455
    
    
    
    20,442
    
    
    
    
    13
    
    
    
    0.1
    %Total revenue
    
    $
    507,389
    
    
    $
    463,078
    
    
    
    $
    44,311
    
    
    
    9.6
    %
 Service Revenue.Service revenue growth reflects the revenue resulting from additional
customers added through increased penetration in existing markets together with increases in LSR.
The increase in LSR to $43 in 2003 from $41 in 2002 is the result of several factors, including
increases in per customer access and features fees and in USF support. During 2003, postpaid retention was 98.1%. Our customer growth in 2003 of 23,143 as compared to
60,465 in 2002 primarily reflects an increased number of competitors in the markets we serve. Customers (including Wireless Alliance): As of December 31,Net Increase(not including long distance and paging)
    
    2003
    
    
    2002
    
    
    
    (Decrease)Postpaid
    
    
    656,110
    
    
    
    639,221
    
    
    
    
    16,889Prepaid
    
    
    22,302
    
    
    
    27,452
    
    
    
    
    (5,150
    )Wholesale
    
    
    67,104
    
    
    
    55,700
    
    
    
    
    11,404Total customers
    
    
    745,516
    
    
    
    722,373
    
    
    
    
    23,143
 We recognized $8.8 million in USF support from the states of Alabama, Maine, Mississippi, and
Washington during 2003. We did not recognize USF support in the year ended December 31, 2002.
Reflecting FCC changes to the USF rate structure, our customer pass-through charges were $8.9
million during 2003 as compared to $4.9 million during 2002. Roaming Revenue.The increase in roaming revenue primarily reflects increases in outcollect minutes
offsetting declines in outcollect yield. Roaming yield for 2003 was $0.21 per minute as compared to
$0.26 per minute in 2002. Affecting year-over-year comparability, however, was a $2.0 million
one-time retroactive roaming payment to Wireless Alliance during 2002. AWE, Cingular, T-Mobile, and Verizon Wireless, accounted for approximately 89% and 86% of our
outcollect minutes during 2003 and 2002, respectively. During 2003 and 2002, AWE accounted for
10.0% and 10.1% of our total revenue, respectively. Equipment Revenue.Within equipment revenue, equipment reselling decreased by $5.5 million in 2003
to $1.5 million. Offsetting decreases in equipment reselling was a $3.7 million increase in phone
and accessory sales, which reflects our customer promotion activities that did not utilize phone
rental programs. Also contributing to equipment revenue was the adoption of EITF No. 00-21,
effective July 1, 2003, which increased 2003 equipment revenue by $1.8 million. Operating Expenses: Year Ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2003
    
    
    2002
    
    
    
    (Decrease)
    
    
    (Decrease)Network costs
    
    $
    96,069
    
    
    $
    97,200
    
    
    
    $
    (1,131
    )
    
    
    (1.2
    )%Cost of equipment sales
    
    
    37,636
    
    
    
    29,184
    
    
    
    
    8,452
    
    
    
    29.0
    %Selling, general and administrative
    
    
    131,761
    
    
    
    119,185
    
    
    
    
    12,576
    
    
    
    10.5
    %Depreciation and amortization
    
    
    76,429
    
    
    
    82,497
    
    
    
    
    (6,068
    )
    
    
    (7.4
    )%Impairment charge
    
    
    42,244
    
    
    
    
    
    
    
    
    42,244
    
    
    
    Total operating expenses
    
    $
    384,139
    
    
    $
    328,066
    
    
    
    $
    56,073
    
    
    
    17.1
    %
 49




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##### Table of Contents



Network Costs.The decrease in network costs reflects a decline in incollect cost, a material
component of network costs. For 2003, the effect of decreases in per minute incollect cost
outpaced the effect of increases in incollect minutes. As a result, incollect cost declined 6.5% in
2003 to $44.1 million as compared to $47.1 million in 2002. Per minute incollect cost for 2003 was
$0.15 per minute as compared to $0.18 in 2002. Partially offsetting decreased incollect costs were
increased employee and network maintenance costs reflecting continued network construction efforts. Cost of Equipment Sales.As a percentage of revenue, cost of equipment sales for 2003 increased to
7.4% as compared to 6.3% in 2002. Contributing to the increase in cost of equipment sales was our
decision not to utilize our phone service leasing plans during 2003, under which the cost of
handsets is capitalized rather than expensed as cost of equipment sales. As a result, we sold more
phones in 2003 than in 2002. In 2002, we capitalized $13.3 million in phone service handsets. Selling, General and Administrative.Contributing to the increase in SG&A was an increase in
pass-through charges totaling $9.3 million in 2003 as compared to $4.9 million in 2002 and a $1.4
million increase in bad debt expense. For 2003, bad debt expense was $9.4 million as compared to
$8.0 million in 2002. Sales and marketing costs were $52.2 million in 2003 as compared to $50.7
million in 2002. As a percentage of revenue, SG&A increased to 26.0% in 2003 from 25.7% in 2002. Components of SG&A are as follows: Years EndedDecember 31,(in thousands)
    
    2003
    
    
    2002
    
    
    
    $ Increase
    
    
    % IncreaseGeneral and administrative
    
    $
    60,860
    
    
    $
    55,584
    
    
    
    $
    5,276
    
    
    
    9.5
    %Sales and marketing
    
    
    52,150
    
    
    
    50,653
    
    
    
    
    1,497
    
    
    
    3.0
    %Bad debt
    
    
    9,412
    
    
    
    8,027
    
    
    
    
    1,385
    
    
    
    17.3
    %USF pass-through
    
    
    9,339
    
    
    
    4,921
    
    
    
    
    4,418
    
    
    
    89.7
    %$
    131,761
    
    
    $
    119,185
    
    
    
    $
    12,576
    
    
    
    10.6
    %
 Depreciation and Amortization.The decrease in depreciation expense primarily reflects phone
service equipment depreciation expense for 2003 declining to $7.3 million as compared to $15.9
million in 2002, partially offset by depreciation relating to additional cell site construction and
$0.6 million additional depreciation expense related to the accelerated depreciation of TDMA
equipment. As of December 31, 2003, our network had 754 cell sites. Loss on Assets Held for Sale.In October 2003, we entered into an agreement with AWE to exchange
certain wireless properties. In connection with this transaction, we recorded a non-cash impairment
charge on assets held for sale, in accordance with SFAS No. 144, of $42.2 million effective in the
third quarter of 2003. This transaction was completed on March 1, 2004. 50




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Other Income (Expense) Interest Expense.Interest expense for 2003, including the effect of SFAS No. 133 and SFAS No. 150,
increased 19.0% to $136.3 million as compared to $114.5 million in 2002. The increase in interest
expense primarily reflects our adoption of SFAS No. 150, effective July 1, 2003. As a result, our
11 3/8% Senior Exchangeable and 12 1/4% Junior Exchangeable Preferred securities were reclassified
into Long-Term Liabilities, and the dividend expense related to these instruments, which was
previously reported as a component of Preferred Stock Dividend in our Consolidated Statements of
Operations, is now classified as interest expense. SFAS No. 150 does not permit reclassification of
prior year amounts to conform to the current year presentation. Also contributing to the increase
in interest expense is $6.1 million in charges related to the early extinguishment of debt under
our credit agreement in 2003 as compared to a $3.3 million charge in 2002. Components of interest expense are as follows: Years Ended(in thousands)
    
    December 31,2003
    
    
    2002Interest expense on Credit Agreement
    
    $
    44,574
    
    
    $
    52,311Interest expense on Senior Subordinated Notes
    
    
    41,281
    
    
    
    39,981Interest expense on Senior Notes (issued August 1, 2003)
    
    
    13,372
    
    
    
    Amortization of debt issuance costs
    
    
    4,773
    
    
    
    4,359Early extinguishment of debt issuance costs
    
    
    6,134
    
    
    
    3,319Senior and junior preferred stock dividends
    
    
    27,973
    
    
    
    Effect of derivative instruments
    
    
    (3,502
    )
    
    
    13,519Other (1)
    
    
    1,657
    
    
    
    989$
    136,262
    
    
    $
    114,478
   (1)
    Upon adoption of SFAS No. 150 on July 1, 2003, amortization of senior and junior
preferred stock issuance costs are presented as interest expense and are included
within other herein. The following table sets forth adjustments relating to SFAS No. 133: Year Ended December 31, 2003
    
    
    
    Year Ended December 31, 2002Prior to
    
    
    
    
    
    
    
    
    
    
    
    Prior toSFAS No.
    
    
    SFAS No.
    
    
    
    
    
    
    
    SFAS No.
    
    
    SFAS No.133
    
    
    133
    
    
    
    
    
    
    
    133
    
    
    133(In thousands)
    
    Adjustment
    
    
    Adjustment
    
    
    As Reported
    
    
    
    Adjustment
    
    
    Adjustment
    
    
    As ReportedStatement of Operations Data:Interest expense
    
    $
    138,487
    
    
    $
    (2,225
    )
    
    $
    136,262
    
    
    
    $
    99,374
    
    
    $
    15,104
    
    
    $
    114,478
 As of December 31, 2003, the effective rate of interest on our credit agreement, excluding the
impact of hedge agreements, was 4.39% as compared to 4.53% at December 31, 2002. The amount
outstanding under the credit agreement decreased to $525.7 million at December 31, 2003 as compared
to $793.9 million at December 31, 2002. Partially offsetting the decline in the effective rate of
interest under the credit agreement was the issuance of $325 million of 9 7/8% senior notes, the
proceeds of which were used primarily to repay amounts outstanding under the credit agreement.
Long-term debt as of December 31, 2003 was $1.765 billion as compared to $1.211 billion as of
December 31, 2002, reflecting primarily the reclassification of exchangeable preferred stock into
long-term debt. Preferred Stock Dividends Preferred stock dividends for 2003 decreased by 35.8% to $38.9 million as compared to $60.6 million
in 2002. The decline in Preferred Stock Dividends relates primarily to the adoption of SFAS No.
150, which does not permit reclassification of prior year amounts to conform to the current year
presentation. 51




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##### Table of Contents



Cumulative Change in Accounting Principle Effective January 1, 2002, we adopted SFAS No. 142, which requires cessation of goodwill and
license amortization and requires a fair value approach to testing the impairment of goodwill and
other indefinite-lived intangible assets. We completed a transitional impairment test in 2002 for
both our goodwill and our licenses and determined that there were impairments of $5.0 million and
$412.0 million, respectively. RCC used a fair value approach, using primarily discounted cash
flows, to complete the transitional impairment tests. On a prospective basis, we are required to test both goodwill and other indefinite-lived intangible
assets, including licenses, for impairment on an annual basis based upon a fair value approach. We
performed our annual impairment test for both goodwill and licenses
as of October 1, 2002 and 2003 using methodologies consistent with those applied under our transitional impairment tests performed as of
January 1, 2002 and determined there was no additional impairment to be recognized. Other
indefinite-lived intangible assets will be tested between annual tests if events or changes in
circumstances indicate that the asset might be impaired. Liquidity and Capital Resources We need cash primarily for working capital, capital expenditures, debt service, customer growth,
and purchases of additional spectrum. In past years, we have met these requirements through cash
flow from operations, borrowings under our credit agreement, sales of common and preferred stock,
and issuance of debt securities. We began a 2.5G technology network overlay process in late 2003, which we expect to be
substantially complete in 2005. We are also pursuing a strategy of expanding our network coverage
in all of our regions, which will result in an increase in the number of our cell sites and an
increase in total marketed POPs. We believe our network overlay and expansion efforts will improve
our ability to attract customers in addition to providing our roaming partners greater access to
our networks. Capital expenditures for the year ended December 31, 2004 were approximately $94.4 million compared
to approximately $53.7 million for the year ended December 31, 2003, reflecting the continued
expansion of our existing wireless coverage and the implementation of 2.5G network overlays in all
of our markets. We have made commitments to our roaming partners and to equipment vendors to substantially complete
our 2.5G networks by the end of 2005. At December 31, 2004, approximately 67% of our 857 cell sites
had been overlaid with next-generation technology. Including the cost of these anticipated
overlays, our total capital expenditures for 2005 are expected to be approximately $100 million. We
expect to fund these capital expenditures primarily from cash on hand, operating cash flow, and
borrowings under our revolving credit agreement, under which we have $60 million available. We do not have any off-balance sheet financing arrangements or liabilities. We do not have any
majority-owned subsidiaries or any interests in, or relationships with, any material
special-purpose entities that are not included in the consolidated financial statements. Until August 2003, we paid the dividends on our senior exchangeable preferred stock by issuing
additional shares of exchangeable preferred stock. Under the terms of the certificate of
designation for our senior exchangeable preferred stock, beginning in August 2003 we were required
to make quarterly dividends on such shares in cash. We have not declared or paid the cash dividends on the senior exchangeable preferred stock since
August 2003. Accrued dividends in arrears, through December 31, 2004, were approximately $34.8
million. Because we have not paid six quarterly dividends on our senior exchangeable preferred stock, the
holders have the right to elect the lesser of two directors or that number of directors
constituting 25% of the members of the Board of Directors, if they so choose, by following the
procedures set forth in the certificate of designation. This right of the holders of the senior
exchangeable preferred stock to elect members of the Board of Directors will continue until such
time as all past due dividends are paid in full in cash. We do not anticipate paying cash
dividends on our senior exchangeable preferred stock in the foreseeable future. Beginning in May 2005 our junior exchangeable preferred stock dividends are to be paid in cash.
Until such date, we will continue to pay the dividends by issuing additional shares of junior
exchangeable preferred stock. If we elect not to pay the required cash dividends for our junior
exchangeable preferred stock for six quarters, the rights and limitations of the holders of junior
exchangeable preferred stock are the same as our senior exchangeable preferred stock holders. Credit Agreement In March 2004, we entered into a revolving credit agreement that is undrawn and
provides up to $60 million in borrowing capacity at a rate of
LIBOR plus 2.75%. The credit agreement is subject to various covenants, including the ratio of senior
indebtedness to annualized operating cash flow (as defined in the credit agreement), the ratio of
total indebtedness to annualized operating cash flow, and the ratio of annualized operating cash
flow to interest expense. Although the credit agreement financial covenants are not applicable
unless we draw against the credit facility, we were in compliance with all financial covenants at
December 31, 2004. Senior Secured Notes In March 2004, we issued $350 million aggregate principal amount of 8 1/4%
senior secured notes due 2012 and $160 million aggregate principal amount of senior secured
floating rate notes due 2010. The net proceeds from these notes, were used to repay outstanding
obligations under our former credit agreement, terminate interest rate exchange agreements
associated with the former credit agreement, and pay fees and expenses associated with the notes
offering and the revolving credit agreement. In connection with the retirement of the former credit
facility, we terminated two interest rate exchanges, which had a total notional amount of $284.0
million, for aggregate cash consideration of $9.2 million, including accrued and unpaid interest
through the date of termination. 52




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##### Table of Contents



Contractual Obligations Summary The following table summarizes our contractual commitments including dividends, interest, and
principal amounts that are payable in cash, as of December 31, 2004 through the mandatory
redemption dates (in thousands) for the securities listed below. Senior and9 5/8% Senior
    
    
    9 3/4% Senior
    
    
    
    
    
    
    
    
    
    
    Junior
    
    
    Class M andSubordinated
    
    
    Subordinated
    
    
    9 7/8% Senior
    
    Senior
    Exchangeable
    
    
    Class TOperating
    
    
    Purchase
    
    
    Notes
    
    
    Notes
    
    
    Notes
    
    
    Secured
    
    
    Preferred
    
    
    PreferredLeases
    
    
    Commitments (1)
    
    
    (due 5/15/2008)
    
    
    (due 1/15/2010)
    
    
    (due 2/1/2010)
    
    
    Notes (2)
    
    
    Securities (3)
    
    
    Securities (4)
    
    
    Total2005
    
    $
    12,853
    
    
    $
    14,951
    
    
    $
    12,031
    
    
    $
    29,250
    
    
    $
    32,094
    
    
    $
    40,075
    
    
    $
    77,470
    
    
    $
    
    
    
    $
    218,7242006
    
    
    10,168
    
    
    
    7,475
    
    
    
    12,031
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    40,075
    
    
    
    51,121
    
    
    
    
    
    
    
    182,2142007
    
    
    8,155
    
    
    
    
    
    
    
    12,031
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    40,075
    
    
    
    51,121
    
    
    
    
    
    
    
    172,7262008
    
    
    6,177
    
    
    
    
    
    
    
    131,015
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    40,075
    
    
    
    51,121
    
    
    
    
    
    
    
    289,7322009
    
    
    3,496
    
    
    
    
    
    
    
    
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    40,075
    
    
    
    51,121
    
    
    
    
    
    
    
    156,0362010
    
    
    911
    
    
    
    
    
    
    
    
    
    
    
    301,219
    
    
    
    327,674
    
    
    
    191,177
    
    
    
    184,082
    
    
    
    
    
    
    
    1,005,063Thereafter
    
    
    2,707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,810
    
    
    
    287,119
    
    
    
    297,891
    
    
    
    972,527Total
    
    $
    44,467
    
    
    $
    22,426
    
    
    $
    167,108
    
    
    $
    447,469
    
    
    $
    488,144
    
    
    $
    776,362
    
    
    $
    753,155
    
    
    $
    297,891
    
    
    $
    2,997,022
   (1)
    
    In 2003, we entered into a five-year $56.6 million purchase commitment with a vendor to
install 2.5G network equipment. Through December 31, 2004, we have incurred $34.2 million
in equipment purchases related to this agreement.(2)
    
    The senior secured notes consist of two notes,
one fixed rate (8 1/4%) and one floating.
The floating rate notes mature March 15, 2010 and the 8 1/4% notes mature March 15, 2012.
Floating interest rate obligations are reflected at the December 31, 2004 rate level of 7.0%.
Increases or decreases in LIBOR will impact interest expense in future years.(3)
    
    This table assumes cash dividends are paid each year. If dividends are not paid in
cash, they accrue and compound until paid. If senior exchangeable preferred cash dividends
are not declared and paid at any time prior to the mandatory redemption date of May 15,
2010, and the junior exchangeable preferred cash dividends are not declared and paid at
any time prior to the mandatory redemption date of February 15, 2011, the total
liquidation preference plus accumulated and unpaid dividends will be $909.0 million.(4)
    
    Dividends on the Class M convertible preferred stock are compounded quarterly, accrue
at 8% per annum, and are payable upon redemption. The scheduled redemption date for Class
M preferred stock is April 3, 2012. Dividends on Class T preferred stock accrue at 4% per
annum and are payable at the mandatory redemption date of April 1, 2020. Dividends are
not payable for either class if the preferred stock is converted into equity. 53




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##### Table of Contents



Cash Flows for the Year Ended December 31, 2004, Compared with the Year Ended December 31,
2003 2004
    
    
    
    2003
    
    
    ChangeNet cash provided by operating activities
    
    $
    130,277
    
    
    
    $
    144,521
    
    
    $
    (14,244
    )Net cash used in investing activities
    
    
    (81,459
    )
    
    
    
    (60,454
    )
    
    
    (21,005
    )Net cash provided by (used in) financing activities
    
    
    (106,026
    )
    
    
    
    4,692
    
    
    
    (110,718
    )Net increase (decrease) in cash and cash equivalents
    
    
    (57,208
    )
    
    
    
    88,759
    
    
    
    (145,967
    )Cash and cash equivalents at beginning of period
    
    
    142,547
    
    
    
    
    53,788
    
    
    
    88,759Cash and cash equivalents at end of period
    
    $
    85,339
    
    
    
    $
    142,547
    
    
    $
    (57,208
    )
 Net cash provided by operating activities was $130.3 million for the year ended December 31,
2004. Adjustments to the $58.9 million net loss to reconcile to net cash provided by operating
activities include $76.4 million in depreciation and amortization, $12.6 million loss on write-off
of debt and preferred stock issuance costs, a $26.7 million increase in accrued preferred stock
dividends, $47.1 million noncash impairment charge, and $28.6 million in noncash preferred stock
dividends, which was partially offset by a $22.6 million gain on repurchase of preferred
securities. Net cash used in investing activities for 2004 was $81.5 million, consisting of $94.4 million for
purchases of property and equipment, which was partially offset by $13.6 million in net proceeds
from the AWE property exchange. The majority of property and equipment purchases reflect capital
expenditures related to our 2.5G network overlay. We have made commitments to our roaming partners and to equipment vendors to substantially complete
our 2.5G networks in 2005. We expect capital expenditures for 2005 to be in the $100 million range.
Additionally, in February 2004, we signed a multi-year agreement with Amdocs Software Systems
Limited to be our billing system provider for most 2.5G customers starting in the first quarter of
2005. Other legacy customers will be converted throughout 2005. Net cash used in financing activities for the year ended December 31, 2004 was $106.0 million,
reflecting the completed offering of $350 million aggregate principal amount of our 8 1/4% senior
secured notes due 2012 and $160 million aggregate principal amount of our senior secured floating
rate notes due 2010. Offsetting the proceeds from the offering are $525.7 million in repayments of
outstanding indebtedness under our former credit agreement, $14.3 million in payment of debt
issuance costs, and $68.4 million in repurchases of preferred stock. Under the indenture governing our senior secured notes, we are able to make limited restricted
payments, including the repurchase of senior subordinated notes or preferred stock and the payment
of dividends to holders of our equity securities. As of December 31, 2004, we had approximately $90
million of restricted payments capacity. During the year ended December 31, 2004, we repurchased
80,500 shares of 11 3/8% senior exchangeable preferred stock for $68.4 million. These shares had
accrued $10.4 million in unpaid dividends. Other Matters Inflation The impact of inflation on our operations has not been significant. 54




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##### Table of Contents



Seasonality We experience seasonal fluctuations in revenue and operating income. Our average monthly roaming
revenue per cellular customer increases during the second and third calendar quarters. This
increase reflects greater usage by our roaming customers who travel in our cellular service area
for weekend and vacation recreation or work in seasonal industries. Because our cellular service
area includes many seasonal recreational areas, we expect that roaming revenue will continue to
fluctuate seasonally more than service revenue. Certain quarterly results for 2004 and 2003 are set forth below (in thousands, except per
share data): 2004 Quarter Ended
    
    
    
    2003 Quarter EndedMar
    
    
    Jun
    
    
    Sep
    
    
    Dec
    
    
    
    Mar
    
    
    Jun
    
    
    Sep
    
    
    DecRevenue:Service
    
    $
    88,585
    
    
    $
    94,979
    
    
    $
    97,093
    
    
    $
    96,562
    
    
    
    $
    80,923
    
    
    $
    90,904
    
    
    $
    92,530
    
    
    $
    90,681Roaming
    
    
    25,740
    
    
    
    26,266
    
    
    
    29,739
    
    
    
    23,759
    
    
    
    
    29,062
    
    
    
    31,789
    
    
    
    37,598
    
    
    
    33,447Equipment
    
    
    5,523
    
    
    
    5,338
    
    
    
    5,589
    
    
    
    5,644
    
    
    
    
    3,876
    
    
    
    4,427
    
    
    
    6,462
    
    
    
    5,690Total Revenue
    
    $
    119,848
    
    
    $
    126,583
    
    
    $
    132,421
    
    
    $
    125,965
    
    
    
    $
    113,861
    
    
    $
    127,120
    
    
    $
    136,590
    
    
    $
    129,818Operating income (loss)
    
    $
    38,831
    
    
    $
    38,291
    
    
    $
    40,156
    
    
    $
    (15,565
    )
    
    
    $
    31,101
    
    
    $
    41,232
    
    
    $
    7,005
    
    
    $
    43,912Net income (loss)
    
    $
    (15,348
    )
    
    $
    6,597
    
    
    $
    5,437
    
    
    $
    (55,627
    )
    
    
    $
    5,708
    
    
    $
    16,991
    
    
    $
    (38,121
    )
    
    $
    4,217Net income (loss)
applicable to common
shares
    
    $
    (18,482
    )
    
    $
    3,403
    
    
    $
    2,184
    
    
    $
    (58,961
    )
    
    
    $
    (10,465
    )
    
    $
    382
    
    
    $
    (41,140
    )
    
    $
    1,141Net income (loss) per
basic share
    
    $
    (1.51
    )
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    (4.81
    )
    
    
    $
    (0.87
    )
    
    $
    0.03
    
    
    $
    (3.41
    )
    
    $
    0.09Net income (loss) per
diluted
share
    
    $
    (1.51
    )
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    (4.81
    )
    
    
    $
    (0.87
    )
    
    $
    0.03
    
    
    $
    (3.41
    )
    
    $
    0.09
 55




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We have used senior secured notes, senior notes, senior subordinated notes, preferred securities,
and bank credit facilities to finance, in part, capital requirements and operations. These
financial instruments, to the extent they provide for variable rates of interest, expose us to
interest rate risk. One percentage point of an interest rate adjustment would have changed our cash
interest payments on an annual basis by approximately $1.6 million in 2004. RCCs financial instruments notional and estimated fair market values and carrying amounts are set
forth in the table below. Fair market values are based on quoted market prices, if available. Carrying Value
    
    
    Estimated Fair Market ValueDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(Dollars in thousands)
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Financial liabilitiesCredit Agreement
    
    
    $
    
    
    
    $
    525,723
    
    
    $
    
    
    
    $
    524,2018  1/4% senior secured notes
    
    
    
    350,000
    
    
    
    
    
    
    
    370,125
    
    
    
    Senior secured floating rate notes
    
    
    
    160,000
    
    
    
    
    
    
    
    165,600
    
    
    
    9 7/8 % senior notes
    
    
    
    325,000
    
    
    
    325,000
    
    
    
    330,688
    
    
    
    344,2979 5/8 % senior subordinated notes
    
    
    
    125,000
    
    
    
    125,000
    
    
    
    118,750
    
    
    
    121,1729 3/4 % senior subordinated notes
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    271,500
    
    
    
    288,93811 3/8% senior exchangeable preferred stock
    
    
    
    174,176
    
    
    
    254,676
    
    
    
    140,212
    
    
    
    210,15912  1/4% junior exchangeable preferred stock
    
    
    
    247,984
    
    
    
    219,911
    
    
    
    131,432
    
    
    
    150,639Class M convertible preferred stock (1)
    
    
    
    160,198
    
    
    
    147,981
    
    
    
    160,198
    
    
    
    147,981Class T convertible preferred stock (1)
    
    
    
    8,973
    
    
    
    8,671
    
    
    
    8,973
    
    
    
    8,6711,851,331
    
    
    
    1,906,962
    
    
    
    1,697,478
    
    
    
    1,796,058Derivative financial instrumentsInterest rate swap agreements (2):TD Securities (terminated March 15, 2004)
    
    
    
    
    
    
    
    5,666
    
    
    
    
    
    
    
    5,666Fleet Bank (terminated March 15, 2004)
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    443
    
    
    
    6,109
    
    
    
    
    
    
    
    6,109Accrued 11 3/8% senior exchangeable preferred
stock dividends
    
    
    
    34,844
    
    
    
    18,521
    
    
    
    34,844
    
    
    
    18,521Other long-term liabilities
    
    
    
    2,097
    
    
    
    1,470
    
    
    
    2,097
    
    
    
    1,470Total financial liabilities
    
    
    $
    1,888,272
    
    
    $
    1,933,062
    
    
    $
    1,734,419
    
    
    $
    1,822,158
   (1)
    
    These financial instruments are not actively traded and, therefore, the estimated fair
market value is stated at the carrying value.(2)
    
    Recorded on our balance sheet at fair market value, with related changes in fair
market value included in the statement of operations, and not accounted for as a hedge
under SFAS No. 133. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Consolidated Financial Statements and Notes included in this report. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 56




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##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures RCC maintains a set of disclosure controls and procedures designed to ensure that information
required to be disclosed 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. As of December 31, 2004, based on an evaluation carried out under the supervision and
with the participation of RCCs management, including the chief executive officer (CEO) and the
chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures, the
CEO and CFO have concluded that RCCs disclosure controls and procedures are effective. Managements Report on Internal Control Over Financial Reporting The management of RCC is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). RCCs internal
control system was designed to provide reasonable assurance to the companys management and board
of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. RCCs management assessed the effectiveness of the companys internal control over financial
reporting as of December 31, 2004. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control 
Integrated Framework.Based on our assessment, we believe that, as of December 31, 2004, the
companys internal controls over financial reporting were effective. Managements assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included herein. 
 ITEM 9B. OTHER INFORMATION None 57




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##### Table of Contents



PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of Rural Cellular is set forth in the Proxy Statement under the
heading Item No. 1  Election of Directors and is incorporated herein by reference. Information
regarding our executive officers is contained in Part I of this Form 10-K. Information required by
Item 401(h) and (i) and Item 405 of Regulation S-K is included in the Proxy Statement under the
headings Item No. 1  Election of Directors and Item No. 2  Ratification of Appointment of
Independent Auditors. We have adopted a financial code of ethics that applies to our directors, Chief Executive Officer,
Chief Financial Officer, Corporate Controller and other employees involved in preparation of our
financial statements. This financial code of ethics, which is one of several policies within our
Code of Business Conduct, is posted on our website. Also included on our website are all of our
SEC filings, including our Form 10-K. The internet address for our
website is www.unicel.com.
We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment
to, or waiver from, a provision of this code of ethics by posting such information on our website,
at the address and location specified above. 
 ITEM 11. EXECUTIVE COMPENSATION Information required by this item is set forth in the Proxy Statement under the headings Item No.
1  Election of Directors and Executive Compensation and is incorporated herein by reference. 
  ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS EQUITY COMPENSATION PLAN INFORMATION The following table summarizes share and exercise price information about our equity compensation
plans as of December 31, 2004. Number of securitiesremaining available for futureNumber of Securities to
    
    
    Weighted-average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    compensation plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected in the firstPlan Category
    
    warrants, and rights
    
    
    warrants, and rights
    
    
    column)Equity compensation
plans approved by
security holders (1)
    
    
    2,044,037
    
    
    $
    14.61
    
    
    
    498,406Equity compensation
plans not approved by
security holders (2)
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    2,044,037
    
    
    $
    14.61
    
    
    
    498,406
   (1)
    
    Includes stock subject to outstanding options and stock available for
issuance under our 1995 Stock Compensation Plan, Stock Option Plan for Nonemployee
Directors, and Employee Stock Purchase Plan.(2)
    
    We have not adopted any equity compensation plans that have not been approved
by our shareholders. The remaining information required by this Item 12 is set forth in the Proxy Statement under
the heading Ownership of Voting Securities and is incorporated herein by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is set forth in the Proxy Statement under the heading Certain
Transactions and is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by this item is set forth in the Proxy Statement under the heading Item No. 2
 Ratification of Appointment of Independent Auditors. 58




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page NumberIn this(a)
    
    
    (1
    )
    
    Financial Statements
    
    Form 10-KRural Cellular CorporationREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-1Consolidated Balance Sheets as of December 31, 2004
and 2003
    
    F-4Consolidated Statements of Operations for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-6Consolidated Statements of Shareholders Deficit for the Years
Ended December 31, 2004, 2003 and 2002
    
    F-7Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-8Notes to Consolidated Financial Statements
    
    F-9RCC Minnesota, Inc.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-41Balance Sheets as of December 31, 2004
and 2003
    
    F-42Statements of Operations for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-43Statements of Shareholders Equity (Deficit) for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-44Statements of Cash Flows for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-45Notes to Financial Statements
    
    F-46(2
    )
    
    Financial Statement SchedulesThe following financial statement schedule is filed as part of
this Form 10-K:Schedule II  Valuation and Qualifying Accounts
    
    F-39All schedules not included are omitted either because they are
not applicable or because the information required therein is
included in Notes to Consolidated Financial Statements(3
    )
    
    ExhibitsSee Exhibit Index(b)
    
    ExhibitsSee Exhibit Index(c)
    
    Financial Statement SchedulesSee Item 15 (a) (2), above
 59




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##### Table of Contents



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. Rural Cellular CorporationDated: March 14, 2005
    By:
    /s/ Richard P. EkstrandRichard P. EkstrandPresident and Chief Executive Officer 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/ Richard P. Ekstrand

Richard P. Ekstrand
    
    President and
Chief Executive Officer
(Principal Executive Officer)
and Director
    
    March 14, 2005/s/ Wesley E. Schultz

Wesley E. Schultz
    
    Executive Vice President,
Chief Financial Officer and Director
    
    March 14, 2005/s/ David J. Del Zoppo

David J. Del Zoppo
    
    Vice President, Finance and Accounting
(Principal Accounting Officer)
    
    March 14, 2005/s/ Ann K. Newhall

Ann K. Newhall
    
    Director
    
    March 14, 2005/s/ George W. Wikstrom

George W. Wikstrom
    
    Director
    
    March 14, 2005/s/ Don C. Swenson

Don C. Swenson
    
    Director
    
    March 14, 2005/s/ Marvin C. Nicolai

Marvin C. Nicolai
    
    Director
    
    March 14, 2005/s/ George M. Revering

George M. Revering
    
    Director
    
    March 14, 2005/s/ Anthony J. Bolland

Anthony J. Bolland
    
    Director
    
    March 14, 2005/s/ Paul J.  Finnegan

Paul J. Finnegan
    
    Director
    
    March 14, 2005
 60




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders
Rural Cellular Corporation and Subsidiaries
Alexandria, Minnesota We have audited the accompanying consolidated balance sheets of Rural Cellular
Corporation and Subsidiaries (the Company) as of December 31, 2004 and 2003,
and the related consolidated statements of operations, shareholders deficit
and comprehensive income (loss), and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements
and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2004
and 2003, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Companys
internal control over financial reporting as of December 31, 2004, based on the
criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 11, 2005, expressed an unqualified opinion on managements
assessment of the effectiveness of the Companys internal control over
financial reporting and an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting. As discussed in Note 2 to the consolidated financial statements, on January 1,
2002, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, and changed its method of
accounting for goodwill and licenses. As discussed in Note 4, effective July 1, 2003, the Company adopted the
provisions of SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. /s/ Deloitte & Touche LLP Minneapolis, Minnesota
March 11, 2005 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders
Rural Cellular Corporation and Subsidiaries
Alexandria, Minnesota We have audited managements assessment, included in the accompanying
Managements Report on Internal Control Over Financial Reporting, that Rural
Cellular Corporation and Subsidiaries (the Company) maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
Framework). The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based
on our audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions. A companys internal control over financial reporting is a process designed by,
or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by
the companys board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America
(generally accepted accounting principles). A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements. Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may F-2




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##### Table of Contents



become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the criteria established in the COSO
Framework. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December
31, 2004, based on the criteria established in the COSO Framework. We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets as
of December 31, 2004 and 2003, the related consolidated statements of
operations, shareholders deficit and comprehensive income (loss), and cash
flows, and the financial statement schedule listed in the Index at Item 15 for
each of the three years in the period ended December 31, 2004, of the Company
and our report dated March 11, 2005 (which includes explanatory paragraphs
relating to the adoption of Statement of Financial Accounting Standards No. 142
and 150), expressed an unqualified opinion on those financial statements and
financial statement schedule. /s/ Deloitte & Touche LLP Minneapolis, Minnesota
March 11, 2005 F-3




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 ASSETS As of December 31,2004
    
    
    2003CURRENT ASSETS:Cash and cash equivalents
    
    $
    85,339
    
    
    $
    142,547Accounts receivable, less allowance for
doubtful accounts of $2,456 and $3,187
    
    
    62,549
    
    
    
    57,743Inventories
    
    
    7,658
    
    
    
    8,037Other current assets
    
    
    4,175
    
    
    
    4,259Assets of operations held for sale
    
    
    
    
    
    
    3,189Total current assets
    
    
    159,721
    
    
    
    215,775PROPERTY AND EQUIPMENT, net
    
    
    276,133
    
    
    
    226,202LICENSES AND OTHER ASSETS:Licenses, net
    
    
    548,513
    
    
    
    563,283Goodwill, net
    
    
    348,682
    
    
    
    360,796Customer lists, net
    
    
    47,868
    
    
    
    64,575Deferred debt issuance costs, net
    
    
    30,228
    
    
    
    34,479Long-term assets of operations held for sale
    
    
    
    
    
    
    50,153Other assets, net
    
    
    6,305
    
    
    
    5,795Total licenses and other assets
    
    
    981,596
    
    
    
    1,079,081$
    1,417,450
    
    
    $
    1,521,058
 The accompanying notes are an integral part of these consolidated balance sheets. F-4




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data) LIABILITIES AND SHAREHOLDERS DEFICIT As of December 31,2004
    
    
    2003CURRENT LIABILITIES:Accounts payable
    
    $
    52,465
    
    
    $
    45,808Current portion of long-term debt
    
    
    81
    
    
    
    27,262Advance billings and customer deposits
    
    
    11,076
    
    
    
    10,454Accrued interest
    
    
    41,112
    
    
    
    34,084Other accrued expenses
    
    
    9,679
    
    
    
    11,276Liabilities of operations held for sale
    
    
    
    
    
    
    756Total current liabilities
    
    
    114,413
    
    
    
    129,640LONG-TERM LIABILITIES
    
    
    1,733,079
    
    
    
    1,764,867Total liabilities
    
    
    1,847,492
    
    
    
    1,894,507COMMITMENTS AND CONTINGENCIES (Note 9)
    
    
    
    
    
    
    REDEEMABLE PREFERRED STOCK
    
    
    166,296
    
    
    
    153,381SHAREHOLDERS DEFICIT:Class A common stock; $.01 par value; 200,000 shares
authorized, 11,836 and 11,522 outstanding
    
    
    118
    
    
    
    115Class B common stock; $.01 par value; 10,000 shares authorized,
540 and 552 outstanding
    
    
    5
    
    
    
    6Additional paid-in capital
    
    
    193,347
    
    
    
    192,423Accumulated deficit
    
    
    (791,446
    )
    
    
    (719,590
    )Unearned compensation
    
    
    (698
    )
    
    
    Accumulated other comprehensive income
    
    
    2,336
    
    
    
    216Total shareholders deficit
    
    
    (596,338
    )
    
    
    (526,830
    )$
    1,417,450
    
    
    $
    1,521,058
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 For the Years EndedDecember 31,2004
    
    
    2003
    
    
    2002REVENUE:Service
    
    $
    377,219
    
    
    $
    355,038
    
    
    $
    319,933Roaming
    
    
    105,504
    
    
    
    131,896
    
    
    
    122,703Equipment
    
    
    22,094
    
    
    
    20,455
    
    
    
    20,442Total revenue
    
    
    504,817
    
    
    
    507,389
    
    
    
    463,078OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    104,071
    
    
    
    96,069
    
    
    
    97,200Cost of equipment sales
    
    
    40,372
    
    
    
    37,636
    
    
    
    29,184Selling, general and administrative
    
    
    135,170
    
    
    
    131,761
    
    
    
    119,185Depreciation and amortization
    
    
    76,355
    
    
    
    76,429
    
    
    
    82,497Impairment of assets
    
    
    47,136
    
    
    
    42,244
    
    
    
    Total operating expenses
    
    
    403,104
    
    
    
    384,139
    
    
    
    328,066OPERATING INCOME
    
    
    101,713
    
    
    
    123,250
    
    
    
    135,012OTHER INCOME (EXPENSE):Interest expense
    
    
    (163,977
    )
    
    
    (136,262
    )
    
    
    (114,478
    )Interest and dividend income
    
    
    1,727
    
    
    
    916
    
    
    
    562Other
    
    
    (76
    )
    
    
    891
    

    
    
    66Other expense, net
    
    
    (162,326
    )
    
    
    (134,455
    )
    
    
    (113,850
    )INCOME (LOSS) BEFORE INCOME TAX BENEFIT
AND CUMULATIVE CHANGE IN ACCOUNTING
PRINCIPLE
    
    
    (60,613
    )
    
    
    (11,205
    )
    
    
    21,162INCOME TAX BENEFIT
    
    
    (1,672
    )
    
    
    
    
    
    
    INCOME (LOSS) BEFORE CUMULATIVE CHANGE
IN ACCOUNTING PRINCIPLE
    
    
    (58,941
    )
    
    
    (11,205

    )
    
    
    21,162CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 2)
    
    
    
    
    
    
    
    
    
    
    (417,064
    )NET LOSS
    
    
    (58,941
    )
    
    
    (11,205
    )
    
    
    (395,902
    )PREFERRED STOCK DIVIDEND
    
    
    (12,915
    )
    
    
    (38,877
    )
    
    
    (60,556
    )LOSS APPLICABLE TO COMMON SHARES
    
    $
    (71,856
    )
    
    $
    (50,082
    )
    
    $
    (456,458
    )BASIC AND DILUTED WEIGHTED AVERAGE
SHARES USED TO COMPUTE LOSS PER SHARE:
    
    
    12,239
    
    
    
    12,060
    
    
    
    11,920LOSS APPLICABLE TO COMMON SHARES
BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (3.30
    )CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    (34.99
    )NET LOSS PER BASIC AND DILUTED SHARE
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (38.29
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT
 AND COMPREHENSIVE INCOME (LOSS)
 FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 (In thousands)
 Class A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Unearned
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Income (Loss)BALANCE,
December 31, 2001
    
    
    11,176
    
    
    $
    112
    
    
    
    728
    
    
    $
    7
    
    
    $
    191,964
    
    
    $
    (213,050
    )
    
    $
    
    
    
    $
    (12,863
    )
    
    $
    (33,830
    )
    
    
    Conversion of Class B
common stock to Class A
common stock
    
    
    35
    
    
    
    0
    
    
    
    (35
    )
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued through
employee stock purchase
plan
    
    
    17
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    317
    
    
    
    Stock options exercised
    
    
    1
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    COMPONENTS OF
COMPREHENSIVE LOSSNet loss applicable to
common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (456,458
    )
    
    
    
    
    
    
    
    
    
    
    (456,458
    )
    
    $
    (456,458
    )Current year effect of
SFAS No. 133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,843
    
    
    
    6,843
    
    
    
    6,843Total comprehensive loss.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (449,615
    )BALANCE,
December 31, 2002
    
    
    11,229
    
    
    
    112
    
    
    
    693
    
    
    
    7
    
    
    
    192,294
    
    
    
    (669,508
    )
    
    
    
    
    
    
    (6,020
    )
    
    
    (483,115
    )Conversion of Class B
common stock to Class A
common stock
    
    
    141
    
    
    
    1
    
    
    
    (141
    )
    
    
    (1
    )
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued through
employee stock purchase
plan
    
    
    147
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    Stock options exercised
    
    
    5
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    COMPONENTS OF
COMPREHENSIVE LOSSNet loss applicable
to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,082
    )
    
    
    
    
    
    
    
    
    
    
    (50,082
    )
    
    $
    (50,082
    )Current year effect
of SFAS No. 133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,236
    
    
    
    6,236
    
    
    
    6,236Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (43,846
    )BALANCE,
December 31, 2003
    
    
    11,522
    
    
    
    115
    
    
    
    552
    
    
    
    6
    
    
    
    192,423
    
    
    
    (719,590
    )
    
    
    
    
    
    
    216
    
    
    
    (526,830
    )Conversion of Class B
common stock to Class A
common stock
    
    
    12
    
    
    
    1
    
    
    
    (12
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued through
employee stock purchase
plan
    
    
    166
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    Stock options exercised
    
    
    15
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    Restricted Stock Issuances
    
    
    121
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    (739
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    COMPONENTS OF
COMPREHENSIVE LOSSNet loss applicable
to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,856
    )
    
    
    
    
    
    
    
    
    
    
    (71,856
    )
    
    $
    (71,856
    )Current year effect
of SFAS No. 133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,120
    
    
    
    2,120
    
    
    
    2,120Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (69,736
    )BALANCE,
December 31, 2004
    
    
    11,836
    
    
    $
    118
    
    
    
    540
    
    
    $
    5
    
    
    $
    193,347
    
    
    $
    (791,446
    )
    
    $
    (698
    )
    
    $
    2,336
    
    
    $
    (596,338
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-7




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Years EndedDecember 31,2004
    
    
    2003
    
    
    2002OPERATING ACTIVITIES:Net loss
    
    $
    (58,941
    )
    
    $
    (11,205
    )
    
    $
    (395,902
    )Adjustments to reconcile to net cash provided by operating activities:Depreciation and customer list amortization
    
    
    76,355
    
    
    
    76,429
    
    
    
    82,497Loss on write-off of debt and preferred stock issuance costs
    
    
    12,605
    
    
    
    6,134
    
    
    
    3,319Mark-to-market adjustments  financial instruments
    
    
    4,339
    
    
    
    (2,225
    )
    
    
    15,104Gain on redemption of preferred stock
    
    
    (22,573
    )
    
    
    
    
    
    
    Noncash preferred stock dividends
    
    
    28,626
    
    
    
    13,074
    
    
    
    Impairment of assets
    
    
    47,136
    
    
    
    42,244
    
    
    
    Deferred income taxes
    
    
    (1,672
    )
    
    
    
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    417,064Other
    
    
    7,734
    
    
    
    4,013
    
    
    
    3,209Change in other operating elements:Accounts receivable
    
    
    (1,821
    )
    
    
    (14,286
    )
    
    
    (475
    )Inventories
    
    
    547
    
    
    
    (1,581
    )
    
    
    (7
    )Other current assets
    
    
    89
    
    
    
    (1,076
    )
    
    
    (809
    )Accounts payable
    
    
    6,153
    
    
    
    4,678
    
    
    
    6,466Advance billings and customer deposits
    
    
    482
    
    
    
    146
    
    
    
    1,112Accrued preferred stock dividends
    
    
    26,747
    
    
    
    14,899
    
    
    
    Accrued interest
    
    
    6,598
    
    
    
    12,188
    
    
    
    5,444Other accrued expenses
    
    
    (2,127
    )
    
    
    1,089
    
    
    
    1,300Net cash provided by operating activities
    
    
    130,277
    
    
    
    144,521
    
    
    
    138,322INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (94,417
    )
    
    
    (53,704
    )
    
    
    (59,835
    )Purchases of wireless properties, net
    
    
    (725
    )
    
    
    (7,200
    )
    
    
    Net proceeds from property exchange
    
    
    13,567
    
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    92
    
    
    
    624
    
    
    
    462Proceeds from sale of other long-lived assets
    
    
    
    
    
    
    
    
    
    
    650Other
    
    
    24
    
    
    
    (174
    )
    
    
    127Net cash used in investing activities
    
    
    (81,459
    )
    
    
    (60,454
    )
    
    
    (58,596
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock related to employee stock
purchase plan and stock options
    
    
    188
    
    
    
    131
    
    
    
    331Proceeds from issuance of long-term debt under the credit agreement
    
    
    
    
    
    
    120,000
    
    
    
    62,550Repayments of long-term debt under the credit agreement
    
    
    (525,724
    )
    
    
    (394,628
    )
    
    
    (380,208
    )Proceeds from issuance of 9 3/4% senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    300,000Proceeds from issuance of 9 7/8% senior notes
    
    
    
    
    
    
    325,000
    
    
    
    Proceeds from issuance of 8 1/4% senior secured notes
    
    
    350,000
    
    
    
    
    
    
    
    Proceeds from issuance of floating rate senior secured notes
    
    
    160,000
    
    
    
    
    
    
    
    Redemption of preferred stock
    
    
    (68,351
    )
    
    
    
    
    
    
    Payments to settle interest rate swaps
    
    
    (7,645
    )
    
    
    
    
    
    
    Payments of debt issuance costs
    
    
    (14,293
    )
    
    
    (13,374
    )
    
    
    (10,322
    )Repayment of swaption
    
    
    
    
    
    
    (34,184
    )
    
    
    Proceeds from unwinding hedge agreements
    
    
    
    
    
    
    2,632
    
    
    
    Other
    
    
    (201
    )
    
    
    (885
    )
    
    
    (284
    )Net cash (used in) provided by financing activities
    
    
    (106,026
    )
    
    
    4,692
    
    
    
    (27,933
    )NET (DECREASE) INCREASE IN CASH
    
    
    (57,208
    )
    
    
    88,759
    
    
    
    51,793CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    142,547
    
    
    
    53,788
    
    
    
    1,995CASH AND CASH EQUIVALENTS, at end of year
    
    $
    85,339
    
    
    $
    142,547
    
    
    $
    53,788
 The accompanying notes are an integral part of these consolidated financial statements. F-8




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##### Table of Contents



RURAL CELLULAR CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2004, 2003, and 2002
 1. Organization and Nature of Business: Rural Cellular Corporation (RCC or the Company) is a wireless communications service provider
focusing primarily on rural markets in the United States. The Companys principal operating
objective is to increase revenue and achieve profitability through increased penetration in
existing wireless markets. RCCs operating regions include portions of five states in the Northeast, three states in the
Northwest, four states in the Midwest, and three states in the South. Within each of its four
regions, RCC has deployed a strong local sales and customer service presence in the communities it
serves. RCCs marketed networks covered a total population of approximately 6.3 million POPs and
served approximately 730,000 voice customers as of December 31, 2004. The Company has preferred roaming relationships with Cingular Wireless, T-Mobile, and Verizon
Wireless in its various regions. RCC began a 2.5G network overlay process in late 2003, which it expects to be substantially
complete in 2005. The Company is also pursuing a strategy of expanding its network coverage in all
of its regions, which will, upon completion, increase its total number of cell sites and total
marketed POPs. 2. Summary of Significant Accounting Policies: Principles of Consolidation The consolidated financial statements include the accounts of RCC and its wholly-owned subsidiaries
and its majority-owned joint venture, Wireless Alliance, LLC (Wireless Alliance). All significant
intercompany balances and transactions have been eliminated. Revenue Recognition  Service The Company recognizes service revenue based upon contracted service fees and minutes of use
processed. As a result of its billing cycle cut-off times, the Company is required to make
estimates for service revenue earned, but not yet billed, at the end of each month. These estimates
are based primarily upon historical minutes of use processed. The Company follows this method since
reasonable, dependable estimates of the revenue can be made. Actual billing cycle results and
related revenue may vary from the results estimated at the end of each quarter, depending on
customer usage and rate plan mix. For customers who prepay their monthly access fees, the Company
matches the recognition of service revenue to their corresponding usage. Revenues are net of
credits and adjustments for service. The Company adopted Emerging Issues Task Force (EITF) No.
00-21, Accounting for Revenue Arrangements with Multiple Deliverables(EITF No. 00-21)
effective July 1, 2003 on a prospective basis. The adoption did not have a material impact on the
Companys financial position, results of operations or cash flows. The Company receives Universal Service Fund (USF) revenue reflecting its eligible
telecommunications carrier (ETC) status in certain states. The Company recognizes support revenue
depending on the level of its collection experience in each ETC qualified state. Where the Company
does not have adequate experience to determine the time required for reimbursement, it recognizes
revenue upon cash receipt. Where the Company does have adequate experience as to the amount and
timing of the receipt of these funds, it recognizes revenue as earned. F-9




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##### Table of Contents



The Company includes the pass-through fees it collects from customers as service revenue with a
corresponding charge to selling, general and administrative expense. These pass-through fees, which
the Company has the option of passing to customers, include state and federal USF fees, together
with city utility and state gross receipt taxes. Revenue Recognition - Roaming Revenue and Incollect Cost Roaming revenue and incollect cost information is provided to the Company primarily through a third
party centralized clearinghouse. From the clearinghouse the Company receives monthly settlement
data. The Company bases its accrual of roaming revenue and incollect expense on these clearinghouse
reports. The Company follows this method since reasonably dependable estimates of roaming revenue
and incollect cost can be made based on these reports. Revenue Recognition  Equipment Equipment revenue includes sales of wireless and paging equipment and accessories to
customers, network equipment reselling, and customer activation fees, which are recognized at the
time of sale to the customer. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts for estimated losses that will result from
failure of its customers to pay amounts owed. The Company bases its estimates on the aging of
accounts receivable balances and its historical write-off experience, net of recoveries. If the
financial condition of the Companys customers were to deteriorate, the Company may be required to
maintain higher allowances. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents. Inventories Inventories consist of cellular telephone equipment, pagers, and accessories and are stated at the
lower of cost, determined using the average cost method, or market. Market value is determined
using replacement cost. Property and Equipment Property and equipment are recorded at cost. Additions, improvements, or major renewals are
capitalized, while expenditures that do not enhance or extend the assets useful life are charged
to operating expense as incurred. F-10




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##### Table of Contents



The components of property and equipment and the useful lives of the Companys assets are as
follows as of December 31 (in thousands): 2004
    
    
    2003
    
    
    Useful LivesLand
    
    $
    7,200
    
    
    $
    7,200
    
    
    
    N/ABuilding and towers
    
    
    98,367
    
    
    
    87,496
    
    
    15-39 YearsEquipment (1)
    
    
    350,385
    
    
    
    275,867
    
    
    2-7 YearsPhone service equipment
    
    
    2,938
    
    
    
    5,235
    
    
    19 MonthsFurniture and fixtures (2)
    
    
    29,759
    
    
    
    25,314
    
    
    3-7 YearsAssets under construction
    
    
    37,232
    
    
    
    23,364
    
    
    
    N/A525,881
    
    
    
    424,476Lessaccumulated depreciation.
    
    
    (249,748
    )
    
    
    (198,274
    )Property and equipment  net
    
    $
    276,133
    
    
    $
    226,202
   (1)
    
    Includes the cost of cell site radio equipment, switch equipment, billing hardware and
related software.(2)
    
    Includes the cost of furniture, in-house computer hardware/software, and phone system
equipment. The Companys network construction expenditures are recorded as assets under construction
until the system or assets are placed in service and ready for their intended use, at which time
the assets are transferred to the appropriate property and equipment category. During the years
ended December 31, 2004, 2003, and 2002, the Company capitalized $4.2 million, $1.9 million, and
$1.1 million, respectively, in salaries of the Companys employees. The Company capitalized
interest cost in 2004 and 2003 of $1.9 million and $204,000, respectively. The Company depreciates its wireless communications equipment using the straight-line method over
estimated useful lives. RCC periodically reviews changes in its technology and industry conditions,
asset retirement activity, and salvage to determine adjustments to estimated remaining useful lives
and depreciation rates. Total depreciation expense for the years
ended December 31, 2004, 2003, and 2002 was $57.4 million, $56.2 million, and $61.5 million, respectively. Effective January 1, 2003, the Company implemented the results of a review of the estimated service
lives of its remaining TDMA network assets. Useful lives were shortened to substantially depreciate
all such equipment by December 31, 2008. During the fourth quarter of 2004, the lives of the TDMA
assets were again reviewed, and the remaining useful life of this equipment was reduced to 30
months. As of December 31, 2004, all TDMA equipment will be fully depreciated by June 30, 2007. The
net book value of this equipment as of December 31, 2004, was approximately $86.9 million. While the Company will continue to sell and market TDMA services for the foreseeable future, the
amount of future cash flows to be derived from the TDMA network assets is highly dependent upon the
rate of transition of existing customers using TDMA equipment to 2.5G capable equipment, as well as
other competitive and technological factors. The Company determined that a reduction in the useful
lives of these assets was warranted based on its projected transition of network traffic. The
Company will continue to review the useful lives of the TDMA assets throughout the period of
transition to 2.5G capable equipment to determine whether further changes are warranted. F-11




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##### Table of Contents



Licenses and Other Intangible Assets Licenses consist of the value assigned to the Companys personal communications services (PCS)
licenses and cellular licenses. Other intangibles, resulting primarily from acquisitions, include
the value assigned to customer lists and goodwill. Amortization is computed using the straight-line
method based on the estimated useful life of the asset. Customer lists are the only intangible
asset with a definitive useful life; all others are considered to have indefinite useful lives. The components of licenses and other intangible assets are as follows: Year EndedAs of
    
    
    
    December 31, 2004
    
    
    
    As ofDecember 31,
    
    
    
    
    
    
    
    Impairment
    
    
    Amortization
    
    
    
    December 31,(in thousands)
    
    2003
    
    
    
    Acquisition
    
    
    of Assets
    
    
    Expense
    
    
    
    2004Licenses, net
    
    $
    563,283
    
    
    
    $
    16,582
    
    
    $
    (31,352
    )
    
    $
    
    
    
    
    $
    548,513Goodwill, net
    
    
    360,796
    
    
    
    
    3,670
    
    
    
    (15,784
    )
    
    
    
    
    
    
    
    348,682Customer listsGross Valuation
    
    
    142,616
    
    
    
    
    1,799
    
    
    
    
    
    
    
    
    
    
    
    
    144,415Accumulated amortization
    
    
    (78,041
    )
    
    
    
    
    
    
    
    
    
    
    
    (18,506
    )
    
    
    
    (96,547
    )64,575
    
    
    
    
    1,799
    
    
    
    
    
    
    
    (18,506
    )
    
    
    
    47,868Total
    
    $
    988,654
    
    
    
    $
    22,051
    
    
    $
    (47,136
    )
    
    $
    (18,506
    )
    
    
    $
    945,063
 Year EndedAs of
    
    
    
    December 31, 2003
    
    
    
    As ofDecember 31,
    
    
    
    
    
    
    
    Impairment
    
    
    Assets Held
    
    
    Amortization
    
    
    
    December 31,(in thousands)
    
    2002
    
    
    
    Acquisition
    
    
    of Assets *
    
    
    for Sale *
    
    
    Expense
    
    
    
    2003Licenses, net
    
    $
    618,576
    
    
    
    $
    7,200
    
    
    $
    (28,318
    )
    
    $
    (34,175
    )
    
    $
    
    
    
    
    $
    563,283Goodwill, net
    
    
    369,829
    
    
    
    
    
    
    
    
    (4,093
    )
    
    
    (4,940
    )
    
    
    
    
    
    
    
    360,796Customer listsGross Valuation
    
    
    159,030
    
    
    
    
    
    
    
    
    (3,719
    )
    
    
    (12,695
    )
    
    
    
    
    
    
    
    142,616Accumulated
amortization
    
    
    (66,282
    )
    
    
    
    
    
    
    
    
    
    
    
    8,206
    
    
    
    (19,965
    )
    
    
    
    (78,041
    )92,748
    
    
    
    
    
    
    
    
    (3,719
    )
    
    
    (4,489
    )
    
    
    (19,965
    )
    
    
    
    64,575Total
    
    $
    1,081,153
    
    
    
    $
    7,200
    
    
    $
    (36,130
    )
    
    $
    (43,604
    )
    
    $
    (19,965
    )
    
    
    $
    988,654
   *
    
    Loss on Assets Held for Sale.In October 2003, the Company entered into an
agreement with AWE to exchange certain wireless properties. In connection with this
transaction, the Company recorded a non-cash impairment charge on assets held for
sale, in accordance with SFAS No. 144, of $42.2 million effective in the third quarter
of 2003. This transaction was completed on March 1, 2004. (See Note 13) F-12




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##### Table of Contents



Customer list amortization expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $18.5 million, $20.0 million, and $20.6 million, respectively. Customer list
amortization expense is estimated to be approximately $18.5 million for 2005 through 2006, $8.4
million in 2007, $2.4 million in 2008 and $86,000 in 2009. The Company reviews goodwill and other indefinite-lived intangible assets for impairment based on
the requirements of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets(SFAS No. 142). In accordance with this statement, goodwill is tested
for impairment at the reporting unit level on an annual basis as of October 1st or on an interim
basis if an event occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value. These events or circumstances would include a significant change in
the business climate, legal factors, operating performance indicators, competition, sale or
disposition of a significant portion of the business or other factors. In analyzing goodwill for
potential impairment, the Company uses projections of future cash flows from the reporting units.
These projections are based on its view of growth rates, anticipated future economic conditions,
the appropriate discount rates relative to risk, and estimates of residual values. The Company
believes that its estimates are consistent with assumptions that marketplace participants would use
in their estimates of fair value. If changes in growth rates, future economic conditions, discount
rates, or estimates of residual values were to occur, goodwill may become impaired. Additionally, impairment tests for indefinite-lived intangible assets, including FCC licenses, are
required to be performed on an annual basis or on an interim basis if an event occurs or
circumstances change that would indicate the asset might be impaired. In accordance with EITF No.
02-7 (EITF 02-7), Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible
Assets,impairment tests for FCC licenses are performed on an
aggregate basis by reporting unit. The Company utilizes
a direct approach, incorporating discounted cash flows, to complete the test. This approach
determines the fair value of the FCC licenses, using start-up model assumptions and, accordingly,
incorporates cash flow assumptions regarding the investment in a network, the development of
distribution channels, and other inputs for making the business operational. These inputs are
included in determining free cash flows of the reporting unit, using assumptions of weighted
average costs of capital and the long-term rate of growth for our reporting unit. The Company
believes that its estimates are consistent with assumptions that marketplace participants would use
in their estimates of fair value. If any of the assumptions were to change, FCC licenses may become
impaired. Following adoption of SFAS No. 142 on January 1, 2002, the Company completed a transitional
impairment test for both its goodwill and licenses and determined that there were impairments of
$5.0 million and $412.0 million, respectively. The Company used a fair value approach, using
primarily discounted cash flows, to complete the transitional impairment tests. In accordance with
SFAS No. 142, the impairment charges were recorded as a cumulative change in accounting principle
in its consolidated financial statements for the first quarter of 2002. Under SFAS No. 142, we
performed our annual impairment test. Based on this analysis, we recorded a noncash impairment
charge of $47.1 million (included in operating expenses) in the
fourth quarter of 2004. There was no
impairment charge in 2003 or 2002 related to our annual assessment under SFAS No. 142. Deferred Debt Issuance Costs Deferred debt issuance costs relate to the credit agreement, senior secured notes, senior notes,
senior subordinated notes and certain preferred stock issuances. These costs are being amortized
over the respective instruments terms. If the related debt issuance is extinguished prior to
maturity, the debt issuance costs are immediately expensed. F-13




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##### Table of Contents



The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections (SFAS No. 145) effective January 1, 2003.
Accordingly, the Companys financial statements have been revised to reflect the reclassification
requirements of SFAS No. 145, requiring it to present losses on extinguishment of debt within
interest expense. The Company has recorded within interest expense $12.6 million, $6.1 million,
and $3.3 million of deferred debt issuance costs related to debt extinguishments in 2004, 2003, and
2002, respectively. The gross valuation and accumulated amortization of deferred debt issuance costs are as follows: As of December 31,(in thousands)
    
    2004
    
    
    2003Gross valuation
    
    $
    40,331
    
    
    $
    46,488Accumulated amortization
    
    
    (10,103
    )
    
    
    (12,009
    )$
    30,228
    
    
    $
    34,479
 Other Assets Other assets primarily consist of costs related to spectrum relocation, restricted investments and
investments, in unconsolidated affiliates. Restricted investments represent the Companys
investments in the stock of CoBank and are stated at cost, which approximates fair value. The
restricted investments were purchased pursuant to the terms of a loan agreement and are restricted
as to withdrawal. The gross valuation and accumulated amortization of other assets are as follows: As of December 31,(in thousands)
    
    2004
    
    
    2003Gross valuation
    
    $
    8,375
    
    
    $
    7,531Accumulated amortization
    
    
    (2,070
    )
    
    
    (1,736
    )$
    6,305
    
    
    $
    5,795
 Income Taxes The income and expenses of all consolidated subsidiaries are included in the consolidated federal
income tax return of Rural Cellular Corporation and Subsidiaries. For financial reporting purposes,
any tax benefit or provision generated by a consolidated subsidiary is accounted for in its
separate taxes payable and deferred income tax accounts, computed as if it had filed separate
federal and state income tax returns. RCC uses the asset and liability approach to account for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the expected future tax consequences of differences
between the carrying amounts of assets and liabilities and their respective tax basis using enacted
tax rates in effect for the year in which the differences are expected to reverse. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Changes in valuation allowances from period to period are included in
the tax provision in the period of change. Net Loss Per Common Share Basic earnings per share (EPS) is computed by dividing net loss by the weighted average number of
shares outstanding during the year. Potential common shares of 2,044,037, 2,084,770, and 1,908,084
related to the Companys outstanding stock options were excluded from the computation of the
diluted EPS for the years ended December 31, 2004, 2003, and 2002, respectively, together with
118,667 shares of restricted stock granted in 2004, as the impact had an antidilutive effect on
earnings per share. F-14




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##### Table of Contents



Comprehensive Loss The Company follows the provisions of SFAS No. 130, Reporting Comprehensive Income(SFAS No.
130), which established standards for reporting and display of comprehensive income and its
components. Comprehensive income (loss) reflects the change in equity of a business enterprise
during a period from transactions and other events and circumstances from nonowner sources. For
the Company, comprehensive loss represents net losses and the deferred gains on derivative
instruments. In accordance with SFAS No. 130, the Company has chosen to disclose comprehensive
loss in the accompanying consolidated statement of shareholders deficit and comprehensive income
(loss). Business and Credit Concentrations RCC operates in one business segment, the operation of wireless communication systems in the United
States. For the years ended December 31, 2004, 2003, and 2002, Cingular (on a pro forma basis giving effect
to its merger with AT&T Wireless) accounted for approximately 9.9%, 14.5%, and 14.4%, respectively,
of the Companys total revenue. Impairment of Long-lived Assets The Company reviews long-lived assets, consisting primarily of property, plant and equipment and
intangible assets with finite lives, for impairment in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. In analyzing potential impairment, the
Company uses projections of future undiscounted cash flows from the assets at the reporting unit
level. These projections are based on its view of growth rates for the related business,
anticipated future economic conditions, the appropriate discount rates relative to risk, and
estimates of residual values. The Company believes that its estimates are consistent with
assumptions that marketplace participants would use in their estimates of fair value. If changes in
growth rates, future economic conditions, discount rates, or estimates of residual values were to
occur, long-lived assets may become impaired. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reported
periods. Ultimate results could differ from those estimates. F-15




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##### Table of Contents



Recently Issued Accounting Pronouncements Accounting for Share-Based Compensation On December 16, 2004, the Financial Accounting Standards Board (''FASB) issued SFAS No. 123(R),
Share-Based Payment(SFAS No. 123(R)), which is a revision of SFAS No. 123 and supersedes
Accounting Principles Board (APB) Opinion No. 25. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be valued at fair value on
the date of grant and to be expensed over the applicable vesting period. Pro forma disclosure of
the income statement effects of share-based payments is no longer an alternative. SFAS No. 123(R)
is effective for all share-based awards granted on or after July 1, 2005. In addition, companies
must also recognize compensation expense related to any awards that are not fully vested as of the
effective date. Compensation expense for the unvested awards will be measured based on the fair
value of the awards previously calculated in developing the pro forma disclosures in accordance
with the provisions of SFAS No. 123. The Company is currently assessing the impact of adopting SFAS
123(R) on its consolidated results of operations. Accounting for Nonmonetary Transactions In December 2004, the
FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of
APB Opinion No. 29 (SFAS No. 153.)
SFAS No. 153 amends APB Opinion No. 29, Accounting
for Nonmonetary Transactions. The amendments made by SFAS No. 153 are based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets, which requires that the accounting for the exchange be based on the recorded
amount of the asset relinquished, and replaced it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. The provisions in SFAS No. 153 are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application is permitted and companies must apply the standard prospectively. The
Company is currently assessing the impact of adopting SFAS No. 153 on its consolidated results of
operations. 3. Stock Compensation Plans: The following table summarizes plan activity under the Companys various stock compensation plans
through December 31, 2004: Nonemployee
    
    
    Stock
    
    
    Employee StockDirectors Plan
    
    
    Compensation Plan
    
    
    Purchase Plan (1)Available
for issuance
at December 31, 2003
    
    
    179,500
    
    
    
    149,288
    
    
    
    333,710Options granted
    
    
    (31,500
    )
    
    
    
    
    
    
    (71,398
    )Restricted stock awarded
    
    
    
    
    
    
    (120,667
    )
    
    
    Options cancelled
    
    
    26,250
    
    
    
    33,223
    
    
    
    Available
for issuance
at December 31, 2004
    
    
    174,250
    
    
    
    61,844
    
    
    
    262,312
   (1)
    
    Employee Stock Purchase Plan options granted of 71,398 shares reflect contributions
made in 2004 with corresponding shares being awarded in January 2005. Nonemployee Directors Plan.The stock option plan for nonemployee directors authorizes the
issuance of up to 400,000 shares of Class A common stock. The stock option plan provides that the
option price shall not be less than the fair market value of the Class A common stock on the date
of grant. The options vest and become exercisable one year following the date of grant and expire
five years thereafter. F-16




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##### Table of Contents



Stock Compensation Plan.The stock compensation plan for employees authorizes the issuance of up to
2,400,000 shares of Class A common stock in the form of restricted stock awards, stock options,
stock appreciation rights, or other stock-based awards. The stock compensation plan provides that
the exercise price of any option shall not be less than 85% of the fair market value of the Class A
common stock as of the date of the grant (100% in the case of incentive stock options). Options
and other awards granted under the stock compensation plan vest and become exercisable as
determined by the Board of Directors or a stock option committee. Under the Stock Compensation Plan, the Company has entered into restricted stock agreements with
certain key employees, covering the issuance of Class A common stock (Restricted Stock). The
Restricted Stock will be released to the key employees after a five-year waiting period if the
employees are still employed by the Company and the Company achieves certain financial goals, which
management anticipates achieving as of December 31, 2004. Deferred compensation equivalent to the
market value of these shares as of December 31, 2004 is reflected in shareholders equity and is
being amortized to operating expense over five years. Deferred compensation expense included in the
accompanying consolidated statement of operations amounted to $41,500 for the year ended December
31, 2004. Shares of Restricted Stock have full voting rights and are entitled to any dividends paid
on the Class A common stock. The restricted shares were granted to the recipients at no cost. Transactions in restricted stock were as follows: Year EndedDecember 31, 2004SharesRestricted Stock Awards, beginning of year
    
    
    0Issued
    
    
    120,667Cancelled
    
    
    (2,000
    )Restricted Stock Awards, outstanding, end of year
    
    
    118,667Released to employee, end of year
    
    
    0
 Employee Stock Purchase Plan.Under the employee stock purchase plan, employees who satisfy
certain length of service and other criteria are permitted to purchase shares of Class A common
stock at 85% of the fair market value of the Class A common stock on the first business day of
January or the last business day of December of each year, whichever is lower. The number of shares
authorized to be issued under the employee stock purchase plan is 750,000. The Company issued
71,398, 166,329, and 146,961 shares, at an exercise price of $5.30, $0.88, and $0.77, respectively,
for the years ended December 31, 2004, 2003, and 2002. Compensation cost is recognized for the fair
value of the shares issued under the Employee Stock Purchase Plan, which was estimated using the
Black-Scholes model with the following assumptions for 2004, 2003, and 2002, respectively: an
expected life of one year for all years; expected volatility of 88.54%, 94.72%, and 88.0%; and
risk-free interest rates of 5.25%, 4.39%, and 4.25%. F-17




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##### Table of Contents



Stock options outstanding under the Companys Nonemployee Directors Plan and Stock Compensation
Plan as of December 31, 2004 have exercise prices ranging between $0.76 and $79.25. Information
related to stock options is as follows: 2004
    
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    AverageShares
    
    
    Exercise Price
    
    
    
    Shares
    
    
    Exercise Price
    
    
    Shares
    
    
    
    Exercise PriceOutstanding, beginning of
period
    
    
    2,084,770
    
    
    $
    14.64
    
    
    
    
    1,908,084
    
    
    $
    17.40
    
    
    
    1,588,734
    
    
    
    $
    26.78Granted
    
    
    31,500
    
    
    $
    7.62
    
    
    
    
    369,500
    
    
    
    1.23
    
    
    
    503,550
    
    
    
    
    4.43Exercised
    
    
    (14,760
    )
    
    $
    2.80
    
    
    
    
    (5,120
    )
    
    
    3.37
    
    
    
    (1,450
    )
    
    
    
    8.99Cancelled
    
    
    (57,473
    )
    
    $
    15.17
    
    
    
    
    (187,694
    )
    
    
    16.72
    
    
    
    (182,750
    )
    
    
    
    63.23Outstanding, end of period
    
    
    2,044,037
    
    
    $
    14.61
    
    
    
    
    2,084,770
    
    
    $
    14.64
    
    
    
    1,908,084
    
    
    
    $
    17.40Exercisable, end of period
    
    
    1,392,617
    
    
    $
    17.46
    
    
    
    
    1,143,970
    
    
    $
    18.92
    
    
    
    1,015,784
    
    
    
    $
    19.12Weighted average fair
value of options granted
    
    
    
    
    
    $
    5.82
    
    
    
    
    
    
    
    $
    1.09
    
    
    
    
    
    
    
    $
    3.85
 The following table summarizes certain information concerning currently outstanding and
exercisable options: Weighted AverageNumber
    
    
    Remaining
    
    
    Weighted Average
    
    
    
    Number
    
    
    Weighted AverageExercise Price Range
    
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    
    Exercisable
    
    
    Exercise Price$
    00.00  $  9.99
    
    
    
    1,093,773
    
    
    
    6
    
    
    $
    4.31
    
    
    
    
    579,273
    
    
    $
    5.88$
    10.00  $19.99
    
    
    
    420,575
    
    
    
    3
    
    
    $
    13.60
    
    
    
    
    420,575
    
    
    $
    13.60$
    20.00  $29.99
    
    
    
    275,400
    
    
    
    6
    
    
    $
    27.10
    
    
    
    
    162,160
    
    
    $
    27.19$
    30.00 - $39.99
    
    
    
    156,239
    
    
    
    5
    
    
    $
    35.05
    
    
    
    
    140,799
    
    
    $
    34.74$
    40.00  $49.99
    
    
    
    15,500
    
    
    
    5
    
    
    $
    43.25
    
    
    
    
    15,500
    
    
    $
    43.25$
    50.00 - $59.99
    
    
    
    10,100
    
    
    
    5
    
    
    $
    56.50
    
    
    
    
    9,080
    
    
    $
    56.55$
    60.00 - $69.99
    
    
    
    36,750
    
    
    
    1
    
    
    $
    68.25
    
    
    
    
    36,750
    
    
    $
    68.25$
    70.00 - $79.25
    
    
    
    35,700
    
    
    
    5
    
    
    $
    76.92
    
    
    
    
    28,480
    
    
    $
    76.92$
    00.00 - $79.25
    
    
    
    2,044,037
    
    
    
    5
    
    
    $
    14.61
    
    
    
    
    1,392,617
    
    
    $
    17.46
 The Company accounts for stock options under APB Opinion No. 25, Accounting for Stock Issued
to Employees, under which no compensation expense is recognized, as the exercise price has been
the fair value of RCCs common stock as of date of grant. The following schedule shows net loss and
net loss per share for the years ended December 31, 2004, 2003, and 2002, had compensation expense
been determined consistent with SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, and SFAS No. 123, Accounting for Stock-Based Compensation. F-18




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##### Table of Contents



Years Ended December 31,(in thousands, except for per share data)
    
    2004
    
    
    2003
    
    
    2002Net loss applicable to common shares:As reported
    
    $
    (71,856
    )
    
    $
    (50,082
    )
    
    $
    (456,458
    )Fair value compensation expense
    
    
    (2,909
    )
    
    
    (4,304
    )
    
    
    (5,338
    )Pro forma
    
    $
    (74,765
    )
    
    $
    (54,386
    )
    
    $
    (461,796
    )Net loss per basic and diluted share:As reported
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (38.29
    )Fair value compensation expense
    
    
    (0.24
    )
    
    
    (0.36
    )
    
    
    (0.45
    )Pro forma
    
    $
    (6.11
    )
    
    $
    (4.51
    )
    
    $
    (38.74
    )
 The pro forma information presented above is based on several assumptions and should not be
viewed as indicative of future periods. The fair value of each option grant is estimated on the
date of the grant using the Black-Scholes option-pricing model with the following assumptions used
for grants in 2004, 2003, and 2002: expected volatility of 88.54%, 94.7%, and 88.0%, respectively;
risk-free interest rates of 5.25%, 4.39%, and 4.25%, respectively; expected life of 6 years, 10
years, and 10 years, respectively, and no expected dividend yield. The per share weighted average
fair value of options granted in 2004, 2003, and 2002, was $5.82, $1.09, and $3.85, respectively. 4. Long-term Liabilities: The Company had the following long-term liabilities outstanding as of December 31 (in thousands): 2004
    
    
    2003Credit agreement (1):Revolver
    
    $
    
    
    
    $
    Term Loan A
    
    
    
    
    
    
    226,583Term Loan B
    
    
    
    
    
    
    124,656Term Loan C
    
    
    
    
    
    
    124,656Term Loan D
    
    
    
    
    
    
    22,634
    
    
    
    498,5298 1/4% senior secured notes (1)
    
    
    350,000
    
    
    
    Floating rate senior secured notes (1)
    
    
    160,000
    
    
    
    9 7/8% senior notes
    
    
    325,000
    
    
    
    325,0009 3/4% senior subordinated notes
    
    
    300,000
    
    
    
    300,0009 5/8% senior subordinated notes
    
    
    125,000
    
    
    
    125,000Derivative financial instruments
    
    
    
    
    
    
    6,10911 3/8% senior exchangeable preferred stock
    
    
    174,176
    
    
    
    254,676Accrued dividends on 11 3/8% senior
exchangeable preferred stock
    
    
    34,844
    
    
    
    18,52112 1/4% junior exchangeable preferred stock
    
    
    247,984
    
    
    
    219,911Deferred tax liability
    
    
    13,979
    
    
    
    15,651Other
    
    
    2,096
    
    
    
    1,470Long-term liabilities
    
    $
    1,733,079
    
    
    $
    1,764,867
   (1)
    
    The net proceeds from the offering of RCCs senior secured notes completed on March 25,
2004, together with some of the Companys existing cash, were used to repay all outstanding
obligations under its former credit agreement, to terminate interest rate swap agreements
associated with the former credit agreement, and to pay fees and expenses associated with the
notes offering and a revolving credit agreement. F-19




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##### Table of Contents



Credit AgreementAs of December 31, 2004, the Company has $60 million in undrawn
availability under its revolving credit agreement at a rate of LIBOR plus 2.75%. The credit agreement is subject to various covenants, including the ratio of
senior secured indebtedness to annualized operating cash flow (as defined in the credit agreement),
the ratio of total indebtedness to annualized operating cash, and the ratio of annualized operating
cash flow to interest expense. Although the credit agreement financial covenants are not applicable
unless the Company draws against the credit facility, RCC was in compliance with all financial
covenants at December 31, 2004. Senior Secured NotesIn March 2004, the Company issued $350 million aggregate principal
amount of 8 1/4% senior secured notes due March 15, 2012 (2012 notes) and $160 million aggregate
principal amount of senior secured floating rate notes due March 15, 2010 (2010 notes). The
effective interest rate on the 2010 notes was 7.00% at December 31, 2004. Interest on the 2010
notes is reset quarterly and payable on March 15, June 15, September 15, and December 15 of each
year. Interest on the 2012 notes is payable on March 15 and September 15 of each year, beginning
on September 15, 2004. After March 15, 2006, the Company may redeem the 2010 notes, in whole or in part, at prices
starting at 102.000% of the principal amount at March 15, 2006, and declining to 101.000% at March
15, 2007 and to 100.000% at March 15, 2008, plus accrued and unpaid interest to but excluding the
date fixed for redemption. At any time, which may be more than once, before March 15, 2006, the
Company can choose to redeem up to 35% of the 2010 notes with money that it raises in certain
equity offerings, as long as it pays 100% of the aggregate principal amount of the 2010 notes
redeemed plus a premium equal to the interest rate per annum on the 2010 notes applicable on the
date on which notice of redemption is given, plus accrued and unpaid interest to, but excluding,
the date of redemption; the Company redeems the 2010 notes within 45 days after completing the
equity offering; and at least 65% of the aggregate principal amount of the 2010 notes issued under
the indenture remains outstanding after the redemption. After March 15, 2008, the Company may redeem the 2012 notes, in whole or in part, at prices
starting at 104.125% of the principal amount at March 15, 2008, and declining to 102.063% at March
15, 2009 and 100.000% at March 15, 2010, plus accrued and unpaid interest to but excluding the date
fixed for redemption. At any time, which may be more than once, before March 15, 2007, the Company
can choose to redeem up to 35% of the 2012 notes with money that its raises in certain equity
offerings, as long as it pays 108.250% of the aggregate principal amount of the 2012 notes
redeemed, plus accrued and unpaid interest to, but excluding, the date of redemption; the Company
redeems the 2012 notes within 45 days after completing the equity offering; and at least 65% of the
aggregate principal amount of the 2012 notes issued under the indenture remains outstanding after
the redemption. 9 7/8 % Senior Notes- In 2003, RCC issued $325 million principal amount of 9 7/8% senior notes due
2010. Interest is payable on February 1 and August 1 of each year. The notes will mature on
February 1, 2010. After August 1, 2007, at its option, the Company may redeem the 9 7/8% notes at
prices starting at 104.938% of the principal amount at August 1, 2007, declining to 102.469% at
August 1, 2008 and 100% at August 1, 2009, plus accrued and unpaid interest to but excluding the
date fixed for redemption. Prior to August 1, 2006, the Company may redeem up to 35% of the
outstanding principal amount of the 9 7/8% notes at 109.875% of the principal amount plus accrued
and unpaid interest to but excluding the date fixed for redemption with the net cash proceeds of
certain equity offerings. 9 3/4 % Senior Subordinated Notes- In 2002, the Company issued $300 million principal amount of 9
3/4% senior subordinated notes due 2010. Interest on the 9 3/4% senior subordinated notes is payable
semi-annually on January 15 and July 15. The 9 3/4% senior subordinated notes will mature on January
15, 2010. After January 15, 2006, at its option, the Company may redeem the 9 3/4% notes at prices
starting at 104.875% of the principal amount at January 15, 2006, declining to 103.250%, 101.625%,
and 100.000% at January 15, 2007, 2008, and 2009, respectively, plus accrued and unpaid interest to
but excluding the date fixed for redemption. F-20




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##### Table of Contents



9 5/8 % Senior Subordinated Notes- In 1998, RCC issued $125 million principal amount of 9 5/8%
senior subordinated notes due 2008. Interest on the senior subordinated notes is payable
semi-annually on May 15 and November 15. The senior subordinated notes will mature on May 15, 2008,
and are redeemable, in whole or in part, at the Companys option, at any time on or after May 15,
2003. The Company may redeem these notes at a rate of 101.604% of the principal amount at May 15,
2005, declining to 100.000% at May 15, 2006, plus accrued and unpaid interest to but excluding the
date fixed for redemption. 11 3/8% Senior Exchangeable Preferred StockDue May 15, 2010.Dividends on the senior
exchangeable preferred stock are cumulative, are payable quarterly, and were payable, until May 15,
2003, at the Companys option either in cash or by the issuance of additional shares of senior
exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such
dividends. The Company has not declared or paid the cash dividends due since August 2003. The Company may redeem the senior exchangeable preferred stock, in whole or in part, at any time at
a redemption price equal to 104.266% of the liquidation preference at May 15, 2004, declining to
102.844% at May 15, 2005, 101.422% at May 15, 2006, and 100.000% at May 15, 2007, plus accumulated
and unpaid dividends, if any, to but excluding the redemption date. The Company has accrued the undeclared dividends by increasing the carrying amount of the senior
exchangeable preferred stock. At December 31, 2004, RCC had accrued $34.8 million in undeclared
dividends with respect to the Companys senior exchangeable preferred stock, which will be payable
at the senior preferred mandatory redemption date, if not sooner declared and paid. Because the Company has failed to pay at least six quarterly dividends on its senior exchangeable
preferred stock, the holders of senior exchangeable preferred stock have the right to elect the
lesser of two directors or the number of directors constituting 25% of the members of the Companys
board, if they so choose, by following the procedures set forth in the certificate of designation. Gain on redemption of preferred stock.During the year ended December 31, 2004, the Company
repurchased 80,500 shares of its 11 3/8% senior exchangeable preferred stock for $68.4 million.
These shares had accrued $10.4 million in unpaid dividends. The corresponding $22.6 million gain
on redemption of preferred shares has been recorded as a reduction of interest expense. 12 1/4% Junior Exchangeable Preferred Stock Due February 15, 2011.Dividends on the
junior exchangeable preferred stock are cumulative, are payable quarterly, and may be paid, at the
Companys option, on any dividend payment date occurring on or before February 15, 2005, either in
cash or by the issuance of additional shares of junior exchangeable preferred stock having an
aggregate liquidation preference equal to the amount of such dividends. The Company may redeem the junior exchangeable preferred stock, in whole or in part, at any time,
at a redemption price equal to 106.125% of the liquidation preference at February 15, 2005,
declining to 104.594% at February 15, 2006, 103.063% at February 15, 2007, 101.531% at February 15,
2008, and 100.000% at February 15, 2009, plus accumulated and unpaid dividends, if any, to but
excluding the redemption date. The senior and junior exchangeable preferred stock are non-voting, except as otherwise
required by law and as provided in their respective Certificates of Designation. Each Certificate
of Designation provides that at any time dividends on the outstanding exchangeable preferred stock
are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive),
the holders of a majority of the outstanding shares of the affected exchangeable preferred stock,
voting as a class, will be entitled to elect the lesser of two directors or that number of
directors constituting 25% of the members of the Companys Board of Directors. The voting rights
continue until such time as all dividends in arrears on the affected class of exchangeable
preferred stock are paid in full (and, in the case of the senior exchangeable preferred stock after
May 15, 2003, or in the case of the junior exchangeable preferred stock after February 15, 2005,
are paid in cash), at which time the terms of any directors elected pursuant to such voting rights
will terminate. Voting rights may also be triggered by other events described in the Certificates
of Designation. F-21




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##### Table of Contents



SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity.The Companys 11 3/8% Senior Exchangeable and 12 1/4% Junior Exchangeable Preferred
securities, as a result of adopting SFAS No. 150 effective July 1, 2003, have been reclassified
into Long-Term Liabilities. The dividend expense related to these instruments, which was previously
reported as a component of Preferred Stock Dividend in the Companys consolidated statements of
operations, is now classified as interest expense. For the year ended December 31, 2004 and the six
months ended December 31, 2003, dividends on these instruments were $55.4 million and $28.0
million, respectively. Accrued dividends payable for the junior exchangeable preferred securities
of $3.8 million as of December 31, 2004 are included in Accrued interest. Accrued dividends
payable for the senior exchangeable preferred securities of $34.8 million as of December 31, 2004
are included in long-term liabilities. In addition, $7.1 million of unamortized stock issuance
costs related to these instruments was reclassified as Deferred debt issuance costs upon
adoption. SFAS No. 150 does not permit reclassification of prior year amounts to conform to the
current year presentation. Based on SFAS No. 150 guidelines, the Companys Class M and Class T
Preferred Stock do not meet the characteristics of a liability and will continue to be presented
between liability and equity on the Companys balance sheet. Current portion of long-term debt- The current portion of the Companys long-term debt included
the following as of December 31 (in thousands): 2004
    
    
    2003Current portion of Credit Agreement (1)Term Loan A (terminates 04/03/2008)
    
    $
    
    
    
    $
    12,360Term Loan B (terminates 10/03/2008)
    
    
    
    
    
    
    6,800Term Loan C (terminates 04/03/2009)
    
    
    
    
    
    
    6,800Term Loan D (terminates 10/03/2009)
    
    
    
    
    
    
    1,234
    
    
    
    27,194Other
    
    
    81
    
    
    
    68Total
    
    $
    81
    
    
    $
    27,262
   (1)
    
    The net proceeds from the offering of the Companys senior secured notes completed
on March 25, 2004, together with some of its existing cash, were used to repay all
outstanding obligations under its former credit agreement, to terminate interest rate
swap agreements associated with the former credit agreement, and to pay fees and
expenses associated with the notes offering and a new revolving credit agreement. 5. Derivative Financial Instruments: The Company recognizes all derivatives as either assets or liabilities in its consolidated
balance sheets and measures those instruments at fair value. The Company used interest rate swaps
to manage interest rate exposure under its previous credit agreement. Changes in the fair values
of those derivative instruments were recorded as Other Comprehensive Income when they qualified
for hedge accounting and Interest Expense when they did not qualify for hedge accounting. The Company formally documents all relationships between hedging instruments and hedged items as
well as the risk management objectives and strategies for undertaking various hedge transactions.
The Company also assesses, both at inception and on an on-going basis, whether the derivatives that
are used in hedging transactions are effective. Should it be determined that a derivative is not
effective as a hedge, the Company would discontinue the hedge accounting prospectively. In connection with the repayment of the Companys former credit facility in March 2004, the Company
terminated its two remaining interest rate swaps, which had an aggregate notional amount of $284.0
million, for aggregate cash consideration of $7.6 million. Amounts previously recognized as
unrealized losses in other comprehensive income, when hedge accounting was applied, were charged to
interest expense in the first quarter of 2004. F-22




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##### Table of Contents



RCCs financial instruments notional and estimated fair values and carrying amounts as of December
31 are set forth in the table below. Fair values are based on quoted market prices, if available. Carrying Value
    
    
    Estimated Fair Market ValueDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(Dollars in thousands)
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Financial liabilitiesCredit Agreement
    
    
    $
    
    
    
    $
    525,723
    
    
    $
    
    
    
    $
    524,2018 1/4% senior secured notes
    
    
    
    350,000
    
    
    
    
    
    
    
    370,125
    
    
    
    Senior secured floating rate notes
    
    
    
    160,000
    
    
    
    
    
    
    
    165,600
    
    
    
    9 7/8 % senior notes
    
    
    
    325,000
    
    
    
    325,000
    
    
    
    330,688
    
    
    
    344,2979 5/8 % senior subordinated notes
    
    
    
    125,000
    
    
    
    125,000
    
    
    
    118,750
    
    
    
    121,1729 3/4 % senior subordinated notes
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    271,500
    
    
    
    288,93811 3/8% senior exchangeable preferred stock
    
    
    
    174,176
    
    
    
    254,676
    
    
    
    140,212
    
    
    
    210,15912 1/4% junior exchangeable preferred stock
    
    
    
    247,984
    
    
    
    219,911
    
    
    
    131,432
    
    
    
    150,639Class M convertible preferred stock (1)
    
    
    
    160,198
    
    
    
    147,981
    
    
    
    160,198
    
    
    
    147,981Class T convertible preferred stock (1)
    
    
    
    8,973
    
    
    
    8,671
    
    
    
    8,973
    
    
    
    8,6711,851,331
    
    
    
    1,906,962
    
    
    
    1,697,478
    
    
    
    1,796,058Derivative financial instrumentsInterest rate swap agreements (2):TD Securities (terminated March 15, 2004)
    
    
    
    
    
    
    
    5,666
    
    
    
    
    
    
    
    5,666Fleet Bank (terminated March 15, 2004)
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    443
    
    
    
    6,109
    
    
    
    
    
    
    
    6,109Accrued 11 3/8% senior exchangeable preferred
stock dividends
    
    
    
    34,844
    
    
    
    18,521
    
    
    
    34,844
    
    
    
    18,521Other long-term liabilities
    
    
    
    2,097
    
    
    
    1,470
    
    
    
    2,097
    
    
    
    1,470Total financial liabilities
    
    
    $
    1,888,272
    
    
    $
    1,933,062
    
    
    $
    1,734,419
    
    
    $
    1,822,158
   (1)
    
    These financial instruments are not actively traded and, therefore, the estimated fair
market value is stated at the carrying value.(2)
    
    Recorded on its balance sheet at fair market value, with related changes in fair
market value included in the statement of operations, and not accounted for as a hedge
under SFAS No. 133. F-23




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##### Table of Contents



6. Redeemable Preferred Stock: The Company has issued the following preferred stock with liquidation preferences of $1,000
per share: Other
    
    
    
    
    
    
    AccruedConversion
    
    
    features,
    
    
    Number of
    
    
    dividends atDividend
    
    
    price to
    
    
    rights,
    
    
    shares
    
    
    December 31,
    
    
    TotalRedemption
    
    
    rate per
    
    
    common
    
    
    preferences
    
    
    originally
    
    
    2004
    
    
    ValuationDate
    
    
    annum
    
    
    stock
    
    
    and powers
    
    
    issued
    
    
    (In thousands)
    
    
    (In thousands)Class M Voting
Convertible
Preferred Stock
    
    April 3, 2012
    
    
    8.000
    %
    
    $
    53.000
    
    
    Voting
    
    
    110,000
    
    
    $
    50,198
    
    
    $
    160,198Class T Convertible
Preferred Stock
    
    April 1, 2020
    
    
    4.000
    %
    
    $
    50.631
    
    
    Non-Voting
    
    
    7,541
    
    
    
    1,432
    
    
    
    8,973Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,541
    
    
    $
    51,630
    
    
    $
    169,171
 Preferred security balance sheet reconciliation (in thousands): As ofDecember 31, 2004Preferred securities originally issued
    
    $
    117,541Accrued dividends
    
    
    51,630Unamortized issuance costs
    
    
    (2,875
    )$
    166,296
 Dividends on the Class M convertible preferred stock are compounded quarterly, accrue at 8%
per annum, and are payable upon redemption or upon liquidation of RCC. The Class M convertible
preferred stock is convertible into the Companys Class A common stock at $53.00 per share subject
to certain adjustments. Dividends are not payable if the shares are converted. The holders of the
Class M convertible preferred stock are entitled to vote on all matters submitted to the holders of
the common stock on an as-converted basis. In order to comply with the FCC rules regarding cross-ownership of cellular licensees within a
given market, the Company issued 7,541 shares of Class T convertible preferred stock with a
liquidation preference of $1,000 per share to Telephone & Data Systems, Inc. (TDS) on March 31,
2000 in exchange for 43,000 shares of Class A common stock and 105,940 shares of Class B common
stock owned by TDS. TDS or RCC can convert the convertible preferred stock into the original number
of shares of Class A or Class B common stock in the future if ownership by TDS of the common stock
would then be permissible under FCC rules. Dividends on the Class T convertible preferred stock are
cumulative, have a fixed coupon rate of 4% per annum, and are payable in April 2020. Dividends are
not payable if the shares are converted. Shares of Class T convertible preferred stock are
non-voting, except as otherwise required by law and as provided in the Certificate of Designation. The Class T convertible preferred stock is senior to the junior exchangeable preferred stock, Class
M convertible preferred stock and common stock of RCC with respect to dividend rights and rights on
liquidation, winding-up and dissolution of RCC. The Class M convertible preferred stock is senior
to the Companys common stock with respect to dividend rights and rights on liquidation, winding-up
and dissolution of RCC. The senior exchangeable preferred stock, junior exchangeable preferred stock, Class M convertible
preferred stock, and Class T convertible preferred stock are redeemable at 100% of their total
liquidation preference plus accumulated and unpaid dividends at their respective redemption dates. F-24




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##### Table of Contents



7. Shareholders Deficit: Authorized Shares The Company has 300,000,000 shares of authorized capital stock consisting of 200,000,000 shares of
Class A common stock, 10,000,000 shares of Class B common stock and 90,000,000 undesignated shares. Common Stock Rights Holders of Class A common stock are entitled to one vote for each share owned while holders of
Class B common stock are entitled to ten votes for each share owned. Each share of Class B common
stock may at any time be converted into one share of Class A common stock at the option of the
holder. All issued Class B common shares may also be converted into an equivalent number of Class
A common shares upon the affirmative vote of not less than 66 2/3% of the then outstanding Class B
common shares. Further, Class B common shares are automatically converted to an equal number of
Class A common shares if they are transferred to anyone who is not an affiliate of the transferring
shareholder. RCC has shareholder rights plans for its Class A common stock and Class B common stock. The rights
plans give each holder of Class A common stock the right to purchase 1/100th of a newly
authorized preferred share that is essentially equivalent to one share of Class A common stock and
each holder of Class B common stock the right to purchase 1/100th of a newly authorized
preferred share, essentially equivalent to one share of Class B common stock. The exercise price
for both the Class A rights and the Class B rights is $120 per right. The rights become exercisable by existing shareholders only following the acquisition by a buyer,
without prior approval of the Companys board of directors, of 15% or more of the outstanding
Common Stock, Class A and Class B, or following the announcement of a tender offer for 15% of the
outstanding Common Stock. If a person acquires 15% or more of the Companys Common Stock, each
right (except those held by the acquiring person) will entitle the holder to purchase shares of the
Companys Class A or Class B common stock, as appropriate, having a market value of twice the
rights exercise price, or, in effect, at a 50% discount from the then current market value. If
the Company were acquired in a merger or similar transaction after a person acquires 15% of the
Companys outstanding Common Stock, without prior approval of the board of directors, each right
would entitle the holder (other than the acquirer) to purchase shares of the acquiring company
having a market value of twice the exercise price of the right, or, in effect, at a discount of
50%. Until the acquisition by any person of 15% or more of the Companys Common Stock, the rights
can be redeemed by the board of directors for $.001 per right. 8. Income Taxes: For the year ended December 31, 2004, the Company recorded an income tax benefit related to the
change in deferred tax liability associated with the amortization of
definite-lived intangibles acquired in a business combination. The Company incurred losses for the years ended December 31, 2003 and
2002, respectively, and recorded no provision for income taxes. The reconciliation of income tax computed at the U.S. federal statutory rate to income tax benefit
recorded in the consolidated financial statements was as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002Tax at statutory rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%State taxes
    
    
    (3.0
    )
    
    
    (3.0
    )
    
    
    (3.0
    )Nondeductible item  amortization.
    
    
    (2.8
    )
    
    
    2.0
    
    
    
    Adjustment for valuation allowance
    
    
    38.0
    
    
    
    36.0
    
    
    
    38.0(2.8
    %)
    
    
    0.0
    %
    
    
    0.0
    %
 F-25




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##### Table of Contents



The components of the Companys current year income tax benefit of $1.7 million consists of
the following: Year Ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    DeferredFederal
    
    
    (1,540
    )
    
    
    
    
    
    
    State
    
    
    (132
    )
    
    
    
    
    
    
    (1,672
    )
    
    
    
    
    
    
    Total
    
    $
    (1,672
    )
    
    $
    
    
    
    $
    
 The income tax effect of the items that create deferred income tax assets and liabilities are
as follows: As of December 31,(in thousands)
    
    2004
    
    
    2003Deferred income tax assets:Operating loss carryforwards
    
    $
    159,954
    
    
    $
    124,256Temporary differences:Allowance for doubtful accounts
    
    
    925
    
    
    
    1,267Derivatives
    
    
    
    
    
    
    1,257Intangible assets
    
    
    27,654
    
    
    
    36,377Other
    
    
    2,440
    
    
    
    5,191Valuation allowance
    
    
    (178,819
    )
    
    
    (156,275
    )Total deferred income tax assets.
    
    
    12,154
    
    
    
    12,073Deferred income tax liabilities:Depreciation
    
    
    (24,950
    )
    
    
    (26,086
    )Other
    
    
    (1,183
    )
    
    
    (1,638
    )Net deferred income tax liability
    
    $
    (13,979
    )
    
    $
    (15,651
    )
 As of December 31, 2004, the Company had tax operating loss carryforwards of approximately
$421 million available to offset future income tax liabilities. These carryforwards expire in the
years 2007 through 2024. Internal Revenue Code Section 382 limits the availability and timing of
the use of net operating loss carryforwards in the event of certain changes in the ownership of the
Companys common stock. In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management has considered the
scheduled reversal of deferred tax liabilities, the limitations under Internal Revenue Code Section
382 following a change in ownership and tax planning strategies in making this assessment. Based
upon the assessment, management has established a valuation allowance for net deferred income tax
assets currently not expected to be realized. 9. Commitments and Contingencies: Employment Agreements The Company has employment agreements with certain executive officers with terms of three years.
These agreements provide for payment of amounts up to three times their annual compensation if
there is a termination of their employment as a result of a change in control of the Company, as
defined in the agreements. The maximum contingent liability under these agreements was $9.8
million at December 31, 2004. F-26




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##### Table of Contents



Related Party Transactions The Company has entered into various arrangements with its shareholders or their affiliates.
Arrangements involving shareholders or their affiliates that beneficially own more than 5% of any
class of the Companys stock and in which total payments or receipts for these arrangements
exceeded $60,000 are described below. Agreements with Affiliates. The Company has arrangements with several of its shareholders for cell
site leases, interconnection service agreements and agent sales agreements. During 2004, 2003 and
2002, the Company paid $1,259,834, $1,328,618, and $1,604,463, respectively, to related parties for
these services net of amounts received from these shareholders for similar services provided by the
Company. In addition, several of the Companys shareholders are customers for its cellular and
paging services and, in connection therewith, also purchase or lease cellular telephones and pagers
from the Company. During 2004, 2003 and 2002, the Company received $310,485, $296,445, and
$338,491, respectively, from related parties for these services. Roaming Arrangements. The Company has roaming agreements with United States Cellular Corporation, a
subsidiary of Telephone & Data Systems, Inc. Affiliates of Telephone & Data Systems, Inc.
beneficially own, in the aggregate, more than 5% of the Companys Class A and Class B Common
Stock. Under the roaming agreements, the Company pays for service provided to its customers in
areas served by United States Cellular Corporation and receives payment for service provided to
customers of United States Cellular Corporation in the Companys cellular service areas. RCC
negotiated the rates of reimbursement with United States Cellular Corporation, and the rates
reflect those charged by all carriers. During 2004, 2003, and 2002, charges to the Company for
services provided by United States Cellular Corporation totaled
$2,555,246, $1,923,274, and
$2,136,134 and charges by the Company to United States Cellular Corporation totaled $4,123,699,
$5,530,672, and $4,412,168, respectively. Legal and Regulatory Matters The Company is involved from time to time in routine legal matters and other claims incidental to
the Companys business. RCC believes that the resolution of such routine matters and other
incidental claims, taking into account established reserves and insurance, will not have a material
adverse impact on its consolidated financial position or results of operations. Regulatory Matters. In the normal course of business, the Company is subject to various regulatory
requirements associated with its networks related to E911 and
CALEA. The Company currently does not meet all of the requirements imposed by regulatory agencies.
In some cases, the Company has received a waiver from such requirements or is in the process of
applying for a waiver. However, management does not believe such non-compliance will have a
material adverse effect on the Company, although the ultimate outcome of these matters cannot be
determined based on available information. F-27




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##### Table of Contents



Leases The Company leases office space, cellular towers (including land leases on which the Companys
owned towers reside), and real estate under noncancelable operating leases. These leases typically
include renewal options and escalation clauses. Future minimum payments under these leases as of
December 31, 2004 are as follows (in thousands): Year
    
    Amount2005
    
    $
    12,8532006
    
    
    10,1682007
    
    
    8,1552008
    
    
    6,1772009
    
    
    3,496Thereafter
    
    
    3,618Total
    
    $
    44,467
 Under the terms of the lease agreements, the Company also is responsible for certain operating
expenses and taxes. Total rent expense of $13.6 million, $10.6 million, and $9.7 million was
charged to operations for the years ended December 31, 2004, 2003, and 2002, respectively. For the Companys leases, rent expense is recognized in accordance with FASB Technical Bulletin
85-3, Accounting for Operating Leases with Scheduled Rent
Increases, using the straight-line method
over the term of the leases. The Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations(SFAS No. 143),
effective January 1, 2003. Pursuant to SFAS No. 143, the Company records the fair value of a legal
liability for contractual obligations related to costs associated with removing equipment from cell
sites that reside on leased property. This liability is reviewed and adjusted quarterly and is
recorded in other long-term liabilities. The asset retirement obligation (ARO) liability totaled
$984,924 and $975,223 at December 31, 2004 and 2003, respectively. There were no material
additions, deletions or changes to the ARO liability during 2004, other than normal accretion
expense. Purchase Commitments The Company has made commitments to its roaming partners and to equipment vendors to substantially
complete its 2.5G networks by the end of 2005. Including the cost of the anticipated overlays,
total capital expenditures for 2005 are expected to be approximately $100 million. In 2003, the Company entered into a five-year $56.6 million purchase commitment with a vendor to
install 2.5G network equipment, pursuant to which, through December 31, 2004, the Company had
incurred $34.2 million in equipment purchases. Off-Balance Sheet Financings and Liabilities The Company does not have any off-balance sheet financing arrangements or liabilities. The Company
does not have any majority-owned subsidiaries or any interests in, or relationships with, any
material special-purpose entities that are not included in the consolidated financial statements. F-28




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##### Table of Contents



10. Defined Contribution Plan: The Company has a defined contribution savings and profit-sharing plan for employees who meet
certain age and service requirements. Under the savings portion of the plan, employees may elect
to contribute a percentage of their salaries to the plan, with the Company contributing a matching
percentage of the employees contributions. Under the profit-sharing portion of the plan, the
Company contributes a percentage of employees salaries. Contributions charged to operations for
the years ended December 31, 2004, 2003, and 2002 were $781,000, $599,000, and $570,000,
respectively. The percentages the Company matches under the savings portion of the plan and
contributes under the profit-sharing portion of the plan are determined annually by the Companys
Board of Directors. 11. Supplemental Cash Flow Information (in thousands): Years ended December 31,2004
    
    
    2003
    
    
    2002Cash paid for:Interest, net of amounts capitalized
    
    $
    101,405
    
    
    $
    86,801
    
    
    $
    86,775Noncash financing transactions:Preferred stock dividends.
    
    $
    12,915
    
    
    $
    38,877
    
    
    $
    60,556
 12. Quarterly Results of Operations (Unaudited): Certain unaudited quarterly results for 2004 and 2003 are set forth below (in thousands,
except per share data): 2004 Quarter Ended
    
    
    
    2003 Quarter EndedMar
    
    
    Jun
    
    
    Sep
    
    
    Dec
    
    
    
    Mar
    
    
    Jun
    
    
    Sep
    
    
    DecRevenue:Service
    
    $
    88,585
    
    
    $
    94,979
    
    
    $
    97,093
    
    
    $
    96,562
    
    
    
    $
    80,923
    
    
    $
    90,904
    
    
    $
    92,530
    
    
    $
    90,681Roaming
    
    
    25,740
    
    
    
    26,266
    
    
    
    29,739
    
    
    
    23,759
    
    
    
    
    29,062
    
    
    
    31,789
    
    
    
    37,598
    
    
    
    33,447Equipment
    
    
    5,523
    
    
    
    5,338
    
    
    
    5,589
    
    
    
    5,644
    
    
    
    
    3,876
    
    
    
    4,427
    
    
    
    6,462
    
    
    
    5,690Total Revenue
    
    $
    119,848
    
    
    $
    126,583
    
    
    $
    132,421
    
    
    $
    125,965
    
    
    
    $
    113,861
    
    
    $
    127,120
    
    
    $
    136,590
    
    
    $
    129,818Operating income (loss)
    
    $
    38,831
    
    
    $
    38,291
    
    
    $
    40,156
    
    
    $
    (15,565
    )
    
    
    $
    31,101
    
    
    $
    41,232
    
    
    $
    7,005
    
    
    $
    43,912Net income (loss)
    
    $
    (15,348
    )
    
    $
    6,597
    
    
    $
    5,437
    
    
    $
    (55,627
    )
    
    
    $
    5,708
    
    
    $
    16,991
    
    
    $
    (38,121
    )
    
    $
    4,217Net income (loss)
applicable to common
shares
    
    $
    (18,482
    )
    
    $
    3,403
    
    
    $
    2,184
    
    
    $
    (58,961
    )
    
    
    $
    (10,465
    )
    
    $
    382
    
    
    $
    (41,140
    )
    
    $
    1,141Net income (loss) per
basic share
    
    $
    (1.51
    )
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    (4.81
    )
    
    
    $
    (0.87
    )
    
    $
    0.03
    
    
    $
    (3.41
    )
    
    $
    0.09Net income (loss) per
diluted
share
    
    $
    (1.51
    )
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    (4.81
    )
    
    
    $
    (0.87
    )
    
    $
    0.03
    
    
    $
    (3.41
    )
    
    $
    0.09
 F-29




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##### Table of Contents



13. Assets and Liabilities of Operations Held for Sale On October 14, 2003, the Company entered into a definitive agreement with AT&T Wireless (AWE) to
exchange certain wireless properties. This transaction closed on March 1, 2004. Under the
agreement, the Company transferred to AWE its operations in Oregon RSA 4, covering 226,000 POPs and
including 37 cell sites and approximately 35,000 customers as of December 31, 2003. RCC received
from AWE operations in Alabama and Mississippi covering 754,000 total POPs, 545,000 incremental
POPs, 96 cell sites and approximately 14,000 customers as of December 31, 2003. In addition, RCC
received from AWE unbuilt PCS licenses covering portions of RCCs South, Midwest, and Northwest
regions that incorporate 2.4 million total POPs and 1.3 million incremental POPs. RCC also received
$13.5 million in cash, which was used to pay amounts outstanding under the Companys former credit
agreement. The acquisition of licenses in the exchange was accounted for as a purchase by the Company and the
transfer of the properties by the Company to AWE was accounted for as a sale. The Companys
consolidated balance sheet as of December 31, 2003 reflects the assets and liabilities transferred
as assets and liabilities of operations held for sale in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The results of operations of the markets
transferred were included in continuing operations through March 1, 2004. In connection with the
property exchange with AWE, the Company recorded a noncash impairment charge on assets held for
sale of $42.2 million (included in operating expenses) in the third quarter of 2003, pursuant to
SFAS No. 144. The final purchase price allocation was completed using the purchase method of
accounting during the fourth quarter of 2004. 14. Guarantor/Non-Guarantor Condensed Consolidating Financial Information RCCs obligations under the Senior Secured Floating Rate Notes due 2010 and 8 1/4% Senior Secured
Notes due 2012 are senior secured obligations and are fully and unconditionally guaranteed on a
senior, secured, second-priority basis by certain of its subsidiaries. Wireless Alliance, LLC is
not a guarantor of the notes. The Company accounts for its investment in subsidiaries using the equity method for purposes of the
supplemental consolidating presentation. The principal eliminating entries eliminate investments in
subsidiaries and inter-company balances and transactions. For
financial reporting purposes, each subsidiary computes income tax
expense (benefit), income taxes payable, and deferred income taxes on
a separate company basis as if they filed separate federal and state
income tax returns. The differences between the separate company
basis and consolidated income taxes is then adjusted in the
elimination column of the condensed consolidating financial
information. The financial accounting records of RGI Group, Inc. (RGI), a guarantor subsidiary, are not
maintained on a stand-alone basis and, accordingly, are included in the parent company financial
presentation. RGIs assets were approximately $7 million and $6 million as of December 31, 2004 and
2003, respectively. The following consolidating financial information as of the dates and for the periods indicated of
Rural Cellular Corporation (the Parent), its guarantor subsidiaries, and its non-guarantor
subsidiaries reflects all inter-company revenue and expense. F-30




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##### Table of Contents



Balance Sheet Information as of December 31, 2004 (in thousands, except per share data): Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCURRENT ASSETS:Cash and cash equivalents
    
    $
    84,068
    
    
    $
    1,253
    
    
    $
    18
    
    
    $
    
    
    
    $
    85,339Accounts receivable, less allowance
for doubtful accounts
    
    
    17,047
    
    
    
    43,252
    
    
    
    2,250
    
    
    
    
    
    
    
    62,549Inventories
    
    
    1,905
    
    
    
    5,435
    
    
    
    318
    
    
    
    
    
    
    
    7,658Other current assets
    
    
    1,669
    
    
    
    2,425
    
    
    
    81
    
    
    
    
    
    
    
    4,175Total current assets
    
    
    104,689
    
    
    
    52,365
    
    
    
    2,667
    
    
    
    
    
    
    
    159,721PROPERTY AND EQUIPMENT, net
    
    
    61,016
    
    
    
    203,148
    
    
    
    11,969
    
    
    
    
    
    
    
    276,133LICENSES AND OTHER ASSETS:Licenses, net
    
    
    
    
    
    
    539,834
    
    
    
    8,679
    
    
    
    
    
    
    
    548,513Goodwill, net
    
    
    3,149
    
    
    
    345,533
    
    
    
    
    
    
    
    
    
    
    
    348,682Customer lists, net
    
    
    1,268
    
    
    
    46,600
    
    
    
    
    
    
    
    
    
    
    
    47,868Deferred debt issuance costs, net
    
    
    30,228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,228Investment in consolidated subsidiaries
    
    
    1,102,255
    
    
    
    
    
    
    
    
    
    
    
    (1,102,255
    )
    
    
    Other assets, net
    
    
    3,453
    
    
    
    10,245
    
    
    
    2,518
    
    
    
    (9,911
    )
    
    
    6,305Total licenses and other assets
    
    
    1,140,353
    
    
    
    942,212
    
    
    
    11,197
    
    
    
    (1,112,166
    )
    
    
    981,596$
    1,306,058
    
    
    $
    1,197,725
    
    
    $
    25,833
    
    
    $
    (1,112,166
    )
    
    $
    1,417,450CURRENT LIABILITIES:Accounts payable
    
    $
    22,609
    
    
    $
    28,991
    
    
    $
    865
    
    
    $
    
    
    
    $
    52,465Current portion of long-term debt
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Advance billings and customer deposits
    
    
    2,147
    
    
    
    8,619
    
    
    
    310
    
    
    
    
    
    
    
    11,076Accrued interest
    
    
    41,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,112Other accrued expenses
    
    
    34,442
    
    
    
    49,248
    
    
    
    42
    
    
    
    (74,053
    )
    
    
    9,679Total current liabilities
    
    
    100,391
    
    
    
    86,858
    
    
    
    1,217
    
    
    
    (74,053
    )
    
    
    114,413LONG-TERM LIABILITIES
    
    
    1,718,256
    
    
    
    1,852,703
    
    
    
    41,025
    
    
    
    (1,878,905
    )
    
    
    1,733,079Total liabilities
    
    
    1,818,647
    
    
    
    1,939,561
    
    
    
    42,242
    
    
    
    (1,952,958
    )
    
    
    1,847,492REDEEMABLE PREFERRED STOCK
    
    
    166,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,296SHAREHOLDERS EQUITY (DEFICIT):Class A common stock; $.01 par
value; 200,000 shares authorized,
11,836 issued
    
    
    118
    
    
    
    918
    
    
    
    
    
    
    
    (918
    )
    
    
    118Class B common stock; $.01 par
value; 10,000 shares authorized,
539 issued
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Additional paid-in capital
    
    
    193,347
    
    
    
    349
    
    
    
    31,679
    
    
    
    (32,028
    )
    
    
    193,347Accumulated earnings (deficit)
    
    
    (873,993
    )
    
    
    (743,103
    )
    
    
    (48,088
    )
    
    
    873,738
    
    
    
    (791,446
    )Unearned compensation
    
    
    (698
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698
    )Accumulated other comprehensive income.
    
    
    2,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,336Total shareholders equity (deficit)
    
    
    (678,885
    )
    
    
    (741,836
    )
    
    
    (16,409
    )
    
    
    840,792
    
    
    
    (596,338
    )$
    1,306,058
    
    
    $
    1,197,725
    
    
    $
    25,833
    
    
    $
    (1,112,166
    )
    
    $
    1,417,450
 F-31




---



##### Table of Contents



Statement of Operations information for the year ended December 31, 2004 (in thousands): Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUE:Service
    
    $
    86,138
    
    
    $
    282,453
    
    
    $
    8,944
    
    
    $
    (316
    )
    
    $
    377,219Roaming
    
    
    15,555
    
    
    
    82,727
    
    
    
    7,230
    
    
    
    (8
    )
    
    
    105,504Equipment
    
    
    5,667
    
    
    
    15,652
    
    
    
    775
    
    
    
    
    
    
    
    22,094Total revenue
    
    
    107,360
    
    
    
    380,832
    
    
    
    16,949
    
    
    
    (324
    )
    
    
    504,817OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    18,298
    
    
    
    82,602
    
    
    
    3,435
    
    
    
    (264
    )
    
    
    104,071Cost of equipment sales
    
    
    8,671
    
    
    
    30,627
    
    
    
    1,074
    
    
    
    
    
    
    
    40,372Selling, general and administrative
    
    
    33,657
    
    
    
    96,341
    
    
    
    5,232
    
    
    
    (60
    )
    
    
    135,170Depreciation and amortization
    
    
    15,630
    
    
    
    57,188
    
    
    
    3,537
    
    
    
    
    
    
    
    76,355Impairment of assets
    
    
    
    
    
    
    47,136
    
    
    
    
    
    
    
    
    
    
    
    47,136Total operating expenses
    
    
    76,256
    
    
    
    313,894
    
    
    
    13,278
    
    
    
    (324
    )
    
    
    403,104OPERATING INCOME
    
    
    31,104
    
    
    
    66,938
    
    
    
    3,671
    
    
    
    
    
    
    
    101,713OTHER INCOME (EXPENSE):Interest expense
    
    
    (163,870
    )
    
    
    (166,004
    )
    
    
    (2,438
    )
    
    
    168,335
    
    
    
    (163,977
    )Interest and dividend income
    
    
    170,044
    
    
    
    18
    
    
    
    
    
    
    
    (168,335
    )
    
    
    1,727Inter-company charges
    
    
    (26,971
    )
    
    
    26,971
    
    
    
    
    
    
    
    
    
    
    
    Equity in subsidiaries
    
    
    (84,655
    )
    
    
    
    
    
    
    
    
    
    
    84,652
    
    
    
    (3
    )Other
    
    
    (6
    )
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (73
    )Other expense, net
    
    
    (105,458
    )
    
    
    (139,082
    )
    
    
    (2,438
    )
    
    
    84,652
    
    
    
    (162,326
    )NET INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (74,354
    )
    
    
    (72,144
    )
    
    
    1,233
    
    
    
    84,652
    
    
    
    (60,613
    )INCOME TAX PROVISION (BENEFIT)
    
    
    
    
    
    
    13,742
    
    
    
    
    
    
    
    (15,414
    )
    
    
    (1,672
    )NET INCOME (LOSS)
    
    
    (74,354
    )
    
    
    (85,886
    )
    
    
    1,233
    
    
    
    100,066
    
    
    
    (58,941
    )PREFERRED STOCK DIVIDEND
    
    
    (12,915
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,915
    )NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES
    
    $
    (87,269
    )
    
    $
    (85,886
    )
    
    $
    1,233
    
    
    $
    100,066
    
    
    $
    (71,856
    )
 F-32




---



##### Table of Contents



Statements of cash flows information for the year ended December 31, 2004 (in thousands): Guarantor
    
    
    Non GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOPERATING ACTIVITIES:Net income (loss)
    
    $
    (74,354
    )
    
    $
    (85,886
    )
    
    $
    1,233
    
    
    $
    100,066
    
    
    $
    (58,941
    )Adjustments to reconcile to net cash provided
by operating activities:Depreciation and amortization
    
    
    15,630
    
    
    
    57,188
    
    
    
    3,537
    
    
    
    
    
    
    
    76,355Loss on write-off of debt and preferred
stock issuance costs
    
    
    12,605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,605Mark-to-market adjustments  financial
instruments
    
    
    4,339
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,339Gain on redemption of preferred stock
    
    
    (22,573
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,573
    )Non-cash preferred stock dividends
    
    
    28,626
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,626Impairment of assets
    
    
    
    
    
    
    47,136
    
    
    
    
    
    
    
    
    
    
    
    47,136Deferred income taxes
    
    
    
    
    
    
    13,741
    
    
    
    
    
    
    
    (15,413
    )
    
    
    (1,672
    )Other
    
    
    5,635
    
    
    
    2,143
    
    
    
    (44
    )
    
    
    
    
    
    
    7,734Change in other operating elements:Accounts receivable
    
    
    2,425
    
    
    
    (3,690
    )
    
    
    (556
    )
    
    
    
    
    
    
    (1,821
    )Inventories
    
    
    (131
    )
    
    
    704
    
    
    
    (26
    )
    
    
    
    
    
    
    547Other current assets
    
    
    600
    
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    89Accounts payable
    
    
    (4,877
    )
    
    
    11,276
    
    
    
    (246
    )
    
    
    
    
    
    
    6,153Advance billings and customer deposits
    
    
    (115
    )
    
    
    558
    
    
    
    39
    
    
    
    
    
    
    
    482Accrued preferred stock dividends
    
    
    26,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,747Accrued interest
    
    
    6,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,598Other accrued expenses
    
    
    (1,376
    )
    
    
    (680
    )
    
    
    (71
    )
    
    
    
    
    
    
    (2,127
    )Net cash provided by (used in)
operating activities
    
    
    (221
    )
    
    
    41,979
    
    
    
    3,866
    
    
    
    84,653
    
    
    
    130,277INVESTING ACTIVITIES:Purchases of property and equipment, net
    
    
    (24,768
    )
    
    
    (66,956
    )
    
    
    (2,693
    )
    
    
    
    
    
    
    (94,417
    )Purchases of wireless properties, net
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    (725
    )Net proceeds from property exchange
    
    
    
    
    
    
    13,567
    
    
    
    
    
    
    
    
    
    
    
    13,567Proceeds from sale of property and equipment
    
    
    25
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    92Other
    
    
    231
    
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    24Net cash used in investing activities
    
    
    (24,512
    )
    
    
    (54,254
    )
    
    
    (2,693
    )
    
    
    
    
    
    
    (81,459
    )FINANCING ACTIVITIES:Change in parent company receivable and payable
    
    
    73,564
    
    
    
    12,262
    
    
    
    (1,173
    )
    
    
    (84,653
    )
    
    
    Proceeds from issuance of common stock related
to employee stock purchase plan and stock
options
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188Repayments of long-term debt under the credit
agreement
    
    
    (525,724
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525,724
    )Proceeds from issuance of 8 1/4% senior
secured notes
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000Proceeds from issuance of floating rate senior
secured notes
    
    
    160,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,000Redemption of preferred stock
    
    
    (68,351
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,351
    )Payments to settle interest rate swaps
    
    
    (7,645
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,645
    )Payments of debt issuance costs
    
    
    (14,293
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,293
    )Other
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )Net cash (used in) provided by financing
activities
    
    
    (32,462
    )
    
    
    12,262
    
    
    
    (1,173
    )
    
    
    (84,653
    )
    
    
    (106,026
    )NET DECREASE IN CASH
    
    
    (57,195
    )
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (57,208
    )CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    141,263
    
    
    
    1,266
    
    
    
    18
    
    
    
    
    
    
    
    142,547CASH AND CASH EQUIVALENTS, at end of year
    
    $
    84,068
    
    
    $
    1,253
    
    
    $
    18
    
    
    $
    
    
    
    $
    85,339
 F-33




---



##### Table of Contents



Balance Sheet Information as of
December 31, 2003 (In thousands, except per share
data):

|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |          |           |  
|--------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------ | --------- | ------------ | --------- | ------------- | --------- | ------------ | --------- | ------------ | ------ | ------- | ------- | - | ---------- | ---------- | ---------- | - | --------- | -------- | --------- | -
|                            |                                                                                    |                                      |           | Guarantor    |           | Non-Guarantor |           |              |           |             
|                            |                                                                                    | Parent                               |           | Subsidiaries |           | Subsidiaries  |           | Eliminations |           | Consolidated
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |             
|CURRENT ASSETS:             |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            | Cash and cash equivalents                                                          |                                      | $         | 141,263      |           |               | $         | 1,266        |           |              | $      | 18      |         |   | $          |           |            |   | $         | 142,547  |          
|                            | Accounts receivable, less allowance for doubtful
    accounts                      |                                      |           | 19,472       |           |               |           | 36,577       |           |              |        | 1,694   |         |   |            |           |            |   |           | 57,743   |          
|                            | Inventories                                                                        |                                      |           | 1,774        |           |               |           | 5,971        |           |              |        | 292     |         |   |            |           |            |   |           | 8,037    |          
|                            | Other current assets                                                               |                                      |           | 2,269        |           |               |           | 1,909        |           |              |        | 81      |         |   |            |           |            |   |           | 4,259    |          
|                            | Assets of operations held for sale                                                 |                                      |           |             |           |               |           | 3,189        |           |              |        |        |         |   |            |           |            |   |           | 3,189    |          
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | Total current assets                 |           |              | 164,778   |               |           |              | 48,912    |              |        |         | 2,085   |   |            |            |           |   |           |          | 215,775   |  
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|PROPERTY AND EQUIPMENT, net |                                                                                    |                                      | 54,543    |              |           |               | 159,193   |              |           |              | 12,466 |         |         |   |           |            |            |   | 226,202   |         
|LICENSES AND OTHER ASSETS:  |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            | Licenses, net                                                                      |                                      |           | 8,656        |           |               |           | 545,948      |           |              |        | 8,679   |         |   |            |           |            |   |           | 563,283  |          
|                            | Goodwill, net                                                                      |                                      |           | 3,262        |           |               |           | 357,534      |           |              |        |        |         |   |            |           |            |   |           | 360,796  |          
|                            | Customer lists, net                                                                |                                      |           | 1,578        |           |               |           | 62,997       |           |              |        |        |         |   |            |           |            |   |           | 64,575   |          
|                            | Deferred debt issuance costs, net                                                  |                                      |           | 34,479       |           |               |           |             |           |              |        |        |         |   |            |           |            |   |           | 34,479   |          
|                            | Long-term assets of operations held for sale                                       |                                      |           |             |           |               |           | 50,153       |           |              |        |        |         |   |            |           |            |   |           | 50,153   |          
|                            | Investments in consolidated subsidiaries                                           |                                      |           | 1,165,135    |           |               |           | 1,354        |           |              |        |        |         |   |            | (1,166,489 | )          |   |           |         |          
|                            | Other assets, less accumulated amortization                                        |                                      |           | 2,864        |           |               |           | 21,063       |           |              |        | 2,819   |         |   |            | (20,951    | )          |   |           | 5,795    |          
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | Total licenses and other assets      |           |              | 1,215,974 |               |           |              | 1,039,049 |              |        |         | 11,498  |   |            |            | (1,187,440 | ) |           |          | 1,079,081 |  
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | $                                    | 1,435,295 |              |           | $             | 1,247,154 |              |           | $            | 26,049 |         |         | $ | (1,187,440 | )          |            | $ | 1,521,058 |         
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|CURRENT LIABILITIES:        |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            | Accounts payable                                                                   |                                      | $         | 28,076       |           |               | $         | 16,621       |           |              | $      | 1,111   |         |   | $          |           |            |   | $         | 45,808   |          
|                            | Current portion of long-term debt                                                  |                                      |           | 27,262       |           |               |           |             |           |              |        |        |         |   |            |           |            |   |           | 27,262   |          
|                            | Advance billings and customer deposits                                             |                                      |           | 2,262        |           |               |           | 7,921        |           |              |        | 271     |         |   |            |           |            |   |           | 10,454   |          
|                            | Accrued interest                                                                   |                                      |           | 34,084       |           |               |           |             |           |              |        |        |         |   |            |           |            |   |           | 34,084   |          
|                            | Other accrued expenses                                                             |                                      |           | 33,607       |           |               |           | 32,872       |           |              |        | 113     |         |   |            | (55,316    | )          |   |           | 11,276   |          
|                            | Liabilities of operations held for sale                                            |                                      |           |             |           |               |           | 756          |           |              |        |        |         |   |            |           |            |   |           | 756      |          
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | Total current liabilities            |           |              | 125,291   |               |           |              | 58,170    |              |        |         | 1,495   |   |            |            | (55,316    | ) |           |          | 129,640   |  
|LONG-TERM LIABILITIES       |                                                                                    |                                      | 1,750,587 |              |           |               | 1,844,934 |              |           |              | 42,196 |         |         |   | (1,872,850 | )          |            |   | 1,764,867 |         
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | Total liabilities                    |           |              | 1,875,878 |               |           |              | 1,903,104 |              |        |         | 43,691  |   |            |            | (1,928,166 | ) |           |          | 1,894,507 |  
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|REDEEMABLE PREFERRED STOCK  |                                                                                    |                                      | 153,381   |              |           |               |          |              |           |              |       |         |         |   |           |            |            |   | 153,381   |         
|SHAREHOLDERS DEFICIT:      |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            | Class A common stock; $.01 par value;
    200,000 shares authorized, 11,522 issued |                                      |           | 115          |           |               |           | 918          |           |              |        |        |         |   |            | (918       | )          |   |           | 115      |          
|                            | Class B common stock; $.01 par value;
    10,000 shares authorized, 552 issued     |                                      |           | 6            |           |               |           |             |           |              |        |        |         |   |            |           |            |   |           | 6        |          
|                            | Additional paid-in capital                                                         |                                      |           | 192,423      |           |               |           | 349          |           |              |        | 31,679  |         |   |            | (32,028    | )          |   |           | 192,423  |          
|                            | Accumulated earnings (deficit)                                                     |                                      |           | (786,724     | )         |               |           | (657,217     | )         |              |        | (49,321 | )       |   |            | 773,672    |            |   |           | (719,590 | )        
|                            | Accumulated other comprehensive income                                             |                                      |           | 216          |           |               |           |             |           |              |        |        |         |   |            |           |            |   |           | 216      |          
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | Total shareholders equity (deficit) |           |              | (593,964  | )             |           |              | (655,950  | )            |        |         | (17,642 | ) |            |            | 740,726    |   |           |          | (526,830  | )
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         
|                            |                                                                                    | $                                    | 1,435,295 |              |           | $             | 1,247,154 |              |           | $            | 26,049 |         |         | $ | (1,187,440 | )          |            | $ | 1,521,058 |         
|                            |                                                                                    |                                      |           |              |           |               |           |              |           |              |        |         |         |   |            |            |            |   |           |         

F-34



---



##### Table of Contents



Statement of Operations information for the
year ended December 31, 2003 (In thousands):

|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |          |          |  
|--------------------------------------------- | ------------------------------------- | ------------------------ | ------- | ------------ | ------- | ------------- | ------- | ------------ | -------- | ------------ | ------ | ------ | ------ | - | ------- | -------- | ------ | - | ------- | -------- | -------- | -
|                                              |                                       |                          |         | Guarantor    |         | Non-Guarantor |         |              |          |             
|                                              |                                       | Parent                   |         | Subsidiaries |         | Subsidiaries  |         | Eliminations |          | Consolidated
|                                              |                                       |                          |         |              |         |               |         |              |          |             
|REVENUE:                                      |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              | Service                               |                          | $       | 71,073       |         |               | $       | 275,224      |          |              | $      | 8,893  |        |   | $       | (152     | )      |   | $       | 355,038  |         
|                                              | Roaming                               |                          |         | 15,410       |         |               |         | 112,300      |          |              |        | 4,199  |        |   |         | (13      | )      |   |         | 131,896  |         
|                                              | Equipment                             |                          |         | 4,433        |         |               |         | 15,101       |          |              |        | 921    |        |   |         |         |        |   |         | 20,455   |         
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              |                                       | Total revenue            |         |              | 90,916  |               |         |              | 402,625  |              |        |        | 14,013 |   |         |          | (165   | ) |         |          | 507,389  |  
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|OPERATING EXPENSES:                           |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              | Network costs, excluding depreciation |                          |         | 16,922       |         |               |         | 76,037       |          |              |        | 3,275  |        |   |         | (165     | )      |   |         | 96,069   |         
|                                              | Cost of equipment sales               |                          |         | 6,661        |         |               |         | 29,548       |          |              |        | 1,427  |        |   |         |         |        |   |         | 37,636   |         
|                                              | Selling, general and administrative   |                          |         | 30,670       |         |               |         | 95,564       |          |              |        | 5,527  |        |   |         |         |        |   |         | 131,761  |         
|                                              | Depreciation and amortization         |                          |         | 15,290       |         |               |         | 57,868       |          |              |        | 3,271  |        |   |         |         |        |   |         | 76,429   |         
|                                              | Loss on assets held for sale          |                          |         |             |         |               |         | 42,244       |          |              |        |       |        |   |         |         |        |   |         | 42,244   |         
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              |                                       | Total operating expenses |         |              | 69,543  |               |         |              | 301,261  |              |        |        | 13,500 |   |         |          | (165   | ) |         |          | 384,139  |  
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|OPERATING INCOME                              |                                       |                          | 21,373  |              |         |               | 101,364 |              |          |              | 513    |        |        |   |        |          |        |   | 123,250 |         
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|OTHER INCOME (EXPENSE):                       |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              | Interest expense                      |                          |         | (135,590     | )       |               |         | (143,975     | )        |              |        | (2,330 | )      |   |         | 145,633  |        |   |         | (136,262 | )       
|                                              | Interest and dividend income          |                          |         | 146,522      |         |               |         | 25           |          |              |        | 2      |        |   |         | (145,633 | )      |   |         | 916      |         
|                                              | Inter-company charges                 |                          |         | (15,815      | )       |               |         | 16,297       |          |              |        | (482   | )      |   |         |         |        |   |         |         |         
|                                              | Equity in subsidiaries                |                          |         | (50,972      | )       |               |         |             |          |              |        |       |        |   |         | 50,972   |        |   |         |         |         
|                                              | Other                                 |                          |         | 998          |         |               |         | (107         | )        |              |        |       |        |   |         |         |        |   |         | 891      |         
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|                                              |                                       | Other expense, net       |         |              | (54,857 | )             |         |              | (127,760 | )            |        |        | (2,810 | ) |         |          | 50,972 |   |         |          | (134,455 | )
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|NET INCOME (LOSS) BEFORE INCOME TAXES         |                                       |                          | (33,484 | )            |         |               | (26,396 | )            |          |              | (2,297 | )      |        |   | 50,972  |          |        |   | (11,205 | )       
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|INCOME TAX PROVISION (BENEFIT)                |                                       |                          | 14,308  |              |         |               | 22,279  |              |          |              |       |        |        |   | (36,587 | )        |        |   |        |         
|NET INCOME (LOSS)                             |                                       |                          | (47,792 | )            |         |               | (48,675 | )            |          |              | (2,297 | )      |        |   | 87,559  |          |        |   | (11,205 | )       
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|PREFERRED STOCK DIVIDEND                      |                                       |                          | (38,877 | )            |         |               |        |              |          |              |       |        |        |   |        |          |        |   | (38,877 | )       
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         
|NET INCOME (LOSS) APPLICABLE TO COMMON SHARES |                                       | $                        | (86,669 | )            |         | $             | (48,675 | )            |          | $            | (2,297 | )      |        | $ | 87,559  |          |        | $ | (50,082 | )       
|                                              |                                       |                          |         |              |         |               |         |              |          |              |        |        |        |   |         |          |        |   |         |         

F-35



---



##### Table of Contents



Statement of Cash Flows Information for the
Year Ended December 31, 2003 (In thousands):

|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |          |        |         |         |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------ | ------------- | ------- | ------------ | ------ | ------------ | ------- | ------ | ----- | ---- | ------ | ------- | ------- | - | ------- | -------- | ------ | ------- | ------- | -
|                                                |                                                                                                      |                                                                  |                                        | Guarantor                                               |        | Non-Guarantor |         |              |        |             
|                                                |                                                                                                      | Parent                                                           |                                        | Subsidiaries                                            |        | Subsidiaries  |         | Eliminations |        | Consolidated
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |             
|OPERATING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                | Net income (loss)                                                                                    |                                                                  | $                                      | (47,792                                                 | )      |               | $       | (48,675      | )      |              | $       | (2,297 | )     |      | $      | 87,559  |         |   | $       | (11,205  | )     
|                                                | Adjustments to reconcile to net cash provided by
    operating activities:                           |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |          |       
|                                                |                                                                                                      | Depreciation and amortization                                    |                                        |                                                         | 15,290 |               |         |              | 57,868 |              |         |        | 3,271 |      |        |         |        |   |         |          | 76,429 |        
|                                                |                                                                                                      | Loss on write-off of debt and preferred stock
    issuance costs |                                        |                                                         | 6,134  |               |         |              |       |              |         |        |      |      |        |         |        |   |         |          | 6,134  |        
|                                                |                                                                                                      | Mark-to-market adjustments-financial instruments                 |                                        |                                                         | (2,225 | )             |         |              |       |              |         |        |      |      |        |         |        |   |         |          | (2,225 | )      
|                                                |                                                                                                      | Non-cash preferred stock dividends                               |                                        |                                                         | 13,074 |               |         |              |       |              |         |        |      |      |        |         |        |   |         |          | 13,074 |        
|                                                |                                                                                                      | Deferred income taxes                                            |                                        |                                                         | 14,308 |               |         |              | 22,279 |              |         |        |      |      |        |         | (36,587 | ) |         |          |       |        
|                                                |                                                                                                      | Impairment of assets                                             |                                        |                                                         |       |               |         |              | 42,244 |              |         |        |      |      |        |         |        |   |         |          | 42,244 |        
|                                                |                                                                                                      | Other                                                            |                                        |                                                         | 3,596  |               |         |              | 401    |              |         |        | 16    |      |        |         |        |   |         |          | 4,013  |        
|                                                |                                                                                                      | Change in other operating elements:                              |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |          |        |        
|                                                |                                                                                                      |                                                                  | Accounts receivable                    |                                                         |        | (6,483        | )       |              |        | (7,597       | )       |        |       | (206 | )      |         |         |  |         |          |        | (14,286 | )      
|                                                |                                                                                                      |                                                                  | Inventories                            |                                                         |        | (889          | )       |              |        | (704         | )       |        |       | 12   |        |         |         |  |         |          |        | (1,581  | )      
|                                                |                                                                                                      |                                                                  | Other current assets                   |                                                         |        | (1,249        | )       |              |        | 174          |         |        |       | (1   | )      |         |         |  |         |          |        | (1,076  | )      
|                                                |                                                                                                      |                                                                  | Accounts payable                       |                                                         |        | 4,428         |         |              |        | 248          |         |        |       | 2    |        |         |         |  |         |          |        | 4,678   |        
|                                                |                                                                                                      |                                                                  | Advance billings and customer deposits |                                                         |        | (219          | )       |              |        | 729          |         |        |       | (364 | )      |         |         |  |         |          |        | 146     |        
|                                                |                                                                                                      |                                                                  | Accrued preferred stock dividends      |                                                         |        | 14,899        |         |              |        |             |         |        |       |     |        |         |         |  |         |          |        | 14,899  |        
|                                                |                                                                                                      |                                                                  | Accrued interest                       |                                                         |        | 12,188        |         |              |        |             |         |        |       |     |        |         |         |  |         |          |        | 12,188  |        
|                                                |                                                                                                      |                                                                  | Other accrued expenses                 |                                                         |        | 1,578         |         |              |        | (338         | )       |        |       | (151 | )      |         |         |  |         |          |        | 1,089   |        
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash provided by operating activities               |        |               | 26,638  |              |        |              | 66,629  |        |       |      | 282    |         |         |   | 50,972  |          |        |         | 144,521 |  
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|INVESTING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                | Purchases of property and equipment                                                                  |                                                                  |                                        | (17,496                                                 | )      |               |         | (33,625      | )      |              |         | (2,583 | )     |      |        |        |         |   |         | (53,704  | )     
|                                                | Proceeds from sale of property and equipment                                                         |                                                                  |                                        | 121                                                     |        |               |         | 503          |        |              |         |       |       |      |        |        |         |   |         | 624      |       
|                                                | Purchase of wireless properties                                                                      |                                                                  |                                        |                                                        |        |               |         | (7,200       | )      |              |         |       |       |      |        |        |         |   |         | (7,200   | )     
|                                                | Other                                                                                                |                                                                  |                                        | (176                                                    | )      |               |         | 2            |        |              |         |       |       |      |        |        |         |   |         | (174     | )     
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash used in investing activities                   |        |               | (17,551 | )            |        |              | (40,320 | )      |       |      | (2,583 | )       |         |   |        |          |        |         | (60,454 | )
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|FINANCING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                | Change in parent company receivable and payable                                                      |                                                                  |                                        | 68,722                                                  |        |               |         | (20,035      | )      |              |         | 2,285  |       |      |        | (50,972 | )       |   |         |         |       
|                                                | Proceeds from issuance of common stock related to
    employee stock purchase plan and stock options |                                                                  |                                        | 131                                                     |        |               |         |             |        |              |         |       |       |      |        |        |         |   |         | 131      |       
|                                                | Proceeds from issuance of long-term debt under
    the credit agreement                              |                                                                  |                                        | 120,000                                                 |        |               |         |             |        |              |         |       |       |      |        |        |         |   |         | 120,000  |       
|                                                | Repayments of long-term debt under the credit
    agreement                                          |                                                                  |                                        | (388,128                                                | )      |               |         | (6,500       | )      |              |         |       |       |      |        |        |         |   |         | (394,628 | )     
|                                                | Proceeds from issuance of 9 7/8% senior
    secured notes                                            |                                                                  |                                        | 325,000                                                 |        |               |         |             |        |              |         |       |       |      |        |        |         |   |         | 325,000  |       
|                                                | Repayment of swaption                                                                                |                                                                  |                                        | (34,184                                                 | )      |               |         |             |        |              |         |       |       |      |        |        |         |   |         | (34,184  | )     
|                                                | Proceeds from unwinding derivative hedge
    agreements                                              |                                                                  |                                        | 2,632                                                   |        |               |         |             |        |              |         |       |       |      |        |        |         |   |         | 2,632    |       
|                                                | Payments of debt issuance costs                                                                      |                                                                  |                                        | (13,374                                                 | )      |               |         |             |        |              |         |       |       |      |        |        |         |   |         | (13,374  | )     
|                                                | Other                                                                                                |                                                                  |                                        | (885                                                    | )      |               |         |             |        |              |         |       |       |      |        |        |         |   |         | (885     | )     
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash provided by (used in) financing
    activities |        |               | 79,914  |              |        |              | (26,535 | )      |       |      | 2,285  |         |         |   | (50,972 | )        |        |         | 4,692   |  
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|NET (DECREASE) INCREASE IN CASH                 |                                                                                                      |                                                                  | 89,001                                 |                                                         |        |               | (226    | )            |        |              | (16     | )      |       |      |       |         |         |   | 88,759  |         
|CASH AND CASH EQUIVALENTS, at beginning of year |                                                                                                      |                                                                  | 52,262                                 |                                                         |        |               | 1,492   |              |        |              | 34      |        |       |      |       |         |         |   | 53,788  |         
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         
|CASH AND CASH EQUIVALENTS, at end of year       |                                                                                                      | $                                                                | 141,263                                |                                                         |        | $             | 1,266   |              |        | $            | 18      |        |       | $    |       |         |         | $ | 142,547 |         
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |         |              |        |              |         |        |       |      |        |         |         |   |         |         

F-36



---



##### Table of Contents



Statement of Operations Information for the
Year Ended December 31, 2002 (In thousands):

|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |          |          |  
|--------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | -------- | ------------ | -------- | ------------- | -------- | ------------ | ------- | ------------ | ------ | ------ | ------ | - | ------- | -------- | ------- | - | -------- | -------- | -------- | -
|                                                                                        |                                       |                          |          | Guarantor    |          | Non-Guarantor |          |              |         |             
|                                                                                        |                                       | Parent                   |          | Subsidiaries |          | Subsidiaries  |          | Eliminations |         | Consolidated
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |             
|REVENUE:                                                                                |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        | Service                               |                          | $        | 65,518       |          |               | $        | 245,973      |         |              | $      | 8,618  |        |   | $       | (176     | )       |   | $        | 319,933  |         
|                                                                                        | Roaming                               |                          |          | 19,471       |          |               |          | 99,385       |         |              |        | 3,875  |        |   |         | (28      | )       |   |          | 122,703  |         
|                                                                                        | Equipment                             |                          |          | 9,042        |          |               |          | 10,640       |         |              |        | 760    |        |   |         |         |         |   |          | 20,442   |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        |                                       | Total revenue            |          |              | 94,031   |               |          |              | 355,998 |              |        |        | 13,253 |   |         |          | (204    | ) |          |          | 463,078  |  
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|OPERATING EXPENSES:                                                                     |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        | Network costs, excluding depreciation |                          |          | 17,719       |          |               |          | 76,842       |         |              |        | 2,843  |        |   |         | (204     | )       |   |          | 97,200   |         
|                                                                                        | Cost of equipment sales               |                          |          | 9,394        |          |               |          | 18,257       |         |              |        | 1,533  |        |   |         |         |         |   |          | 29,184   |         
|                                                                                        | Selling, general and administrative   |                          |          | 26,276       |          |               |          | 87,228       |         |              |        | 5,681  |        |   |         |         |         |   |          | 119,185  |         
|                                                                                        | Depreciation and amortization         |                          |          | 16,902       |          |               |          | 62,470       |         |              |        | 3,125  |        |   |         |         |         |   |          | 82,497   |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        |                                       | Total operating expenses |          |              | 70,291   |               |          |              | 244,797 |              |        |        | 13,182 |   |         |          | (204    | ) |          |          | 328,066  |  
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|OPERATING INCOME                                                                        |                                       |                          | 23,740   |              |          |               | 111,201  |              |         |              | 71     |        |        |   |        |          |         |   | 135,012  |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|OTHER INCOME (EXPENSE):                                                                 |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        | Interest expense                      |                          |          | (114,455     | )        |               |          | (113,064     | )       |              |        | (2,420 | )      |   |         | 115,461  |         |   |          | (114,478 | )       
|                                                                                        | Interest and dividend income          |                          |          | 115,982      |          |               |          | 41           |         |              |        |       |        |   |         | (115,461 | )       |   |          | 562      |         
|                                                                                        | Inter-company charges                 |                          |          | (18,409      | )        |               |          | 18,409       |         |              |        |       |        |   |         |         |         |   |          |         |         
|                                                                                        | Equity in subsidiaries                |                          |          | (401,908     | )        |               |          |             |         |              |        |       |        |   |         | 401,904  |         |   |          | (4       | )       
|                                                                                        | Other                                 |                          |          | 6            |          |               |          | 64           |         |              |        |       |        |   |         |         |         |   |          | 70       |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|                                                                                        |                                       | Other expense, net       |          |              | (418,784 | )             |          |              | (94,550 | )            |        |        | (2,420 | ) |         |          | 401,904 |   |          |          | (113,850 | )
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|NET INCOME (LOSS) BEFORE INCOME TAXES AND
    CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE |                                       |                          | (395,044 | )            |          |               | 16,651   |              |         |              | (2,349 | )      |        |   | 401,904 |          |         |   | 21,162   |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|INCOME TAX PROVISION (BENEFIT)                                                          |                                       |                          | 4,423    |              |          |               | 48,562   |              |         |              |       |        |        |   | (52,985 | )        |         |   |         |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|NET INCOME (LOSS) BEFORE CUMULATIVE CHANGE
    IN ACCOUNTING PRINCIPLE                  |                                       |                          | (399,467 | )            |          |               | (31,911  | )            |         |              | (2,349 | )      |        |   | 454,889 |          |         |   | 21,162   |         
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE, NET OF
    TAX                               |                                       |                          |         |              |          |               | (367,644 | )            |         |              |       |        |        |   | (49,420 | )        |         |   | (417,064 | )       
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|NET INCOME (LOSS)                                                                       |                                       |                          | (399,467 | )            |          |               | (399,555 | )            |         |              | (2,349 | )      |        |   | 405,469 |          |         |   | (395,902 | )       
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|PREFERRED STOCK DIVIDEND                                                                |                                       |                          | (60,556  | )            |          |               |         |              |         |              |       |        |        |   |        |          |         |   | (60,556  | )       
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         
|NET INCOME (LOSS) APPLICABLE TO COMMON SHARES                                           |                                       | $                        | (460,023 | )            |          | $             | (399,555 | )            |         | $            | (2,349 | )      |        | $ | 405,469 |          |         | $ | (456,458 | )       
|                                                                                        |                                       |                          |          |              |          |               |          |              |         |              |        |        |        |   |         |          |         |   |          |         

F-37



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Statement of Cash Flows Information for the
Year Ended December 31, 2002 (In thousands):

|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |          |         |       |         |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------ | ------------- | -------- | ------------ | ------- | ------------ | ------- | ------ | ----- | ---- | ------ | -------- | ------- | - | -------- | -------- | ------- | ----- | ------- | -
|                                                |                                                                                                      |                                                                  |                                        | Guarantor                                               |        | Non-Guarantor |          |              |         |             
|                                                |                                                                                                      | Parent                                                           |                                        | Subsidiaries                                            |        | Subsidiaries  |          | Eliminations |         | Consolidated
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |             
|OPERATING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                | Net income (loss)                                                                                    |                                                                  | $                                      | (399,467                                                | )      |               | $        | (399,555     | )       |              | $       | (2,349 | )     |      | $      | 405,469  |         |   | $        | (395,902 | )      
|                                                | Adjustments to reconcile to net cash provided by
    operating activities:                           |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |          |        
|                                                |                                                                                                      | Depreciation and amortization                                    |                                        |                                                         | 16,902 |               |          |              | 62,470  |              |         |        | 3,125 |      |        |          |        |   |          |          | 82,497  |      
|                                                |                                                                                                      | Loss on write-off of debt and preferred stock
    issuance costs |                                        |                                                         | 3,319  |               |          |              |        |              |         |        |      |      |        |          |        |   |          |          | 3,319   |      
|                                                |                                                                                                      | Mark-to-market adjustments-financial instruments                 |                                        |                                                         | 15,104 |               |          |              |        |              |         |        |      |      |        |          |        |   |          |          | 15,104  |      
|                                                |                                                                                                      | Cumulative change in accounting principle                        |                                        |                                                         |       |               |          |              | 367,644 |              |         |        |      |      |        |          | 49,420  |   |          |          | 417,064 |      
|                                                |                                                                                                      | Deferred income taxes                                            |                                        |                                                         | 4,423  |               |          |              | 48,562  |              |         |        |       |      |        |          | (52,985 | ) |          |          |        |      
|                                                |                                                                                                      | Other                                                            |                                        |                                                         | 2,327  |               |          |              | 882     |              |         |        |      |      |        |          |        |   |          |          | 3,209   |      
|                                                |                                                                                                      | Change in other operating elements:                              |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |          |         |      
|                                                |                                                                                                      |                                                                  | Accounts receivable                    |                                                         |        | 826           |          |              |         | (562         | )       |        |       | (739 | )      |          |         |  |          |          |         | (475  | )      
|                                                |                                                                                                      |                                                                  | Inventories                            |                                                         |        | 145           |          |              |         | 52           |         |        |       | (204 | )      |          |         |  |          |          |         | (7    | )      
|                                                |                                                                                                      |                                                                  | Other current assets                   |                                                         |        | (110          | )        |              |         | (677         | )       |        |       | (22  | )      |          |         |  |          |          |         | (809  | )      
|                                                |                                                                                                      |                                                                  | Accounts payable                       |                                                         |        | 6,859         |          |              |         | (477         | )       |        |       | 84   |        |          |         |  |          |          |         | 6,466 |        
|                                                |                                                                                                      |                                                                  | Advance billings and customer deposits |                                                         |        | 405           |          |              |         | 388          |         |        |       | 319  |        |          |         |  |          |          |         | 1,112 |        
|                                                |                                                                                                      |                                                                  | Accrued interest                       |                                                         |        | 5,444         |          |              |         |             |         |        |       |     |        |          |         |  |          |          |         | 5,444 |        
|                                                |                                                                                                      |                                                                  | Other accrued expenses                 |                                                         |        | 1,018         |          |              |         | 257          |         |        |       | 25   |        |          |         |  |          |          |         | 1,300 |        
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash used in (provided by) operating
    activities |        |               | (342,805 | )            |         |              | 78,984  |        |       |      | 239    |          |         |   | 401,904  |          |         |       | 138,322 |  
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|INVESTING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                | Purchases of property and equipment, net                                                             |                                                                  |                                        | (18,495                                                 | )      |               |          | (39,983      | )       |              |         | (1,357 | )     |      |        |         |         |   |          | (59,835  | )      
|                                                | Proceeds from sale of property and equipment                                                         |                                                                  |                                        | 94                                                      |        |               |          | 357          |         |              |         | 11     |       |      |        |         |         |   |          | 462      |        
|                                                | Proceeds from sale of other long-lived assets                                                        |                                                                  |                                        | 650                                                     |        |               |          |             |         |              |         |       |       |      |        |         |         |   |          | 650      |        
|                                                | Other                                                                                                |                                                                  |                                        | 79                                                      |        |               |          | 48           |         |              |         |       |       |      |        |         |         |   |          | 127      |        
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash used in investing activities                   |        |               | (17,672  | )            |         |              | (39,578 | )      |       |      | (1,346 | )        |         |   |         |          |         |       | (58,596 | )
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|FINANCING ACTIVITIES:                           |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                | Change in parent company receivable and payable                                                      |                                                                  |                                        | 439,583                                                 |        |               |          | (38,784      | )       |              |         | 1,105  |       |      |        | (401,904 | )       |   |          |         |        
|                                                | Proceeds from issuance of common stock related to
    employee stock purchase plan and stock options |                                                                  |                                        | 331                                                     |        |               |          |             |         |              |         |       |       |      |        |         |         |   |          | 331      |        
|                                                | Proceeds from issuance of long-term debt under
    the credit agreement                              |                                                                  |                                        | 62,550                                                  |        |               |          |             |         |              |         |       |       |      |        |         |         |   |          | 62,550   |        
|                                                | Repayments of long-term debt under the credit
    agreement                                          |                                                                  |                                        | (380,207                                                | )      |               |          | (1           | )       |              |         |       |       |      |        |         |         |   |          | (380,208 | )      
|                                                | Proceeds from issuance of 9 3/4% senior
    secured notes                                            |                                                                  |                                        | 300,000                                                 |        |               |          |             |         |              |         |       |       |      |        |         |         |   |          | 300,000  |        
|                                                | Payments of debt issuance costs                                                                      |                                                                  |                                        | (10,322                                                 | )      |               |          |             |         |              |         |       |       |      |        |         |         |   |          | (10,322  | )      
|                                                | Other                                                                                                |                                                                  |                                        | (283                                                    | )      |               |          | (1           | )       |              |         |       |       |      |        |         |         |   |          | (284     | )      
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|                                                |                                                                                                      |                                                                  |                                        | Net cash (used in) provided by financing
    activities |        |               | 411,652  |              |         |              | (38,786 | )      |       |      | 1,105  |          |         |   | (401,904 | )        |         |       | (27,933 | )
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|NET (DECREASE) INCREASE IN CASH                 |                                                                                                      |                                                                  | 51,175                                 |                                                         |        |               | 620      |              |         |              | (2      | )      |       |      |       |          |         |   | 51,793   |         
|CASH AND CASH EQUIVALENTS, at beginning of year |                                                                                                      |                                                                  | 1,087                                  |                                                         |        |               | 872      |              |         |              | 36      |        |       |      |       |          |         |   | 1,995    |         
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         
|CASH AND CASH EQUIVALENTS, at end of year       |                                                                                                      | $                                                                | 52,262                                 |                                                         |        | $             | 1,492    |              |         | $            | 34      |        |       | $    |       |          |         | $ | 53,788   |         
|                                                |                                                                                                      |                                                                  |                                        |                                                         |        |               |          |              |         |              |         |        |       |      |        |          |         |   |          |         

F-38



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RURAL CELLULAR CORPORATION AND SUBSIDIARIES
Schedule II  Valuation and Qualifying Accounts Allowance for Doubtful Accounts: Years Ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002Balance, at beginning of year
    
    $
    3,333
    
    
    $
    3,096
    
    
    $
    4,016Additions charged to income
    
    
    12,584
    
    
    
    12,784
    
    
    
    10,809Write-offs,
net of recoveries
    
    
    (13,461
    )
    
    
    (12,547
    )
    
    
    (11,729
    )Balance, at end of year
    
    $
    2,456
    
    
    $
    3,333
    (1)
    
    $
    3,096
  (1)
    Includes an allowance of $146,000 included within Assets of operations held for sale. F-39




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Included on the following pages are the financial statements for RCC Minnesota, Inc., a
wholly-owned subsidiary of Rural Cellular Corporation. Rural Cellular Corporation is required to
provide these financial statements under Regulation S-X Rule No. 3-16, Financial Statements of
Affiliates Whose Securities Collateralize an Issue Registered or Being Registered. The securities
of RCC Minnesota, Inc. collateralize RCCs Senior Secured
Floating Rate Notes due 2010 and 8 1/4%
Senior Secured Notes due 2012. F-40




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors
Rural Cellular Corporation and Subsidiaries
Alexandria, Minnesota We have audited the accompanying balance sheets of RCC Minnesota, Inc.
(RCCM), a wholly owned subsidiary of Rural Cellular Corporation (RCC), as
of December 31, 2004 and 2003, and the related statements of operations,
shareholders equity (deficit), and cash flows for each of the three years in
the period ended December 31, 2004. These financial statements are the
responsibility of RCCMs management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also 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, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material
respects, the financial position of RCCM as of December 31, 2004 and 2003, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America. As discussed in Note 2 to the financial statements, on January 1, 2002, RCCM
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, and changed its method of accounting for licenses. The accompanying financial statements have been prepared from the separate
records maintained by Rural Cellular Corporation and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if RCCM had been operated as an unaffiliated company. Portions of
certain income and expenses represent allocations made to and from RCCM, as
discussed in Note 2 to the financial statements. /s/ Deloitte & Touche LLP Minneapolis, Minnesota
March 11, 2005 F-41




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RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION) BALANCE SHEETS As of December 31,2004
    
    
    2003(In thousands,except shares and per share data)ASSETSLICENSES AND OTHER ASSETS:Licenses, net
    
    $
    445,098
    
    
    $
    356,075License held for sale
    
    
    
    
    
    
    34,175Deferred tax asset
    
    
    9,905
    
    
    
    20,756Total assets
    
    $
    455,003
    
    
    $
    411,006LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Inter-company taxes payable
    
    $
    20,940
    
    
    $
    18,740LONG-TERM LIABILITIES:Inter-company long-term debt
    
    
    418,529
    
    
    
    396,308Total liabilities
    
    
    439,469
    
    
    
    415,048SHAREHOLDERS EQUITY (DEFICIT):Common stock; $0.01 par value; 200,000
shares authorized; 1,000 issued and
outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1
    
    
    
    1Accumulated equity (deficit)
    
    
    15,533
    
    
    
    (4,043
    )Total shareholders equity (deficit)
    
    
    15,534
    
    
    
    (4,042
    )$
    455,003
    
    
    $
    411,006
 The accompanying notes are an integral part of these financial statements. F-42




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RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION) STATEMENTS OF OPERATIONS Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)REVENUE:License management revenue
    
    $
    99,058
    
    
    $
    108,349
    
    
    $
    95,703Total revenue
    
    
    99,058
    
    
    
    108,349
    
    
    
    95,703OPERATING EXPENSES:Corporate management expense
    
    
    3,775
    
    
    
    3,714
    
    
    
    2,907Other operating
    
    
    407
    
    
    
    280
    
    
    
    277Impairment of assets
    
    
    24,307
    
    
    
    28,318
    
    
    
    Total operating expenses
    
    
    28,489
    
    
    
    32,312
    
    
    
    3,184OPERATING INCOME
    
    
    70,569
    
    
    
    76,037
    
    
    
    92,519OTHER EXPENSE:Inter-company interest
    
    
    37,942
    
    
    
    34,206
    
    
    
    30,311INCOME BEFORE INCOME TAX
PROVISION AND CUMULATIVE
CHANGE IN ACCOUNTING PRINCIPLE
    
    
    32,627
    
    
    
    41,831
    
    
    
    62,208INCOME TAX PROVISION
    
    
    13,051
    
    
    
    16,732
    
    
    
    23,907INCOME
BEFORE CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE
    
    
    19,576
    
    
    
    25,099
    
    
    
    38,301CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF
TAXES
    
    
    
    
    
    
    
    
    
    
    (79,171
    )NET INCOME (LOSS)
    
    $
    19,576
    
    
    $
    25,099
    
    
    $
    (40,870
    )
 The accompanying notes are an integral part of these financial statements. F-43




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RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION) STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
For the years ended December 31, 2004, 2003, and 2002 Additional
    
    
    Accumulated
    
    
    TotalPaid-In
    
    
    Earnings
    
    
    ShareholdersCapital
    
    
    (Deficit)
    
    
    Equity (Deficit)(In thousands)BALANCE, December 31, 2001
    
    $
    1
    
    
    $
    11,728
    
    
    $
    11,729Net loss
    
    
    
    
    
    
    (40,870
    )
    
    
    (40,870
    )BALANCE, December 31, 2002.
    
    
    1
    
    
    
    (29,142
    )
    
    
    (29,141
    )Net income
    
    
    
    
    
    
    25,099
    
    
    
    25,099BALANCE, December 31, 2003.
    
    
    1
    
    
    
    (4,043
    )
    
    
    (4,042
    )Net income
    
    
    
    
    
    
    19,576
    
    
    
    19,576BALANCE, December 31, 2004.
    
    $
    1
    
    
    $
    15,533
    
    
    $
    15,534
 The accompanying notes are an integral part of these financial statements. F-44




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RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION) STATEMENTS OF CASH FLOWS (1) Years ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    19,576
    
    
    $
    25,099
    
    
    $
    (40,870
    )Adjustments to reconcile to net cash provided by
operating activities:Cumulative
effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    79,171Impairment of assets
    
    
    24,307
    
    
    
    28,318
    
    
    
    Income taxes
    
    
    13,051
    
    
    
    16,732
    
    
    
    23,907Change in other current assets
    
    
    
    
    
    
    
    
    
    
    23Net cash provided by operating activities
    
    
    56,934
    
    
    
    70,149
    
    
    
    62,231INVESTING ACTIVITIES:Assignment of licenses from wholly-owned
subsidiaries of RCC
    
    
    (98,804
    )
    
    
    
    
    
    
    Acquisition of licenses
    
    
    (14,526
    )
    
    
    (7,200
    )
    
    
    Disposition of licenses
    
    
    34,175
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (79,155
    )
    
    
    (7,200
    )
    
    
    FINANCING ACTIVITIES:Net change in inter-company long-term debt
    
    
    22,221
    
    
    
    (62,949
    )
    
    
    (62,231
    )Net cash provided by (used in) financing
activities
    
    
    22,221
    
    
    
    (62,949
    )
    
    
    (62,231
    )NET (DECREASE) INCREASE IN CASH
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, at end of year
    
    $
    
    
    
    $
    
    
    
    $
    
   (1)
  All transactions between RCC
Minnesota, Inc. and the parent are transacted via intercompany note
transactions. Cash is not held by RCC Minnesota, Inc. The activity
herein reflects all such activity as if it were transacted in cash. The accompanying notes are an integral part of these financial statements. F-45




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RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION) NOTES TO FINANCIAL STATEMENTS Background and Basis of Presentation: RCC Licenses, Inc., a wholly-owned subsidiary of Rural Cellular Corporation (RCC), was
incorporated in 1997. In July 1998, RCC Licenses, Inc. changed its name to RCC Minnesota, Inc.
(RCCM). RCCMs operations are subject to the applicable rules and regulations of the Federal
Communications Commission (FCC). Since inception, this subsidiary has not engaged in any business
activity other than acquiring and holding FCC licenses and conducting business activities
incidental to holding and acquiring FCC licenses. The financial statements of RCCM are presented to comply with the requirement under Rule 3-16 of
Regulation S-X of the Securities and Exchange Commission to provide financial statements of
affiliates whose securities collateralize registered securities if certain significance tests are
met. History of RCC Minnesota, Inc. 1) The following reflects the history of RCC Licenses, Inc. founded in 1997 and renamed RCC
Minnesota, Inc. in 1998:  
    October 1997, RCC assigned its cellular licenses in its Midwest
region to RCC Licenses, Inc.
    July 1998, RCC Licenses, Inc. changed its name to RCC Minnesota,
Inc.
    December 2000, RGI Group, Inc., Western Maine Cellular, Inc., RCC
Holdings, Inc., and MRCC, Inc., wholly-owned subsidiaries of RCC, assigned
certain licenses to RCCM. Management agreements between RCCM and RCC operating
subsidiaries commenced on December 1, 2000.
    January 2001, Star Cellular, a wholly-owned subsidiary of RCC, was
acquired by RCC and assigned certain licenses to RCCM.
    February 2001, RCCM entered into an agreement to sell its 10MHz PCS
licenses in its Northwest region.
    October 2003, RCCM acquired 1900 MHz spectrum from AT&T Wireless
Services, Inc. (AWE) and one of its affiliates.
    March 2004, RCCM exchanged certain wireless properties with AWE.
Under the agreement, RCCM sold to AWE its Oregon RSA 4 license. RCCM received
from AWE licenses in Alabama and Mississippi. In addition, RCCM received from
AWE unbuilt PCS licenses covering portions of RCCs South, Midwest, and
Northwest regions.
    May 2004, RCC Holdings, a wholly-owned subsidiary of RCC, assigned
licenses in its Alabama and Mississippi markets to RCCM.
    November 2004, RCCM acquired additional 1900 MHz PCS licenses, which
cover selected areas in its Midwest and Northwest regions. F-46




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Principles of Presentation The financial statements include all of the accounts of RCC Minnesota, Inc., a wholly-owned,
license-only subsidiary of Rural Cellular Corporation. The financial information included herein may not necessarily be indicative of the financial
position, results of operations or cash flows of RCCM in the future or what the financial position,
results of operations or cash flows would have been if RCCM had been a separate, independent
company during the periods presented. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States 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 revenue and expenses during the reported
periods. Ultimate results could differ from those estimates. 2) Summary of Significant Accounting Policies: Revenue Recognition  License management revenue RCCM recognizes inter-company management revenue based upon agreements with RCCs other operating
subsidiaries, which have assigned all or a portion of their licenses to RCCM. This allocation is
based on 85% of the respective subsidiarys operating income (excluding impairment charges)
relating to such assigned licenses. Effective January 1, 2005, RCCM entered into new agreements with RCCs other operating subsidiaries
to amend the method used by RCCM to charge license management fees. Pursuant to the new
agreements, RCCM will charge each of the other operating subsidiaries a fixed monthly amount for
the use of the licenses based on a detailed transfer pricing analysis conducted by RCC. Expense Recognition Corporate management expense.RCCM recognizes an inter-company corporate management charge in
accordance with an agreement with RCCs other operating subsidiaries reflecting a proportionate
share of RCCs operating expenses. The allocation to RCCM is based on relative revenues. Other operating expenses.RCCM recognizes other operating expenses, including costs directly
related to legal and FCC license renewal fees. Interest expense.In the year ended December 31, 2004, RCCM recognized inter-company interest
expense using a rate equal to the weighted average rate of RCCs total external debt, including
preferred securities. F-47




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Income Tax Provision The income and expenses of RCCM are included in the consolidated federal income tax return of Rural
Cellular Corporation and Subsidiaries. Any tax benefit or provision generated by RCCM from such
inclusion in Rural Cellular Corporation and Subsidiaries consolidated federal income tax return is
accounted for in taxes payable and deferred tax accounts. For financial reporting purposes, the
income tax provision or benefit of RCCM has been computed as if it had filed separate federal and
state income tax returns. RCCM uses the asset and liability approach to account for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the expected future tax consequences of
differences between the carrying amounts of assets and liabilities and their respective tax basis
using enacted tax rates in effect for the year in which the differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Changes in valuation allowances from period to period
are included in our tax provision in the period of change. Licenses RCCM holds licenses either granted to it by the FCC, received through acquisition, or assigned to
it from Rural Cellular Corporations other subsidiaries. The valuation of RCCMs licenses reflects
their original acquisition cost adjusted by subsequent impairment adjustments as determined by the
application of Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations,and SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142). The changes in carrying amount of licenses are as follows (in thousands): Years Ended December 31,2004
    
    
    2003Beginning of year
    
    $
    356,075
    
    
    $
    411,368Acquisitions
    
    
    14,526
    
    
    
    7,200Impairment of assets
    
    
    (24,307
    )
    
    
    (28,318
    )License held for sale
    
    
    
    
    
    
    (34,175
    )Assigned from RCC wholly-owned subsidiary
    
    
    98,804
    
    
    
    End of year
    
    $
    445,098
    
    
    $
    356,075
 RCCM is a wholly-owned subsidiary of RCC and applies SFAS No. 142, in evaluating license
impairment. Impairment tests for indefinite-lived intangible assets, consisting of FCC licenses,
are required to be performed on an annual basis or on an interim basis if an event occurs or
circumstances change that would indicate the asset might be impaired. In accordance with Emerging
Issues Task Force (EITF) No. 02-7, Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets,impairment tests for FCC licenses are performed on an aggregate
basis by reporting unit. RCCM utilizes a fair value approach, incorporating discounted cash flows, to complete the
test. This approach determines the fair value of the FCC licenses, using start-up model assumptions
and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the
development of distribution channels, and other inputs for making the business operational. These
inputs are included in determining free cash flows of the reporting unit, using F-48




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##### Table of Contents



assumptions of weighted average costs of capital and the long-term rate of growth for the reporting
unit. RCCM believes that its estimates are consistent with assumptions that marketplace
participants would use in their estimates of fair value. If any of the assumptions were to change,
FCC licenses may become impaired. RCC as a consolidated entity also tests for impairment as required under SFAS No. 142. This is done
at the lowest reporting level for which identifiable cash flows exist. Under this guidance RCC has
identified four separate reporting units. RCCM owns and manages the licenses used in the operation
of these four reporting units. The testing required by SFAS No. 142 at the RCC level resulted in
license impairments of $24.3 million for 2004, none for 2003 and $79.2 million for 2002 on licenses
held by RCCM. In connection with the property exchange with AWE, RCCM recorded a $28.3 million non-cash
impairment charge on assets held for sale in the third quarter of 2003. (See Note 3) Inter-company debt: RCC funds RCCM through an inter-company note. The note balance adjusts as RCCM earns revenue and
recognizes expense or as licenses are acquired or sold. Interest is computed monthly and is added
to the note balance. 3) License Held for Sale: License Held for Sale.In October 2003, RCC entered into a definitive agreement with AWE to
exchange certain wireless properties. This transaction closed on March 1, 2004. Under the
agreement, RCCM sold to AWE its license in Oregon RSA 4, covering 226,000 POPs. RCCM received from
AWE licenses in Alabama and Mississippi covering 754,000 total POPs. In addition, RCCM received
from AWE unbuilt PCS licenses covering portions of RCCs South, Midwest, and Northwest regions that
incorporate 1.1 million incremental POPs. The exchange of licenses with AWE was accounted for as a purchase and a sale by RCCM. RCCMs
balance sheet as of December 31, 2003 reflects the licenses to be sold as licenses held for sale in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The
results of operations of the licenses to be sold continued to be presented as continuing
operations. In connection with this transaction, RCCM recorded an impairment charge on licenses
held for sale of $28.3 million. Upon closing, no further charge to operations was taken and RCCM
received licenses from AWE with a fair value of $13.8 million. The purchase price allocation has
been completed using the purchase method under SFAS No. 141,
Business Combinations. F-49




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##### Table of Contents



4) Income Taxes: RCCMs reconciliation of income tax computed at the U.S. federal statutory rate to the income tax
benefit recorded in its financial statements was as follows: Years Ended December 31,2004
    
    
    2003
    
    
    2002Tax at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes
    
    
    5.0
    
    
    
    5.0
    
    
    
    3.440.0
    %
    
    
    40.0
    %
    
    
    38.4
    %
 The components of the RCCMs current year income tax provision of $13.1 million consists of
the following (in thousands): Years Ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002CurrentFederal
    
    $
    1,919
    
    
    $
    13,703
    
    
    $
    2,694State
    
    
    281
    
    
    
    1,958
    
    
    
    3852,200
    
    
    
    15,661
    
    
    
    3,079DeferredFederal
    
    
    9,495
    
    
    
    986
    
    
    
    (26,333
    )State
    
    
    1,356
    
    
    
    85
    
    
    
    (2,257
    )10,851
    
    
    
    1,071
    
    
    
    (28,590
    )Total
    
    $
    13,051
    
    
    $
    16,732
    
    
    $
    (25,511
    )
 The income tax effect of the items that create deferred income tax assets are as follows: As of December 31,(in thousands)
    
    2004
    
    
    2003Deferred income tax assets:Intangible assets
    
    $
    9,905
    
    
    $
    20,756Total deferred income tax assets
    
    $
    9,905
    
    
    $
    20,756
 In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. F-50




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Document3.1(a)
    
    Articles of Incorporation
    
    [1]3.1(b)
    
    Amendment to Articles of Incorporation effective March 24, 2000
    
    [1]3.2(a)
    
    Amended and Restated Bylaws
    
    [1]3.2(b)
    
    Amendment to Amended and Restated Bylaws effective March 22, 2000
    
    [1]4.1(a)
    
    Indenture dated March 25, 2004, between Rural Cellular Corporation, as Issuer, and U.S. Bank National
Association, as trustee, with respect to the senior secured notes, including the forms of Senior Secured
Notes.
    
    [2]4.1(b)
    
    Collateral Agreement dated as of March 25, 2004, made by Rural Cellular Corporation and each of its
subsidiaries that are signatories in favor of U.S. Bank National Association, as Collateral Trustee.
    
    [2]4.2
    
    Indenture dated August 1, 2003 between Rural Cellular Corporation, as Issuer, and U.S. Bank National
Association, as Trustee, with respect to the 9 7/8% Senior Notes Due 2010, including the form of 9 7/8%
Senior Notes Due 2010
    
    [3]4.3
    
    Indenture dated January 16, 2002 between Rural Cellular Corporation, as Issuer, and Wells Fargo Bank
Minnesota, N.A., as Trustee, with respect to the 9 3/4% Senior Subordinated Notes Due 2010, including
form of 9 3/4% Senior Subordinated Notes Due 2010
    
    [4]4.4
    
    Indenture dated May 14, 1998 between Rural Cellular Corporation, as Issuer, and Norwest Bank Minnesota,
N.A., as Trustee, with respect to the 9 5/8% Senior Subordinated Notes Due 2008, including form of 9 5/8%
Senior Subordinated Notes Due 2008
    
    [5]4.5
    
    Certificate of Designation of 11 3/8% Senior Exchangeable Preferred Stock
    
    [5]4.6
    
    Certificate of Designation of 12 1/4% Junior Exchangeable Preferred Stock
    
    [1]4.7(a)
    
    Class A Share Rights Agreement dated April 30, 1999
    
    [6]4.7(b)
    
    Amendment to the Class A Share Rights Agreement dated March 31, 2000
    
    [7]4.8(a)
    
    Recapitalization Agreement dated October 31, 1999 by and between Rural Cellular Corporation and Telephone
and Data Systems, Inc.
    
    [8]4.8(b)
    
    First Amendment to Recapitalization Agreement dated October 31, 1999 by and between Rural Cellular
Corporation and Telephone and Data Systems, Inc.
    
    [8]4.8(c)
    
    Second Amendment to Recapitalization Agreement dated October 31, 1999 by and between Rural Cellular
Corporation and Telephone and Data Systems, Inc.
    
    [8]4.8(d)
    
    Registration Rights Agreement dated March 31, 2000 by and between Rural Cellular Corporation and
Telephone and Data Systems, Inc.
    
    [8]4.8(e)
    
    Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other
Special Rights, Qualifications and Restrictions of Class T Convertible Preferred Stock of Rural Cellular
Corporation
    
    [8]4.9(a)
    
    Preferred Stock Purchase Agreement dated April 3, 2000 among Rural Cellular Corporation, Madison Dearborn
Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P., Special Advisors Fund I, LLC,
Boston Ventures Limited Partnership V and Toronto Dominion Investment, Inc. (collectively Class M
Investors)
    
    [8]4.9(b)
    
    Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other
Special Rights, Qualifications and Restrictions of Class M Redeemable Voting Convertible Preferred Stock
of Rural Cellular Corporation
    
    [8]4.9(c)
    
    Registration Rights Agreement dated April 3, 2000 among Rural Cellular Corporation and Class M Investors
    
    [8]10.1(a)
    
    Credit Agreement dated as of March 25, 2004 among Rural Cellular Corporation, Lehman Commercial Paper,
Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent.
    
    [2]10.1(b)
    
    Guarantee and Collateral Agreement dated as of March 25, 2004 among Rural Cellular Corporation, Lehman
Commercial Paper Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent.
    
    [2]10.1(c)
    
    Intercreditor Agreement, dated as of March 25, 2004, among Lehman Commercial Paper Inc., as Senior Agent
and Account Agent, U.S. Bank National Association, as Indenture Trustee and Collateral Trustee, Rural
Cellular Corporation, a Minnesota corporation, and the Guarantors.
    
    [2]*10.2
    
    1995 Stock Compensation Plan, as amended to date
    
    [9]*10.2(a)
    
    Form of Restricted Stock Award Agreement pursuant to 1995 Stock Compensation Plan.*10.3
    
    Stock Option Plan for Nonemployee Directors, as amended to date
    
    [10]*10.4(a)
    
    Employment Agreement with Richard P. Ekstrand effective January 22, 1999
    
    [11]*10.4(b)
    
    Amendment to Employment Agreement with Richard P. Ekstrand effective January 1, 2001
    
    [12]*10.4(c)
    
    Second Amendment to Employment Agreement with Richard P. Ekstrand effective July 24, 2001
    
    [13]*10.4(d)
    
    Third Amendment to Employment Agreement with Richard P. Ekstrand effective August 23, 2001
    
    [13]*10.4(e)
    
    Fourth Amendment to Employment
Agreement with Richard P. Ekstrand effective February 27, 2003
    
    ****10.5(a)
    
    Employment Agreement with Wesley E. Schultz effective January 22, 1999
    
    [11]*10.5(b)
    
    Amendment to Employment Agreement with Wesley E. Schultz effective January 1, 2001
    
    [12]*10.5(c)
    
    Second Amendment to Employment Agreement with Wesley E. Schultz effective July 24, 2001
    
    [13]*10.5(d)
    
    Third Amendment to Employment Agreement with Wesley E. Schultz effective August 23, 2001
    
    [13]*10.6(a)
    
    Employment Agreement with Ann K. Newhall effective February 6, 1999
    
    [14]*10.6(b)
    
    Amendment to Employment Agreement with Ann K. Newhall effective January 1, 2001
    
    [12]*10.6(c)
    
    Second Amendment to Employment Agreement with Ann K. Newhall effective July 24, 2001
    
    [13]*10.6(d)
    
    Third Amendment to Employment Agreement with Ann K. Newhall effective August 23, 2001
    
    [13]*10.7(a)
    
    Change of Control Agreement with David Del Zoppo effective January 2, 2001
    
    [12]*10.7(b)
    
    Amendment to Change of Control Agreement with David Del Zoppo effective July 24, 2001
    
    [13]*10.8(a)
    
    Key Employee Deferred Compensation Plan
    
    [15]*10.8(b)
    
    Amendment to Key Employee Deferred Compensation Plan
    
    [16]*10.9
    
    Management Incentive Plan
    
    [17]**10.10
    
    CRM and Billing Managed Services Agreement dated February 5, 2004, between Rural Cellular Corporation and
Amdocs Software Systems Limited.
    
    [2]
 F-51




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##### Table of Contents



Exhibit No.
    
    Document**10.11(a)
    
    Master Purchase Agreement dated March 14, 2002 by and between Rural Cellular Corporation and Ericsson Inc.
    
    [18]**10.11(b)
    
    Addendum dated August 4, 2003 to Master Purchase Agreement
    
    [18]**10.12(a)
    
    Intercarrier Multi-Standard Roaming and Colocation Agreement by and between Cingular Wireless LLC and
Rural Cellular Corporation effective June 6, 2003 (Roaming Agreement)
    
    *****10.12(b)
    
    Amendment No. 1 to Roaming Agreement
    
    ***21
    
    Subsidiaries of Registrant
    
    ***23.1
    
    Consent of Deloitte & Touche LLP
    
    ***23.2
    
    Consent of Deloitte & Touche LLP
    
    ***31.1
    
    Section 302 Certification Sarbanes-Oxley Act of 2002
    
    ***31.2
    
    Section 302 Certification Sarbanes-Oxley Act of 2002
    
    ***32.1
    
    Certification of principal
executive officer and principal financial officer
    
    ***
   [1]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.[2]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.[3]
    
    Filed with Report on Form 10-Q for quarter ended June 30, 2003, and incorporated herein by reference[4]
    
    Filed as an Exhibit to Report on Form 10-K for year ended December 31, 2001, and incorporated herein by reference[5]
    
    Filed as an exhibit to Registration Statement on Form S-4 (SEC No. 333-57677), filed June 25, 1998, and incorporated herein
by reference.[6]
    
    Filed as an exhibit to Registration Statement on Form 8-A filed May 19, 1999 and incorporated herein by reference.[7]
    
    Filed as an exhibit to Registration Statement on Form 8-A/A-1 filed April 18, 2000 and incorporated herein by reference.[8]
    
    Filed as an exhibit to Report on Form 8-K dated April 1, 2000 and incorporated herein by reference.[9]
    
    Filed with definitive Proxy Statement for 2000 Annual Meeting on April 7, 2000 and incorporated herein by reference.[10]
    
    Filed with definitive Proxy Statement for 2002 Annual Meeting on April 8, 2002 and incorporated herein by reference.[11]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.[12]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.[13]
    
    Filed as an exhibit to Report on Form 10-Q/A for the quarter ended September 30, 2001, and incorporated herein by reference.[14]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.[15]
    
    Filed as an exhibit to Report on Form 10-Q/A for the quarter ended June 30, 2001, and incorporated herein by reference.[16]
    
    Filed as an exhibit to Report on Form 10-K for year ended December 31, 2002, and incorporated herein by reference[17]
    
    Filed with definitive Proxy Statement for 2001 Annual Meeting on April 9, 2001, and incorporated herein by reference.[18]
    
    Filed as an exhibit to Report on Form 10-K/A for the year ended December 31, 2003, and incorporated herein by reference.*
    
    Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form.**
    
    Portions of this exhibit have been omitted and filed separately with the Secretary of the Securities and Exchange
Commission pursuant to Registrants request for confidential treatment of such information under Rule 24b-2 of the
Securities Exchange Act of 1934.***
    
    Filed herewith. F-52